What is Performance Marketing?

If you’re focused on growing your business, you’ve probably come up against this dilemma: You need marketing to grow, but spending money on marketing feels uncertain. What if you invest in ads that don't work? How can you tell whether your marketing dollars are actually bringing in sales? 

Investing in marketing doesn’t have to feel like throwing spaghetti at a wall and hoping it sticks. That's where performance marketing comes in—a method that lets you pay only when your marketing actually works. 

What is performance marketing?

Performance marketing is digital advertising where you only pay when someone takes a specific action that matters to your business. Whether that's clicking your ad, signing up for your newsletter, or making a purchase, every dollar connects directly to measurable results.

For example, let's say you're an interior designer who's just created a living room layout guide. You want to get it into the hands of potential clients. With performance marketing, you could promote your guide and only pay when someone downloads it. No download? No cost to you.

While performance marketing can be very effective for certain brands, it’s not a silver bullet for growth. These strategies can become very costly very quickly, and when you stop paying for ads, you’ll stop seeing results. That’s why before launching into performance marketing, it’s important to develop a comprehensive marketing strategy and determine which initiatives are going to be most meaningful for your specific business, budget, and goals.

6 common types of performance marketing

Here are some of the most common channels for performance marketing that you might consider using. Like many businesses, you might use one or a mix of the below, based on your target customer or visitor and performance over time.  

1. Pay-per-click (PPC) advertising

Pay-per-click (PPC) advertising is an ideal entry point to performance marketing because it's straightforward: You only pay when someone clicks your ad. While traditional PPC focuses on generating clicks and impressions (views), performance-based PPC takes this further by optimizing for specific business results.

Imagine you're a custom pet portrait artist. When someone searches "custom pet portraits" online, your ad appears, but you only pay if they click to visit your website. Performance PPC allows you to align your advertising directly with meaningful outcomes like newsletter signups or purchases.

Common platforms for PPC ads include:

• Google Search results (Google Ads)

• Bing Search results

• Social media platforms

• Other websites relevant to your industry

2. Social media advertising

Performance-based social media ads let you pay only for specific business results. For example, a handmade jewelry maker can use Instagram ads to pay only when customers view their catalog, add items to cart, or complete a purchase.

By targeting ads to people interested in handmade accessories within your shipping area, you can optimize marketing spend and focus on interactions that directly drive business growth.

3. Marketing de afiliados

Think of affiliate marketing as building your own sales team—except you only pay when they make a sale. Many successful online course creators, for instance, partner with bloggers who write about their topic. The blogger promotes the course to their readers and earns a commission only when someone purchases. You can also apply this to physical items by having content creators and influencers feature your products.

4. Display advertising

These are the visual ads you see across the internet. With performance display ads, you could:

• Pay only when someone sees your ad for a certain amount of time

• Pay when someone clicks your ad

• Pay when someone watches your video ad to completion

The key benefit? You can start small, test what works, and scale up when you find success. An online store might start with $10/day on social media display ads, measure the results, and gradually increase spending on the ads that bring in the most sales. If you find any ads are underperforming on viewing time or clicks, you can reconsider the content or design.

5. Native advertising 

Unlike traditional sponsored content, performance-based native advertising means you place ads on other sites your target audience is likely to visit, and pay only when readers engage meaningfully with your content. For instance, a financial advisor might place educational articles about retirement planning on financial news sites, paying only when readers spend a minimum time reading the content or sign up for a consultation. There are platforms that offer these performance-based options.

6. Mobile performance marketing 

This channel focuses specifically on driving mobile user actions. The owner of a personal training app, for instance, might pay only when users install the app and create an account.

The advantage of mobile performance marketing is its ability to track user actions throughout the entire mobile journey, from app installation to long-term engagement.

Pros and cons of performance marketing

Some businesses and brands might benefit more from performance ads than others. While they offer control and clear data, they require testing and learning and some time and money investment.

Performance marketing pros

1. Control over spending
Unlike traditional advertising, where you commit to a fixed cost upfront, performance marketing lets you maintain tight control over your budget. You can start small, pause anytime, and adjust your spending based on results. If something isn't working, you can stop spending immediately.

