What Is Performance Marketing and How Does It Work?

by Isabel Greenfield

10 Min Read

Advertising may often feel like a lofty brand awareness play straight out of Emily in Paris. Billboards on the highway or a coveted spot in the Super Bowl. While these efforts are often splashy, it’s hard to quantify what they are actually driving for the business.

Performance marketing is the solution to this problem. Instead of investing a certain amount of money into a campaign and hoping it works, performance marketing flips the marketing narrative on its head. The whole point is that you are paying for the performance of a campaign rather than the campaign itself.

If that sounds like a marketing strategy worth pursuing, read on to learn the ins and outs of this powerful technique.

What Is Performance Marketing?

Performance marketing is a digital marketing strategy in which businesses are only charged an advertising fee based on the performance of their advertising campaign. Although similar in goal, performance marketing is not the same as digital marketing, brand marketing, or growth marketing.

Common examples of performance marketing include:

Pay-per-click (PPC)
Pay-per-impression (PPM)
Pay-per-lead (PPL)
Affiliate

How Does Performance Marketing Work?

Performance marketing offers a unique approach to advertising that ensures advertisers pay only when specific actions are completed. But what steps are involved? Here’s how performance marketing works:

Market Research: This phase is crucial for gathering important data about consumer behavior, market trends, and competitor strategies.
Goal Setting: At this stage, clear and measurable objectives are set, including key performance indicators (KPIs) to track success.
Strategy Formulation: Here, marketers develop a comprehensive plan that aligns with the set goals and the insights gathered from market research.
Campaign Creation: This involves designing compelling ads, choosing appropriate channels, and deciding on targeting parameters for the promotion of products or services.
Tracking & Analytics: This step ensures that the performance of the marketing efforts is consistently monitored and measured against the predefined KPIs.
Optimization: Based on the tracking data, marketers adjust and enhance the campaigns to ensure optimal results and improve ROI.
Scaling: After optimizing, successful campaigns are amplified to reach a broader audience and maximize results.

Benefits of Performance Marketing

One of the greatest benefits of performance marketing is that your marketing team gets to decide exactly how much money to spend and exactly which results you expect for that budget. There are no surprises with performance marketing: You get exactly what you pay for.

Cost-Efficiency: Advertisers only pay for successful transactions, which helps manage the budget and reduces wasteful spending.
Measurable Results: This approach provides concrete, trackable data, making it easier to measure the success of a campaign and refine strategies.
Targeting Capabilities: Performance marketing often involves digital platforms that allow precise targeting, helping to reach the right audience at the right time.
Risk Reduction: Because payment is tied to specific actions, there’s less risk compared to traditional advertising where costs are incurred regardless of the outcome.
Brand Exposure: Performance marketing campaigns increase brand visibility across various channels, contributing to brand recognition and trust over time.
Scalability: With performance marketing, it’s possible to start small and scale up campaigns that perform well, maximizing return on investment.

Performance marketing is great for teams with tight marketing budgets who need to understand the impact of every dollar. It’s often relied on by smaller brands that don’t have robust budgets to test both performance and brand awareness (the type of advertising that isn’t tied directly to outcomes). It allows you to scale your business quickly and receive near-immediate results.

Related: B2B Performance Marketing: Everything You Need to Know

Developing a Performance Marketing Strategy

Although the benefits of performance marketing are easy to see, that doesn’t mean that you should go into a performance marketing campaign without a clear approach. Like any marketing strategy, performance marketing provides the greatest ROI (return on investment) when you spend time planning your campaign, determining your KPIs (key performance indicators), and tweaking your campaign as you begin to see results.

Let’s take a look at how to develop a strong performance marketing strategy.

1. Decide on Your Campaign Message

The first step to any advertising campaign is to know what you’re trying to communicate with your target audience. Are you creating a back-to-school campaign? A holiday sale?

In addition to deciding what you’re trying to say, you should also think about how you want to say it. Consider what images you want to bring to life, or what emotions you want to evoke, and create a powerful campaign message that your target audience can’t help but become invested in.

Typically, a performance marketing campaign will call out a specific action to take, whether that’s to request a demo or to check out a specific new product. Brand awareness creative, on the other hand, may be broader and speak to the values and associated emotions of the brand overall.

2. Plan Your Brand Positioning

Brand positioning is a term that refers to the unique value you provide to a customer. When it comes to a performance marketing campaign, you need to decide how your brand relates to your campaign message and what value you’re providing within the context of that campaign.

Here’s an example: Imagine a company that wants to create a back-to-school campaign. The company sells padlocks.

So what’s the value to the customer? What do padlocks have to do with going back to school?

As the company plans its back-to-school campaign, the brand positioning aspect of its plan would tell them to focus on talking about protecting students’ lockers, keeping their expensive electronics safe, or preventing pranksters from stealing their gym clothes. Suddenly, they don’t just have a campaign–they have a powerful story to tell.

3. Create Performance Targets

How will you decide if your performance marketing campaign was a success? Creating targets, or goals, helps you measure your successes and learn from your failures. KPIs will vary from advertiser to advertiser depending on what they hope to receive from the campaign. Some advertisers may want to use their performance campaign to drive a certain number of leads while others are looking to decrease the cost of acquiring new customers.

