how does performance marketing work [+ 6 Tools You Can Use]

Many companies have employee referral programs, where there is a reward (usually a cash bonus) for referring someone to the employer.

It’s the same principle of performance marketing: marketers set a performance goal (eg driving conversions) and reward partners/people who help them achieve conversions.

An in-depth look at how performance marketing works, how to build a performance marketing strategy, and what tools you can use to implement it.

table of contents

What is Performance Marketing?

Performance marketing is a digital marketing strategy driven by results, where advertisers (such as brands or businesses) pay only after a goal is met, which can be anything from making a purchase to filling out a form on a landing page.

With the traditional advertising campaign approach, there’s no guarantee that you’ll get a return on your investment, and you can only monitor performance and make adjustments after it’s launched.

also experienced media buyers can There are unsuccessful campaigns if there is a mis-alignment between the campaign and the target audience.

Since you’ll only pay when your goals are met, you accomplish three things:

• your campaign is low risk
• Has a guaranteed return on investment (ROI)
• You have better control over your ad spend

Is Affiliate Marketing The Same As Performance Marketing?

While somewhat related, affiliate marketing and performance marketing are different.

Aaffiliate marketing There is a subset of performance marketing based on the payment of commission after each sale or target goal/conversion.

Performance marketing has become broader than just affiliate marketing with the goal of improving the performance of the company as a whole.

types of performance marketing

There are different display marketing partners/channels to consider for your campaigns:

• affiliate marketing: A partner uses an affiliate code or link to promote an advertiser to their audience and is paid by tracking conversions from their unique link.
• influencer marketing: Brands work with creators and influencers to promote their offers to their unique audiences to inspire them to take action.

• Paid Marketing and Advertising: Businesses work with a publisher to display their ads (such as on a webpage) and pay the publisher for clicks, click-through purchases, or the number of impressions from where they display the ads.
• Search Engine Marketing (SEM): Advertisers show ads in search results for terms related to the business and pay the publisher if their ad is clicked.
• Native Ads: Advertisers create ads that are mixed into the channels they are on, and advertisers pay an affiliate or influencer based on their target conversions.
• social media Marketing: Creators and influencers advertise for partners on various social media channels.

how does performance marketing work

Executing a performance marketing strategy depends on three key players:

• advertiser (eg a retailer, merchant, brand, etc., who wants to improve performance)
• a publisher or an affiliate partner (someone who campaigns for an advertiser)
• an affiliate tracking network (A third-party system where advertisers and publishers connect and can track performance and receive payment).

Some advertisers may use an outsourced program management (OPM) firm or agency that handles the running of the program.

how to create a performance marketing strategy

1. Define your goals.

As with any digital marketing campaign, it is important to establish your objectives.

What do you want to accomplish? It could be general brand awareness, sales of your new product line, more leads or anything else. For example, if your goal is to attract new leads, you might have a performance marketing goal of getting 500 new leads.

Once you’ve defined your goals, you can select the publisher/partner best suited to help you achieve them.

2. Identify your partners.

Finding the right publisher/partner takes research, but it’s the most important step because that’s how you get people to convert.

Today, influencers are some of the most popular partners because of the high level of trust they have with their audiences. An influencer can be a YouTuber who adds an affiliate link in a video description or a blogger who adds a backlink to your landing page in their written content.

Once you find your partner or preferred channel, you also outline the payment structure. For example, with SEM, you’ll probably design a program where you pay Google for impressions or clicks, and with an influencer, you’ll decide how much and how much you pay them whenever your goal is met. Will pay

We’ll talk more about how to measure performance marketing below.

3. Create and assign IDs.

The next step is to create your unique tracking link/URL and code.

This is important because the only way to correctly attribute an action to your partner/publisher is with a unique code, URL, or UTM parameter.

You can do this manually at first, but many people rely on automated tracking systems to make sure all conversion attribution is correct.

How do you measure performance marketing?

Overall, the metrics you use determine which actions trigger commission payments and the ROI of your efforts. The more actions you take, the more successful your campaign will be.

Let’s say I’m an influencer partnered with Brandon Blackwood, I share with my followers the 10% discount code “MARTINA10” that can be used at checkout when purchasing any item from the brand. Whenever someone used my code to make a purchase, I would get a percentage of the sale. In this case, the tracked metric is unique sales from my code, which can be paid for with a cost-per-acquisition model.

