Statistics show that more than $450 billion was spent on digital advertising in 2021, and that number is only expected to keep climbing. In fact, it’s expected to reach nearly $900 billion by 2026.
Marketers are continually developing new tactics to market their goods and services online to keep up with fast-evolving consumer demands and meet their target audience where they are. One of the rising stars in the digital marketing arena is performance marketing.
Takeaway: Performance marketing is a highly valuable way to boost brand awareness and connect with potential customers.
What is performance marketing?
Performance marketing revolves around results-driven marketing. Instead of paying for marketing services on a monthly or annual basis, the advertiser only pays when the marketing efforts are effective.
Measurable results are at the heart of performance marketing. These results can be a number of things, including:
- App installs
- Page clicks
- Ad views
- White paper downloads
- Social media engagement
This is in contrast to the more traditional forms of marketing where advertisers pay a fee for specific ad placements up front, unrelated to how the ad will perform.
Although it is sometimes used more broadly, a good performance marketing definition you can use is this:
Digital marketing tactics focussed on more short-term results, often on a pay-per-acquisition basis.
What are the benefits of performance marketing?
The most significant benefits of performance marketing include the following:
- Cost-efficiency: Since you’ll only pay for ads that perform, you can better optimize your budget, because there’s no need to spend a bunch of money upfront or commit to spending a certain amount per month. Instead, you’ll only pay when your desired goals have been met.
- Boosted brand awareness: Performance marketing helps you reach new audiences while driving more traffic to your website and social media pages by promoting your brand in strategic places.
- Trackable performance: Performance marketing is easy to measure, letting you see the entire purchasing journey of each buyer. This fully trackable marketing method gives you insight into which strategies you should invest more in and which partners or channels produce the best results.
How does performance marketing work?
Marketers, agencies and publishers collaborate to create and place ads on performance marketing channels, such as:
- Social media
- Search engines
- Connected TV advertising
- Blog posts
The advertisers pay ad platforms based on how well the ad performs in relation to key metrics, such as the number of clicks, impressions, shares, and/or sales.
Performance marketing terms to know
Measurable return on investment (ROI) is key to any successful digital marketing campaign. Performance marketers use the following KPIs to gauge that return on each of their performance marketing campaigns.
CPA (cost per action)
Cost per action measures campaign performance in relation to the specific action you want your audience to take after seeing the ad. You can then break down the cost of your campaign based on the cost of each successful action.
An action can be someone subscribing to a gym membership or buying a product in an online store.
CPL (cost per lead)
Some companies don’t sell products directly in an online shop. Instead, they collect the contact details of potential new clients — a practice that’s becoming increasingly important ahead of the deprecation of the third-party cookie. In that case, they pay marketing service providers for the number of contacts (leads) they receive. Once an advertiser has a lead, they can follow up with the customer to drive the sale.
CPC (cost per click)
With a cost-per-click performance marketing plan, advertisers pay each time someone clicks on an ad. While the cost per click is often an expensive performance marketing strategy, the potential ROI is much higher than other kinds of digital marketing strategies.
How to create a performance marketing strategy
If you’re ready to start reaping the benefits of performance marketing, you can take the following steps to set up your strategy:
Set your goal
The first step is to establish your campaign goal. Without a goal, you will have nothing to strive for or measure against. Some performance marketing platforms even require you to define a goal before you can get started. Some examples of popular digital marketing goals are:
- Increase brand awareness
- Build website traffic
- Boost engagement
- Lead generation
- Drive sales
Choose your channel
Once your goals are set, you’ll need to choose the performance marketing channels you want to use. Using more than one channel is important to broaden your campaign’s reach — and increase your chances for success. Examples of the top performance marketing channels include:
- Affiliate marketing
- Social media
- Search engine marketing
- Display advertising
Launch the campaign
Before you launch your performance marketing campaign, make sure you have done the following things:
- Clearly identified your target audience
- Determined their dreams, desires and fears
- Established a campaign messaging that will grab their attention and inspire them to take the intended action.
Once you did that, go live with your digital marketing campaign!
Here is where those key metrics we discussed earlier come into play again. Use them to track your campaign performance and make any necessary tweaks. The analytics will show you which performance marketing channels are doing the best, allowing you to focus more of your spend on those top performers.
The four most popular performance marketing channels
Marketers are always on the lookout for new channels. Yet in 2023, some of the top performance marketing channels are expected to be:
1. Affiliate marketing
Affiliate marketing is an extremely cost-effective performance marketing channel. This channel uses affiliates to promote a company’s products and services. The affiliate then earns a commission for its marketing efforts. You only pay the affiliate when a consumer completes a specific action, such as making a purchase or signing up for your newsletter.
Is performance marketing synonymous with affiliate marketing?
Some people think that “performance marketing” and “affiliate marketing” are interchangeable since both forms of marketing pay a third party for conversions instead of a flat fee. But it’s important to remember that affiliate marketing is just one type of performance marketing.
Marketing companies can partner with review sites, coupon sites, or influencers and bloggers as their affiliates.
Note that influencer marketing experts work with different payment agreements. One can be a certain amount of money for X posts on Instagram, YouTube, or TikTok. Another type of agreement can be to actually track the number of sales the influencer helps generate, for instance, by giving the influencer a specific coupon code or a specific link to share with their followers.