2. Clear, measurable results
Every dollar you spend can be tracked to specific outcomes. You'll know exactly how many people clicked your ad, signed up for your newsletter, or made a purchase, and how much each action cost. This helps you make confident decisions about where to invest your marketing budget.

3. Flexibility to scale up or down
As your business grows or seasons change, you can easily adjust your performance marketing efforts. Having a slow month? Scale back. Holiday season approaching? Ramp up your campaigns. This flexibility is particularly valuable for small businesses managing cash flow.

Performance marketing cons

1. Time and resource requirements
Even though you only pay for results, you'll need to regularly monitor your ads, create different versions to test, analyze what's working, and stay updated on platform changes. This means investing hours of work in addition to the advertising spend.

2. Learning curve
Each advertising platform has its own unique rules and technical requirements. You'll need to figure out how to track your results correctly, understand which numbers really matter for your business, and learn how to improve your campaigns over time. It's a marketing skill that takes patience and practice.

3. Budget realities 

While you can start small, you'll need some money set aside for testing and experimenting. You want enough budget to gather meaningful data about what works, plus a little extra to handle seasonal changes. Advertising gets more expensive during busy shopping seasons like Black Friday, when advertisers are competing for customer attention.

Creating your performance marketing strategy

Before you jump into your strategy, take the time to evaluate whether performance marketing is right for your business.

Performance marketing might be particularly valuable if:

• You have healthy profit margins that can absorb marketing costs.

• Your product or service has repeat purchase potential.

• You can handle an increase in customers or orders without sacrificing quality.

• Your offering solves a problem people are actively searching for.

• You have a way to capture value from interested prospects who aren't ready to buy immediately (like an email list).

However, consider holding off if:

• You're still testing and refining your product or service.

• You're not sure who your ideal customer is.

• Your website isn't set up to convert visitors effectively.

• You will struggle to produce or fulfill orders if you get a sudden surge in sales.

• You can't afford to spend at least a few hundred dollars on testing.

1. Set clear goals

Before launching your first campaign, keep your goal simple and focused. For instance, if you run a handmade jewelry business, you may want to start by focusing solely on generating direct sales, as opposed to a secondary goal like growing your social media following. 

Focusing on one clear goal will help you learn what works without getting overwhelmed. If you’re not sure where to start, think about where in the marketing funnel you’re reaching your prospects, and how you can move them to the next phase. 

Make sure your goal is specific and measurable. For example, your goal may be to bring in five new customers per week at a cost that makes sense for your marketing budget. Understanding your average sale value will help you determine how much you can reasonably spend to acquire each customer.

2. Choose your first channel 

Start with one channel and master it before expanding. Your choice should align with how your customers naturally look for products or services like yours. Visual products often perform well with social media performance ads, while service providers, like photographers or consultants, might see better results with search-based PPC.

Consider your budget when determining your channel. Social media performance ads often let you start with as little as $10 per day, making them an accessible entry point for many small businesses. For instance, a local fitness trainer might start with Facebook performance ads where they only pay when someone signs up for a free consultation. This way, they're paying for concrete results rather than just ad views or clicks.

3. Measure results

Understanding your campaign's performance doesn't have to be complicated. Focus on two key metrics at first: how much you're spending to acquire each customer and whether you're making more than you're spending on ads. These basic metrics will tell you if your campaign is working and guide your future decisions.

Track these numbers from day one, even with a small budget, but understand it may take some time to figure out what works and see results. This early data is your guide for future growth.

4. Scale your efforts 

Once you've found success with your first channel, growth should be gradual and controlled. Instead of making big changes, start by increasing your budget by small amounts, perhaps 20% at a time. Watch your results carefully for a week or two after each increase. If your costs start rising too much, you can scale back.

Only consider expanding to new channels or audiences once you've established a reliable pattern of success with your initial campaign and have the budget to invest in new testing.

Remember that performance marketing is a learning process, and just one tool you can use for marketing. Many successful businesses take months to find the right combination of channel, message, and audience.