Performance Marketing: What Is It and How Does It Work

Before performance marketing strategies emerged, brands could only use hunches to determine whether the ad campaign succeeded enough to increase sales, generate brand awareness, or trigger the desired reaction. Now, performance media marketing helps advertisers achieve almost every goal—a certain number of clicks on the ad, shares, app downloads, and so on.

So, how are performance campaigns different from brand awareness ones, and is there a good reason to use both? 

What is performance marketing?

Let’s start with the performance marketing definition.

Performance marketing is a type of marketing strategy according to which advertisers pay only for the campaign results instead of the amount of work done, time, or effort. It is focused on measurable data and metrics such as clicks, downloads, and the number of conversions.

This kind of marketing has its own tools and technologies to achieve particular KPIs and provide measurable results. Performance marketing networks (CPA networks), social media promotion, native advertising, SEM, and programmatic media buying can all work as channels for performance marketing campaigns. Read more about performance advertising and its specifics. 

Why do performance campaigns gain momentum?

Typically, the client comes to the agency with one purpose – to increase sales at minimal investment. Still, it often turns out that after a few months of cooperation with the vendor, the advertiser ends up with little to no results from launching ad campaigns. The vendors, meanwhile, don’t have access to performance data on the client’s side to compare the results, make conclusions, and change the campaign course. In such a situation, it is hard to assess the true quality of the vendor’s work.
Because of this problem, brands started looking for different payment concepts that would guarantee measurable results - sales, subscriptions, registrations, traffic, clicks - depending on the goals they set.

How does performance marketing work?

Advertisers define goals and then handle them to marketers or advertising companies who are supposed to achieve them. This way, media buyers pay only for achieved results instead of general ad impressions. You can start a performance campaign on a platform like Meta, Google, or the best programmatic advertising platforms.

For example, you register on the platform as an advertiser, define the budget, and choose your advertising model (pay-per-click (PPC) advertising is one of the most popular models). You start targeting particular keywords that are relevant to your business.

Benefits of performance marketing

Measuring results provides objective, concrete data on a marketing campaign's effectiveness - number of clicks, app installs, leads, registrations, and so on. This is the biggest benefit of performance campaigns. This approach helps avoid subjective judgments, allowing decisions to be based on actual performance metrics. In addition to this, there are more benefits to watch for:

Cost optimization

With the ability to measure and analyze specific indicators, marketers can identify the most profitable channels and strategies. This enables companies to optimize their budgets, allocating resources to the most effective solutions.

Target audience

Performance marketing campaigns make it possible to more accurately define the target audience, focusing efforts on attracting users who are most likely to become customers.

Flexibility and quick response

This approach allows marketers to quickly adapt their strategies to changing market conditions and respond promptly to shifts in consumer behavior.

Audience engagement

Measuring results provides insights into how different audience segments interact with marketing efforts. This understanding of customer needs and preferences leads to more targeted and effective campaigns.

How do you measure performance marketing?

Performance marketing networks can work according to the following models:

CPC (Pay per click)

Cost per Click is the amount an advertiser pays for each click on their ad. For example, if a company runs an ad campaign in a search engine and pays $0.50 for each click on its ad, then $0.50 is the CPC for that campaign.

CPS (Cost per sale)

CPS (Cost per Sale) is the amount an advertiser pays for each sale made as a result of an advertising campaign. This cost can be a fixed amount or a percentage of the sale.

CPL (Cost per lead)

CPL (Cost per Lead) is the amount an advertiser pays for each potential customer who shows interest in a product or service by filling out a form on a website or providing contact information for more details.

CPA (Cost per action)

CPA, or Cost per Action, is the amount an advertiser pays for each specific action taken as a result of the ad, such as a registration, subscription, or purchase.

CPI (Cost per install)

CPI, or Cost per Install, is the amount an advertiser pays for each app installation that occurs as a result of their ad. Mobile developers typically choose this option to promote their apps.

Some marketers believe that certain types of performance marketing channels can solve all challenges related to sales stimulation.

However, it can’t be positioned as an alternative to branding because the latest is responsible for completely new demand generation. Performance campaigns are really strong in their ability to convert customers. At the same time, it converts existing customers, and the success of this conversion will largely depend on the brand’s reputation and customer loyalty and engagement (that brand awareness campaigns foster).

