What Exactly is Performance-Based Marketing, and How Does It Work?

The internet is the ultimate source for many businesses to sustain and make a profit. In addition, it is also the most convenient and reliable way for customers to buy any product or service. This is the effect of changing and evolving marketing technology. The way businesses market and promote their product is also evolving day by day. Unlike traditional marketing, marketing through online platforms is a much more convenient and efficient way for brands to advertise their products. Leading to this Performance-based marketing is playing a very significant role. How?

What if you could track and improve your marketing campaigns? What if you could see which factors influence sales, conversions, and marketing ROI? This is when performance marketing enters the picture.

Performance marketing, as the name implies, is a sort of digital marketing in which firms pay based on the success of their promotional activities. Performance marketing keeps track of key aspects of your digital marketing efforts to check if they’re on track to meet the business objectives.

Before diving into the latter, let’s understand what is performance-based marketing and how it works?

Performance-Based Marketing

performance marketing india

Professional service providers are compensated when the target is met and corporate goals are fulfilled in performance-based marketing, which includes digital marketing and advertising. In performance-based marketing, the success of a business depends on the performance of promotional functions and a brand pays only when a given target is achieved. Clearly, marketers are compensated for results and not efforts. These results could be derived from clicks, likes, views, sales, installs, etc. In performance marketing, all marketing activities and actions are measured by marketers. The marketers analyze the campaign performance to make important marketing decisions. The impact of real-time marketing on sales and other parts of your business can be monitored easily to make adjustments as needed.

Why do businesses prefer Performance-based Marketing?

performance based marketing for business

Quite opposite to traditional and organic marketing, performance marketing is focused on driving activities, tracking and measuring those actions, and determining the ROI of each asset, campaign, or activity. In simple terms, the brand pays or compensates only when the action is completed and the required results are achieved – clicks, leads, sales, etc. This creates a win-win situation for both the marketer and the brand. As these campaigns are ROI centric it comes with lower risk and measurable performance.

Types of Performance Marketing

type of performace marketing

Native Advertising – Native advertising makes use of a website’s or page’s natural appearance to promote sponsored content.

Social Media – Platforms like Facebook, Instagram, Twitter, LinkedIn give the opportunity to reach new customers and promote your business.

Sponsored Content – Sponsored Content is a type of advertising that is distributed by publishers or social media influencers in a format that is easily recognizable and reaches the target audience.

What are the channels of Performance-Based Marketing?

performance marketing channel

Banner Ads – These are display ads that appear on the side, top or bottom of the web page.

Native Advertising – Native advertising makes use of a website’s or page’s natural appearance to promote sponsored content.

Content Marketing – Educating audiences through blogs, articles or informative posts.

Social Media – Platforms like Facebook, Instagram, Twitter, LinkedIn gives the opportunity to reach new customers and promote your business.

Search Engine Marketing – SEM is the act of increasing search visibility through the use of sponsored marketing.

How does Performance Marketing work?

digital marketing

Primarily there are three groups involved in Performance Marketing who are invested in promoting and Advertising successful marketing campaigns and these are:

As for the media, all channels have audiences that differ and have specific platforms to reach them. But how the ad reaches them and what impact it has is formalized by several factors. It depends on the

Bid – The amount you’ve agreed to pay to show the ad at a specific time and place

Quality and relevance – The credibility of your ad will build trust among the audience that’s how ensuring quality will give better results

Conversion – Some viewers will take action after watching the ad and some might scroll over. Your ad works more when the conversion is high.

How to Measure Performance-based Marketing?


Here are some KPI’s to measure performance marketing

CPM – Cost per Mille also called cost per thousand impressions is the cost an advertiser pays for 1000 impressions on a digital ad.
CPC – Cost per click is the price paid when a viewer clicks on the ad
CPA – Cost per Action evaluates the performance in terms of specific action taken by the targeted audience like – subscribing, purchasing, signing-up or downloading, etc.

Benefits of Performance-Based Marketing

performance marketing benefits

The benefits of Performance-based marketing are:

  • It is very transparent
  • It is measurable
  • Has comparatively low-risk
  • Offers better insights
  • Easy to track performance
  • ROI oriented approach

Difference between Performance & Digital Marketing

performance vs digital marketing

The difference between performance marketing and digital marketing is that Performance marketing focuses on outcomes that provide tangible business results, such as leads, conversions, and sales. In addition to performance marketing, digital marketing comprises reach, branding, and awareness across digital platforms and devices. Whether it’s digital marketing or performance marketing, each has its own set of advantages that may or may not be overcome by the other. As a result, you must select the appropriate marketing platform based on the nature of your organization.

How to build a strategy for Performance Marketing?

digital marketing strategy

Here are the important steps that should be taken while building a strategy for performance marketing:

Establish your marketing goal – before starting a campaign, one should know what is the target to be achieved by determining a goal initially. For an effective marketing campaign, the results should align with the set target. Goal setting is a requisite for creating a campaign on many platforms, so as to assess where your ads appear, who sees them, and other important criteria.

Choose a digital channel – For performance-based marketing, it is wise to diversify the channels rather than sticking with one. This ensures that you are getting the best ROI possible. Choose channels that fit your conversion requirements and where you get your targeted audience. This channel could be affiliate marketing, native advertising, or social media platforms. Choose one or all as it fits your requirements.

Create the campaign and launch it – Creating a campaign requires a lot of work – identify the audience, understand the desires of the audience, design ads to address their needs. Afterwards create an ad copy, design and schedule the post and launch the campaign.

Timely optimize your campaign – The real work begins after the launch. It depends on the marketer how they collect the data and optimize the campaign accordingly. Track the analytics to determine which marketing channels work best and get the required result. As it will help you ahead in designing your next campaign.

Handle the challenges – There are some possible obstacles with performance marketing, just as there are with any marketing strategy.

This includes:

  • Compliance issues
  • Privacy
  • Copyright issues
  • Digital frauds or bot traffics
  • Put your efforts on high-quality advertising networks and platforms that handle brand safety and data privacy.

How is success measured in Performance-Based Marketing?

track marketing performance

The most important part of this type of marketing is measuring ROI. You can track performance with marketing tools, but you should give each campaign enough time to collect data before judging its success. The following criteria can be used to assess campaign success:

  • Set your business goals to derive the metrics through marketing campaigns
  • Target the most relevant keywords to attract the right audience
  • Monitor campaign performance and its results
  • Repeat and restructure the tactics to optimize your results

What is the future of Performance-Based Marketing?

future of performance marketing

Thanks to new monitoring and automation technologies and a stream of data, brands now have a great chance to re-optimize their marketing strategies across the board for higher business impact. Obviously, new data points increase and improve the campaign performance. Moreover, with digital platforms like Google and Facebook, automation makes it much easier for brands to grow campaigns fast and make changes.

The pandemic has also made brands make significant modifications in the way they promote and market their products. Marketers can be risk cautious at times, but there is less to lose and more to win today than there was previously. Hence we can say that performance-based marketing is the future of marketing where every penny is considered and made the best use of.

Closing Thoughts

If your objectives and measurements are clearly established and well-executed then performance marketing is a win-win for both marketers and affiliates. This technique will assist you in calculating and tracking your ROI, as well as allow you to fine-tune your campaign(s) based on results. The various source of performance marketing could only be analyzed through experiments and analysis. Hence, following the right steps will definitely help you in creating the desired campaign and getting the perfect results.