Performance Marketing 101: What It Is and How to Create Campaigns

Ecommerce Best Practices | 10 mins

There’s a line item in every company’s budget that tends to raise eyebrows: advertising.

Traditionally, advertising has been ripe with financial risk because it’s difficult to predict, much less calculate, its value. As a result, businesses don’t invest enough in promotions as a result, thinking that ads are a waste of resources, and hinder their growth. Or they spend money on ads that don’t pay off, which hurts the companies’ bottom line.

Performance marketing minimizes the financial risk and is easy to place and track across the web.

What is Performance Marketing?

It’s a type of online advertising in which companies pay marketing platforms for their promotions only when a specific action is completed, such as a click.

The main difference between performance marketing and other types of advertising is pricing. With traditional advertising, businesses pay before their promotion begins. With performance marketing, retailers pay only when users interact with the ad.

PwC, in their 2019 Internet Advertising Revenue report, states that performance marketing campaigns can be priced in two ways:

  • Cost-per-click, sale, lead, or acquisition
  • Straight revenue share (such as a commission paid upon sale)

Both pricing structures put control in the hands of the retailer. Instead of throwing money at ads and crossing your fingers, you pay for campaigns only when they perform as you’d like.

The clear value of performance marketing campaigns is exactly why so many retailers use this type of advertising.

Why Use Performance Marketing?

The pay-per-action model of performance marketing ensures that you get the most value out of your ad spend, because you pay only for desired actions. Plus, you always have data that you can assess to find areas of improvement, because campaign performance is tracked for pricing purposes.

Transparent Value

There’s no guesswork when it comes to performance marketing pricing. You’re charged only when an ad’s objective is met instead of paying a flat fee up front and discovering later that your ad was a flop.

It’s important, however, to not confuse low risk with high value. The campaign will be valuable only if its performance is tied to a worthwhile action, and that action is taken by consumers.

Say, for example, you set up a pay-per-click search ad to be associated with a keyword your target audience isn’t searching. The campaign may get a lot of clicks, but they aren’t valuable hits, because they’re not coming from your key buyers.

Set up your campaigns to reach your target audience and you’ll enjoy the transparency of performance marketing. You’ll know that you’re being charged not just for any action but for one that benefits your company.

Easy-to-Track Results

Imagine placing a billboard on the highway to promote your product. You want to determine the ad’s effectiveness, but there isn’t a single clear metric. Measuring your revenue in that geographic area before and after erecting the billboard is one option, but that doesn’t account for confounding factors.

Tracking performance marketing campaigns, on the other hand, must be precise because payment depends on the results.

Results may be automatically tracked by the advertising platform you’re using. Social channels, for example, will monitor the number of clicks or conversions associated with your ad to determine how much to charge.

Facebook tracks how many clicks and conversions each campaign receives in their reporting feature.
[Source]

Commission-based campaigns rely on retailers to track their own campaign performance since they have the sales data. Say, for example, you get an influencer to share a discount code for your store in their Instagram post, and they receive a percentage of every sale made with the code. You’ll have to track the revenue of purchases associated with that code to calculate the amount you owe the influencer.

With its clear value and data-driven nature, performance marketing is an obvious advertising option for retailers. Take advantage of performance marketing by launching multiple types of campaigns across the internet.

3 Types of Performance Marketing Campaigns

Performance marketing is often confused with affiliate marketing, where retailers pay a website for traffic or sales referred from it. Affiliate marketing, however, is a type of performance marketing, along with social and search marketing.

Affiliate Marketing

  • Pricing: Commission
  • Examples: Coupon websites, product review websites, publications, blogs, social accounts (influencers are considered affiliate marketers only if their compensation is commission-based, not a flat fee)

A company or individual markets your products on their site. In return, you pay a commission for clicks or sales from their ad. Influencers typically market your products on their social media accounts instead of a website.

TechRadar, an online publication that reviews technology products, acts as an affiliate for retailers.

If users buy affiliate products from TechRadar’s site, the publication earns a commission from that purchase.

Social Media Marketing

  • Pricing: Pay-per-click or pay-per-conversion
  • Examples: In-feed ads, stories ads, marketplace ads (Facebook)

Social channels are the most versatile platform for performance marketing campaigns. They provide many spaces to create promotions, from feeds to stories to chats, giving you more opportunities to be creative and reach your audience.

[In-feed ad source, marketplace ad source, stories ad source]

Pricing for social performance marketing campaigns is either pay-per-click or pay-per-conversion. For the latter, pixel tracking is required to determine whether users take action in your store.

To learn more, check out these resources on creating Facebook, Instagram, Twitter, and Snapchat ads.

Search Engine Marketing

  • Pricing: Pay-per-click or pay-per-conversion
  • Examples: Search, shopping, display ads

The third type of performance marketing happens via the world’s most popular site: Google.

The three Google ads most relevant for ecommerce are search, shopping, and display ads.

google ad examples

[Shopping ads source, search ads source, display ads source]

Search ads appear at the top of search results pages (and are marked as ads), while shopping ads appear as product listings under the engine’s “shopping” section. Display ads, on the other hand, appear on other websites, apps, and YouTube videos that your targeted users visit.