Top performance media marketing channels

Сhannels like native advertising, sponsored content, social media, SEM, and affiliate marketing are considered to be the most popular for performance campaigns. 

Native advertising

Now, let’s focus on performance marketing ads. What is native advertising? Native advertising is a type of advertising that organically fits into the content of the site. It is often perceived by visitors as part of the viewed website as it easily replicates its functions, looks, and design. One example of native advertising you've probably already stumbled upon is a native Facebook video, which initiates by default without any clicks required.

This format is now increasingly popular because the cost per view is quite low, competition is low, and the reach is high. Such native ad formats like banners and text-graphic blocks are also popular in digital advertising. Mobile native ad trends are represented by recommendation widgets, in-search ads, and in-feed social ads.

Advantages of native advertising:

• You can publish detailed promo materials featuring photos, videos, links, and other necessary elements.
• Native ads don’t irritate the users and don’t cause advertising fatigue, as well as a problem with banner blindness.
• Native ads are very engaging as they deliver useful information to the users. As a result, native ads end up being the most reposted and shared format among others.
• Native ads often overcome ad blockers.
• Native posts can complement the overall content marketing strategy for publishers.

How to choose your format for a performance campaign?

If you strive to increase reach and brand awareness, choose native display. If you need engagement, opt for sponsorship content. Native advertising can work well at the bottom of the sales funnel, namely in the conversion phase. For this, it should be used in conjunction with personalization according to user interests.

Modern DSP platforms can help advertisers connect external data sources to implement such campaigns. Native formats' high efficiency increases campaign performance, plus they significantly reduce the cost per lead. Native ads generate much better user loyalty and trust, which translates into much higher CTR.

Measuring native campaigns

Specialized native performance marketing platforms and average DSP platforms can generate performance statistics for native ads in real-time. On DSP, advertisers can select custom metrics and craft reports according to their own needs: clicks, impressions, eCPM, CTR, and so forth. 

Sponsored content

Performance marketing is a marketing strategy that sponsored content can relate to. It is a comprehensive term that refers to articles, videos, images, and any other form of content the creation of which can be commissioned to the publisher.

Sponsored content stimulates a nonintrusive, valuable user experience on-site. To a certain extent, sponsored articles can also be considered a form of native advertising as they provide useful content with advice, tips, and stories that contain hidden advertising—usually a reference with a link that leads to the landing page with the mentioned product or service.

Advantages of sponsored content

• The least intrusive type of advertising.
• Sponsored content drives loyal traffic and very high conversion rates.
• Sponsored content gets reposted, saved, and actively shared by readers.
• With native articles, brands can build a better brand image through constant communication with customers.

How to create sponsored content

Sponsored articles can work wonders for online marketing and advertising campaigns. For this, an advertiser should find a publisher whose site corresponds to the theme of the advertised product. That is a sure way to hit the targeted audience and guarantee message relevance. Then, the advertiser negotiates with publisher collaboration terms. The publisher produces a certain number of articles and publishes them on-site for a negotiated payment.

Measuring sponsored content

Track conversions from branded content using Google Analytics. Accurate data tracking (which Campaign URL Builder helps a lot with) will also help you to select the content that generates a powerful flow of traffic to the landing page (should be negotiated with website publishers).

Social media

Social media advertising is actively used in online performance marketing. In some cases, brands create whole stores right inside the social media public. Advertising on social media has marched far beyond placing ad messages in specialized publics and communities. Performance social campaigns can be successfully implemented with influencers.

Best practices for social campaigns

Firstly, ad units placed on social media should be relevant to the targeted audience. Secondly, the influencer should have sufficient active followers and subscribers. The more likes and reposts the public generates, the more conversions you can expect.

Plus, always keep an eye on the new social advertising opportunities. For instance, Facebook recently launched leads ads - a lead purchasing option for advertisers (collects user data without redirection to any external page). 

Measuring social media campaigns

Online performance marketing has known SEM for a long time. In fact, it has been used by performance marketing professionals for decades, and that’s why Google’s profits from advertising now count to billions of dollars. SEM refers to online marketing methods because the purpose is to encourage clicks via organic search or PPC ad campaigns (which we will talk about).

Marketing professionals should carefully consider the choice of the words associated with their brand, this way they will be apple to select the right keywords that complement their advertising strategy.