4. Know Your Channel Mix

Your channel mix is how you’re going to invest your marketing budget across different marketing channels. These performance marketing channels may include paid search, paid social, or Connected TV advertising. Determine which channels you’re going to use for your campaign and how much money you’re going to allot to each of those channels before you get started.

5. Get Your Website Ready

Since performance marketing is often looking to drive a specific action, your website is an important piece of the equation. Once someone sees your ad and either clicks or Google’s your company, it is now up to your website to drive the action.

What do you need to do to prepare your website for your campaign? Consider things like:

Whether or not you need to create a unique landing page for this campaign
Whether your website and ad campaigns match in feel, tone, imagery, etc. so that a user has a cohesive experience
Whether you want to create any content pieces, like blog posts, to complement your performance marketing campaign
Whether you need to optimize your website’s user experience to ensure ease of use
Whether your website’s servers are equipped to handle a sudden influx of traffic

Getting your website ready before you launch your campaign prevents you from scrambling after the campaign has been launched and missing potential conversions.

6. Create and Launch the Campaign

Once you’ve done all the planning you can, the time has come to create and launch your campaign. This is your marketing team’s opportunity to show off their creativity and ingenuity.

Look for performance marketing channels that make it easy to set up and launch your campaign. A set-up process should roughly follow a 1-2-3 approach:

Select your target audiences (who you want your campaign to reach)
Input the campaign details from the main KPI to budget and flight dates
Upload your creative(s)

From there, you are ready to launch!

7. Measure and Optimize Along the Way

After you’ve launched your campaign, you’ll want to keep an eye on how it performs and manage your budget along the way. Measure its successes against the KPIs you identified when during the planning phase. If you’re not on track to meet those goals, you may need to make adjustments–such as adjusting your target audience or running A/B testing–to improve performance and knock your goals out of the park.

Performance Marketing Channels

Performance marketing isn’t limited to one location. Let’s take a look at some of the top performance marketing channels.

Over-the-Top Advertising

OTT advertising refers to ads delivered to viewers engaging with streaming services. Also known as streaming TV advertising, this video channel has the ability to reach a large audience in a powerful way. Its digital roots have transformed the TV screen, a key brand awareness play in the past, into a performance marketing tool that is fully measurable.

Programmatic Display Advertising

Programmatic display advertising uses automation to buy advertisements in real-time based on a user’s online interactions. This form of smart advertising is great for creating retargeting ads and highly personalized ads.

Social Media Marketing

Social media marketing refers to any performance ads posted on social media channels like Facebook, Instagram, Twitter, YouTube, and TikTok. This can include banner ads, photo ads, and video ads.

Search Engine Marketing (SEM)

Search engine marketing (SEM) refers to the purchase of ads that redirect users to your website’s content through search engines like Google, Bing, and Yahoo.

Measuring Performance Marketing Success

We’ve already discussed the importance of setting goals and choosing metrics to measure performance marketing success. Let’s take a look at some of the top digital marketing metrics and KPIs you may choose to measure during your performance marketing campaign.

Conversion Rate (CR)

A conversion rate (CR) is the average number of customers who take a specific action–such as making a purchase or completing a request form–after interacting with an ad. For example, if you’re running a PPC campaign, your conversion rate would be a percentage of people who take a specific action after the initial click.

Return on Advertising Spend (ROAS)

Your return on advertising spend (ROAS) refers to the total amount of money generated by the cost of the advertising campaign. Similar to calculating a gross income, ROAS gives you an idea of the total amount of money earned from an advertising campaign.

Return on Investment (ROI)

Your return on investment (ROI) looks at the profit generated by a campaign minus the cost of the campaign. Whereas ROAS can be compared to gross income, ROI is closer to net income. It is profit focused rather than income-focused.

Cost per Acquisition (CPA)

Cost per acquisition (CPA) refers to how much it costs your company to acquire a new customer. For example, if you spent $100 on an advertising campaign, and the campaign gained you one new customer, then the CPA for that advertising campaign would be $100.

Customer Lifetime Value (CLV)

Customer lifetime value (CLV) tells you how much each customer earns your brand during the customer’s entire lifetime with your company.

Your CLV can be used in conjunction with other metrics to determine the value of your advertisements. For example, if your CPA for an advertising campaign is $100, but the CLV is $10,000, then it’s obviously worth it to spend a small chunk of money for the future potential of a much larger chunk of money. On the other hand, if your CPA is $100 but the customer is only likely to spend $90 over their life with your company, that’s not worth the investment.

How CTV Helps Performance Marketing

Connected TV (CTV) redefines what advertisers can do with television advertising, combining the sight, sound, and motion of the TV screen with digital roots. It combines the scalability of TV advertising with the highly-targeted, precision-response techniques key to performance marketing. CTV advertising platforms such as MNTN Performance TV allow you to take performance marketing to the big screen, providing targeted, measurable advertisements to the right audience within their favorite programs.

Performance Marketing: Final Thoughts

Performance marketing is a powerful tool for generating leads and increasing conversions. Channels including CTV can help by promoting your performance marketing efforts on a large scale, using a platform your audience is already invested in.