The majority of Google’s ads are pay-per-click, with the exception of display ads, for which you can be charged per conversion.

Between these three marketing types—affiliate, social, and search—you’re able to spread the word about your products all over the internet. But before you launch a batch of campaigns, you’ll need to know how to create these types of advertisements.

How to Launch a Performance Marketing Campaign

It’s true that these marketing campaigns are free to place until they start to work. However, these campaigns do have implicit time and labor costs. You’ll need to pay your employees to create the ads and track their performance, or you take time out of your schedule to do the work.

Make this time investment worthwhile by following these six steps. Don’t just jump right into creative development. Instead, start by considering your marketing goals so you’re aware of what your campaign must include to benefit your business.

Step 1: Set a Marketing Goal

The only way to know whether you’re paying for a valuable action with your ad is to set a clear goal for the campaign. If you know what you’re trying to achieve, you’ll be able to assess which ad action is most valuable for your business. A retailer who wants to drive more traffic to their online store, for example, may set up a pay-per-click ad that directs users to their site.

To determine your goal, consider gaps in your marketing and sales funnel. Are you struggling to get people who have just learned about your brand to explore your online store? Or maybe your leads browse your store frequently, but they often leave without making a purchase. Consider your current pain point in your funnel, and identify a goal based on that.

For more information on how to set relevant, actionable marketing goals, consider this resource from CoSchedule. It provides examples of strong marketing objectives and suggests ways to brainstorm your own.

Step 2: Research Your Target Audience

With a goal set, it’s time to identify who should see this campaign. Knowing your ad’s audience will help you decide which type of campaign to create in the next step.

To learn more about your audience, consider your buyer persona research to determine:

  • Their frequently-visited sites and social platforms
  • Their primary pain points (as related to your product)
  • Their lifestyle

Knowing these details, you’ll be able to choose a campaign type and craft content for your ad that appeals to your target audience.

Step 3: Choose a Campaign Type and Pricing

Each of the three types of performance marketing serves different campaign objectives and audiences. For example, search is helpful for building brand awareness. Leads who haven’t heard of your company can still come across your site through Google. Social, on the other hand, is ideal for targeting younger audiences.

To learn more about the strengths of social and search as ad platforms, check out this article from G2. You can also read this resource to navigate selecting a type of affiliate marketing.

Once you’ve selected your campaign type, choose a pricing model that fits your objective. Paying for clicks is primarily designed to boost awareness and generate leads, while paying for sales or on a commission basis is meant to generate revenue.

Step 4: Create Your Campaign

Advertising platforms charge for performance campaigns only when a desired action is taken—but this doesn’t guarantee that people who see your ads will take action.

Encourage your target audience to engage with your ad by creating compelling content. Learn how to craft engaging text, media, and landing pages for your campaigns with the following resources:

  • See examples of powerful, convincing sales copy to inspire your own ad writing in this post.
  • Check out this resource from MailChimp for guidance on images that work best for social and search ads. We also recommend reading this post for ideas on where to find images.
  • Understand how to create ad landing pages that deliver on the value your promotion promises with this CrazyEgg resource.

Get the most value out of your performance marketing campaign by building it with intention. Create copy, visuals, and landing pages that push your audience to complete the ad’s desired action.

Step 5: Track Your Campaign’s Results

To understand the value of your campaign, you don’t want to just evaluate how often its desired action was completed. The next step is to assess how well that action contributed to your larger objective, as you hypothesized in Step 1.

Say, for example, you launch a pay-per-sale campaign with the larger objective of generating $50,000 in revenue. Instead of just tracking the number of sales the ad generated, you also want to measure how close the revenue of these sales was to the $50,000 target.

To evaluate the larger impact of your performance marketing campaign, consider tracking the metrics suggested in these resources:

Monitoring this data will help you get the most value out of your performance marketing campaigns. You’ll see areas of improvement where metrics deviate from benchmarks or your past performance. From there, you can decide how to adjust your campaigns to meet your larger marketing objective more closely.

Step 6: Adjust Your Campaign Based On Results

Your performance marketing campaign shouldn’t be stagnant. With access to its results, as covered in the previous step, you’re able to make informed changes to improve the ad’s performance.

There aren’t many ways to test affiliate marketing campaigns, other than changing affiliates. However, there are several campaign factors you can test with social and search marketing :

  • A/B test to try out variations of text, media, and landing pages for campaigns.
  • Switch to a different ad format.
  • Adjust your ad budget amount.

For more ideas on how to experiment with search and social ads, check out this resource.

Follow this six-step process to create a performance marketing campaign, and your ads will be worth the time and effort you invest in them.

Make the Most of Your Ad Spend With Performance Marketing

Advertising doesn’t have to be fraught with financial risk. With performance marketing, every penny of your ad spend goes toward the engagement you want, whether that’s clicks or conversions. Follow the steps in this guide to set up multiple types of performance marketing campaigns and you’ll generate a variety of lead sources and revenue streams.