Search engine marketing

Online performance marketing has known SEM for a long time. In fact, it has been used by performance marketing professionals for decades, and that’s why Google’s profits from advertising now count to billions of dollars. SEM refers to online marketing methods because the purpose of it is to encourage clicks via organic search or PPC ad campaigns (which we will talk about).

Marketing professionals should carefully consider the choice of the words associated with their brand, this way they will be apple to select the right keywords that complement their advertising strategy.

Best practices for search engine marketing

SEM functions on the basis of real-time auction, which is very similar to programmatic ad buying. Every time the user enters the search query, the auction is initiated on the search result page. Based on selected keywords, advertisers participate in this auction, which automatically determines whose bid for the click is highest and, thus, who wins.

The crucial part of your SEM strategy success will depend on the keywords and their structuring. In order to find the right keywords, just enter a word that is associated with your product or service in a keyword search tool like Google Keyword Planner, Ahrefs, Semrush, etc. The perfect keyword for eCommerce should have commercial intent, sufficient frequency, and low competition. Logical keyword structuring will also help your campaign achieve better click-through rates and performance.

Measuring SEM campaigns

There are traffic-based metrics like CTR and clicks. Conversion-based metrics like conversion and cost per conversion. ROI, and finally, your most productive keywords — all of them you should analyze during the campaign. To see this data in the Google ads reports, you should link your Google ads to the Google Analytics account.

Affiliate marketing

Performance marketing examples can include affiliate marketing. Affiliate marketing is a form of agreement between publisher and advertiser in which the publisher guarantees to provide traffic or sales to the advertiser in exchange for a commission. For this, publishers usually place ads or links on their websites. For each click or sale made on their website, publishers get payment.

For now, affiliate marketing drives almost the same number of orders in eCommerce as email marketing. Publishers often incorporate the offers in the content organically in the form of links in order to keep the user experience consistent and unintrusive.

Best practices for affiliate marketing

One way to tap into affiliate marketing is to search for affiliate marketing and advertising programs manually. The other, more optimal way is to use an affiliate platform that can position itself as a performance marketing network.

Performance marketing networks can connect advertisers and publishers so that they can find each other and establish strict collaboration details like payout terms, size, etc. (which can be guaranteed by the platform). Examples of affiliate marketing networks include platforms such as Everflow, Post affiliate pro, Link Trust, Cake, and so on.

Measuring affiliate marketing

To measure your affiliate marketing campaign, select some measurable metrics according to which it functions: click-through rate and number of sales. You can measure ROI, conversion rate, number of leads, traffic volumes, and other metrics on affiliate marketing platforms that generate performance reports automatically for suitable periods.

The challenges of performance marketing

Launching performance campaigns can be challenging because of several factors that should be taken into account:

High competition

Campaigns oriented on generating conversion leads and other measurable user actions are normally more expensive than awareness campaigns since you pay for results. Plus, the more competitive your business niche is, the higher will be the price for competing in the same keyword niches.

Algorithms change

Google frequently changes its search algorithms, impacting the effectiveness of ad campaigns that utilize search queries. For this reason, campaigns massively migrate to over-the-top advertising medium.

Quality of leads

Yes, with performance campaigns, you get measurable results, such as a certain number of leads who clicked on your campaign (for example, in cost per lead campaigns). Still, there is no guarantee that those leads will make a purchase.

Limited reach

In CPC, you pay per all the clicks on your ad, while with CPM, you pay per 1000 impressions, no matter how many clicks your creative generates within this time frame. Can it be the 1000 clicks that your creative generates? Depends on how catchy your offer is. Once you reach the desired count of clicks you paid for in the CPC campaign (let’s say 50), your campaign stops, whereas the CPM campaign will run until 1000 impressions are served, generating more reach and, in some cases, clicks. 

To sum up

Performance marketing strategies take a special approach to promotion because they entail calculating and analyzing key campaign metrics according to what has been achieved. At the same time, performance marketing strategies work better when your customers are already familiar with your brands and products. Thus, prior to starting a performance marketing campaign of this type, make sure to invest your budget in an awareness campaign as well.

Programmatic advertising platforms can help you automate brand awareness based on the CPM model so that you can run campaigns independently, analyze them in real time, and easily navigate their course.

Broaden your reach with high-impact CPM campaigns. Sign up at SmartyAds DSP.