Marketers are continually developing new tactics to market their goods and services online. The world of digital advertising never sits still for long, and they need to keep up with fast-evolving consumer demands and ever-changing advertising platforms to meet their target audience where they are. One of these fields is performance marketing.
What is performance marketing?
In digital advertising, performance refers to the results you see from your campaigns: it's essentially how well your ads are meeting your goals, whatever they are.
The heart of performance marketing focuses on measurable results. These results can be measured by a number of things, for example:
- App installs
- Page clicks
- Ad views
- White paper downloads
- Social media engagement
- Sales
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 focused 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:
- Efficiency-focus: Efficiency is at the core of performance marketing. It means making the right bets and optimizing channels and campaigns to the max. The aim of performance marketing is to turn your investment into revenue, so that every cent invested generates returns.
- Boosted-Brand Awareness: Because you will be focusing on reaching the correct audience and letting them now your brand is out there, brand awareness is a natural by-product of performance activities.
- 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
- Videos
- Connected TV advertising
- Blog posts
- Partnerships with advertisers
- Display advertising
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.
Don't miss out on our Growth Manager Alex's expert insights in this video, where he breaks down the essentials of Performance Marketing:
Performance marketing terms to know
Traditionally, measurable return on investment (ROI) was key to analyzing the success of a digital marketing campaign. But increasingly, marketers are using Marketing Efficiency Ratio or MER to evaluate marketing efforts more accurately.
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 digital marketing campaign based on the cost of each successful action.
An action is anything that you want to optimize your campaigns to. For example, it 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 in digital marketing 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)
In a Cost-Per-Click (CPC) performance marketing approach, you, the advertiser, pay for each click on your ad. Although CPC can sometimes be a pricier strategy in performance marketing, it often brings a higher Return on Investment (ROI) compared to other digital marketing methods.
It's also important to note that you can set a daily spending limit for your campaigns. This way, you can ensure you're not exceeding your budget. Once your daily limit is reached, the platform will stop displaying your ad to your audience, preventing any unexpected costs. This makes CPC a flexible and manageable part of your digital marketing strategy.
CPM (cost per mille)
Cost per mille is the cost per one thousand impressions. This metric tells marketers how expensive a channel or audiences is, and helps clarify reach and efficiency of a particular channel or campaign.
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:
- Build website traffic
- Boost engagement
- Lead generation
- Drive sales
In order to set the right goals, you first need to understand your market and the situation your company is in. Does your audience know your brand? Then you can focus on generating leads or driving sales. But, if your brand does not have a large following yet, it may be smart to first do a campaign to drive awareness for the brand.
Marketing professor Mark Ritson speaks about this in his column for MarketingWeek:
"I’ve trained thousands of marketers and the best part is watching them realize that diagnosis feeding strategy, which then feeds tactics, is the way it was always meant to have been done."
Try to take this into account when creating your performance marketing plan.
Choose your channels
Once your goals are set, you’ll need to choose the performance marketing channels you want to use. Using more than one marketing 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.
- Design effective creatives
Once you have done that, it's time to go live with your digital marketing campaign!
Measure performance
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 adjust your marketing strategy and focus more of your spend on those top performers.
Iterate
There is an ongoing relationship between measurement and iteration. Performance marketers need to regularly review campaign progress and make changes where necessary.
Are there keywords that are too expensive and don't return anything? Are there any cohorts of people that are over-performing? Are your creatives performing as you wanted them to? Look into the data, and take action to get the most from your campaigns.
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 their digital 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.
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Affiliate marketing is one type of performance marketing.
Affiliate marketing is the purest form of performance based advertising. Businesses can partner with review sites, coupon sites, or influencers and bloggers as their affiliate partners. The commission an affiliate partner receives is often a percentage of the sales price. Affiliate networks can be used as an independent party, to track conversions and arrange payouts.
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 channel used by performance marketers.
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.
If you’re setting up Google Ads (or other search marketing), don’t forget to check out this blog and learn how to optimize your headlines.
Is SEO a part of performance marketing?
Although SEO (search engine optimization) can contribute to marketing performance, I don't see it as a performance marketing channel. Instead, SEO is a way to optimize and distribute content by working to get high positions in search engines' organic results, rather than using paid advertising.
One thing to consider with investing in SEO is that it could give your performance marketing campaign cheaper clicks. As trust is built with SEO content, the advertising platform will see your site as high quality, lowering the price per click.
3. Social media marketing and advertising
Seventy-two percent of Americans use at least one social media platform, so it’s a no-brainer for brands to use it as part of their digital marketing efforts. Using social media advertising to drive traffic and bolster brand awareness is another popular performance marketing tactic. 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 marketing companies 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. Display ads can be targeted to specific demographics, locations, and even based on users' browsing history.
What is native advertising?
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, links that look like news articles on a news site, but link out to product or brand websites. Native advertising is not as intrusive as some other forms of display advertising, which is why many people prefer to use this as part of their digital marketing over large banners or pop-ups.
It’s important to be mindful that while display can be successful for performance. It is harder to attribute conversions to display ads, so they are more often used for branding as they can boost brand awareness.
Performance marketing examples
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 performance 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 online marketing 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 across various advertising platforms. 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.
Content marketing foundations
Performance marketing is all well and good, but it’s not the whole picture – see it rather as the tip of the iceberg. The job of a performance marketer is helped a lot by a strong brand that’s unique and identified by the target audience. Strong content marketing truly connects with the audience, talking to their pains and desires.
Try thinking of marketing as a restaurant. The brand is making sure people know your restaurant name. The content marketing is in the kitchen, creating delicious food people love, and always expanding the menu. The performance team is out in the street making sure people know your restaurant has all the food they want and that it's the best in town.
Another way of putting it is to split it into two categories: Demand Generation and Demand Capture.
Brand and content marketing are focused on demand generation. They help your business to grow by increasing the amount of demand for the problem you solve. There are a lot of people that have a problem and they don't know they have it. Content is talking about those pain points and helping them realize they exist and that it could be better.
Performance marketing is all about demand capture. Once people understand they have a problem that needs to be solved, performance is putting your brand in front of them so they choose your product to solve it.
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.
Change targeting
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 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 audience to get down to business and take the intended action. For this reason, many companies don't show their main navigation menu and footer on conversion-focussed landing pages.
Tip: make sure your landing page experience is good for all users, even if they visit the page from older mobile devices or unusual browsers.
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 $15 and the cost per click of a display campaign is $3, 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 a performance marketing strategy of your own.
Video series: The future of performance marketing
As the digital landscape continues to evolve, so does the world of performance marketing. To help you navigate these changes and stay ahead of the curve, we've created a video series titled 'The Future of Performance Marketing'. In this series, our expert performance marketer, Tomás Albrecht, delves into the big shifts occurring in performance marketing and offers valuable insights on how to adapt in this changing environment. Whether you're a seasoned marketer or just starting out, these videos are packed with insights and tips to enhance your performance marketing efforts.
Watch the series here and equip yourself with the knowledge to shape the future of your marketing campaigns.
Related reading
If you want to learn even 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.