Some standard measurement and pricing structures for performance marketing are:

• Cost Per Acquisition (CPA) / Pay Per Sale – If your goal is to drive sales, you’ll measure the success of your campaign by the number of sales and pay your partners every time someone buys a product that’s available directly to them.
• Cost Per Click (CPC) / Pay Per Click – If your goal is to increase clicks on your page or offer, you will pay each time your partner induces someone to click (this is why tracking URLs are used to separate regular traffic from partner-induced traffic). are important).
• Cost Per Lead (CPL) / Pay Per Lead – You pay whenever you receive new information about a user (such as after they fill out a form) because the partner prompted them to submit their information. You will then follow up with the end goal of converting the lead into a customer.
• cost per impression (cpm) – Also called cost per mile, you will pay based on the number of impressions an ad shared by a partner or display somewhere. CPM usually pays for every 1,000 impressions.

top performance marketing software

There are two main types of performance marketing software: those that focus on connecting advertisers with affiliate partners or publishers and those that monitor performance. Let’s look at some of the top tools in each category.

performance marketing partnership tools

1. partnerstack

worth: contact for pricing

If you’re a SaaS company looking to develop a robust partner program, consider PartnerStack.

key features

• Choose from a network of active partners, or recruit your favorite partners.
• Custom partner portal and automated onboarding to share relevant training resources.
• Campaign tracking to understand performance and initiate payments.

2. make a partnership

worth: contact for pricing

Partnerize is a simple and easy-to-use dashboard to manage your partners.

key features

• Build an invite-only network of partners, or get automated partner recommendations from its partner ecosystem.
• Access real-time campaign data to view partner performance.
• Custom commission structure for each partner and automate the payment and reward process.

3. Evergreen

worth: $750/month (Core plan), contact for custom pricing

Everflow helps you simplify partnership management to ensure that you get results.

key features

• Easy-to-use portal to onboard partners and manage your relationships.
• Track each referral and lead and accurately attribute conversion events to each partner.
• Design a custom payout structure to get paid when partners meet your goals.

One of the biggest struggles with working with affiliates is building and tracking links and code at scale. Below we will learn about some useful tools.

performance marketing tracking tool

1. leaddyno

worth: $49/month Starter), $129/month (Plus), more advanced pricing for businesses with 15,000+ unique site visitors per month

LeadDino gives brands the tools to develop a successful affiliate program that aligns rewards to your targeted actions.

key features:

• Create links, codes, or assign unique URLs to each participant.
• Unique affiliate dashboard to ensure you properly attribute conversions.
• Customize the payment structure based on your key metrics and send payments seamlessly.

2. AnyTrack.io

worth: 14-day free trial; $50/month (Basic), $150/month (Personal), $300/month (Upgraded)

with Anytrack, attribution reporting is easier.

key features

• Assign a tag to each participant that automatically tracks, attributes and syncs your conversions.
• Track each engagement and sale to understand performance.
• Integrate your custom affiliate network.

3. Effect

worth: contact for pricing

Impact Tools streamlines the partnership process from initial contact to payout.

key features

• Universal tracking tags allow you to track traffic driven by your partners across all properties on any device.
• Create payment contracts and automatically get paid when partners drive results on your key metrics.
• Find partners that best suit your needs or import your existing partner network.

Top Performance Marketing Verticals

Wondering which industries make the most use of performance marketing? according to a 2022 Study by the Performance Marketing Association, advertisers in the retail sector spent the most on display marketing – accounting for 76% of total spend. The financial sector declined heavily by 12%, then the travel industry declined by 5%.

In terms of revenue, the sector with the highest revenue was retail at 84%, followed by travel at 10%. Industries such as automotive, healthcare, and telecom account for only 1% of total display marketing revenue.

However, despite having the highest expenses and highest revenue percentage, the retail industry did not offer the best ROAS. According to the report, the automotive industry offered the best returns at $26, followed by travel at $21 and retail at $12.

Any industry can find success with performance marketing. It’s all about collaborating with the right partners and setting up a strong program to reach your marketing goals.