2. (Paid) search marketing
Paid search engine marketing strategies allow companies to pay search engines, like Google, Yahoo, or Bing, to place their ads on relevant results pages. There are a few different types of campaigns you can conduct with search marketing, including:
- Search ads: Display text ads on search engine result pages (SERPs)
- Shopping ads: Feature details about specific products at the top of a SERP, including a photo of the image and its price.
- Email ads: Yahoo and Google are two search engines that allow brands to display ads on their email services. This targets people based on location and other demographics and keywords they’ve recently searched.
Is SEO a part of performance marketing?
Although SEO can contribute to marketing performance, I don't see it as a performance marketing channel. Instead, SEO is a way to distribute content by working to get high positions in search engines' organic results.
3. Social media marketing and advertising
Seventy-two percent of Americans use at least one social media platform. Using social media to drive traffic and bolster brand awareness is another popular performance marketing strategy. These ads can be placed on TikTok, Facebook, LinkedIn, Instagram, and other social media platforms.
Social media marketing gives users a chance to share your content organically, significantly extending your reach and exposing you to new consumers. Instagram for instance, is an important performance marketing platform in many campaigns.
4. Display advertising
When advertisers pay to have banner ads placed on websites, apps, and social media, it’s known as display advertising. If you’ve visited a website lately, you’ve likely seen various display ads.
One form of display advertising to mention here is native advertising. The term native advertising is used for display ads that look just like the other content on the page or in the app. For instance, a sponsored post on Pinterest looks just like the images shared by users of the platform. Native advertising is not as intrusive as some other forms of display advertising, which is why many people prefer this over large banners or pop-ups.
It’s important to be mindful that while display can be successful for performance, it is more often used for branding.
Always-on vs. campaign sprints
A single performance marketing campaign can run for a short period — for instance, one month. Think of Black Friday ad campaigns, or a specific summer holiday campaigns intended to get people to book their summer holidays early in the year.
But there are also a lot of marketers who believe in an "always on" approach to digital marketing instead. They have performance marketing campaigns running throughout the year. For instance, a SaaS B2B company like Funnel never stops running campaigns to acquire new leads. Most of our performance marketing is always on.
A combined approach to online marketing
Perhaps the best approach to online marketing actually combines campaigns and an always-on approach. This allows you to reap the benefits of both performance campaigns and always-on advertising.
An example of combining these two strategies is an ad for a business that continuously runs. During the busy holiday shopping season, the ad is tweaked or new ads/campaigns are launched to mention additional discounts the company provides to entice holiday shoppers.
How to optimize campaign performance
If your performance marketing campaign isn’t performing as well as you’d like, consider the following tips to optimize the performance of your campaign while ensuring it falls within the performance marketing definition.
If your campaign is falling short, it may be that you’re targeting the wrong audience. Simple tweaks to who you’re targeting can change the trajectory of your campaign entirely. Take a close look at who you’re targeting and why it may not be working, and then make small adjustments to fine-tune or expand your target audience.
Test different landing pages
Landing pages are a crucial element in digital marketing, yet they are often overlooked. A landing page is where people “land” after clicking on an ad. Ideally, your landing pages are standalone web pages created for specific marketing campaigns that focus on one goal or call to action. Your landing page can encourage people to buy a product, subscribe to your newsletter, or download a white paper.
It’s important that your landing page isn’t filled with fluff or unnecessary information and that it gets straight to the point to convince the target audience to get down to business and take the intended action. Many companies don't show their main navigation menu and footer on conversion-focussed landing pages.
Properly testing different landing pages is key to ensuring you get the most out of your marketing dollars. Be sure to conduct regular audits of your website and landing page(s) to catch any problems visitors might run into ahead of time. This will help you avoid unnecessary delays or leads that leave the landing page without being able to perform the intended action.
Change the creative of the ad (the text or display banner)
If your ads aren’t performing, the problem could lie in your creative. Google provides the following advice for effective display ads:
- Use high-quality images to create ads that stand out.
- Make your product or service the focus of the image.
- Make sure your ads and landing page tell the same story, and have the same look & feel
- Don’t use logos on image borders.
- Don’t use text on image borders.
- Consider using rich media to create an interactive element on your display ad.
- Keep your design clean, crisp, and simple.
Again, testing is the key to finding assets that work well for your business.
Allocate your budget differently
If certain campaigns are doing better than others, consider shifting your budget from those that are underperforming to those that are high-performing. The metrics to measure performance marketing campaigns discussed earlier in this article will help you determine which campaigns and tactics are working and which ones are not.
For example, if your aim is to drive web traffic and one paid search campaign has a cost per click of $500 and the cost per click of a display campaign is $30, the advertiser might choose to shift their ad spend away from the expensive paid search campaign and allocate more money to the efficient display channel advertising.
Now that you've found the answer to the question, "what is performance marketing," and you've got a good idea of some performance marketing strategies to help you reach your target audience more efficiently, it's time to get started leveraging performance marketing strategies of your own.
If you want to learn more about digital marketing and performance marketing, there are many related posts on the Funnel blog. For instance, discover how brand marketing and performance marketing are different from each other. Or read why our performance marketer Kathryn thinks ROAS might not be the most important metric to look at.