How Performance Marketing Works [+ 6 Tools You Can Use]

Many companies have employee referral programs where referring someone who gets hired comes with a reward (typically a cash bonus).

This is the same principle of performance marketing: marketers set a performance goal (like driving conversions) and reward the partners/people who help them get those conversions.

Let’s dive deeper into how performance marketing works, how to create a performance marketing strategy, and the tools you can use to implement one.

Table of Contents

What is performance marketing? How Performance Marketing Works How To Create a Performance Marketing Strategy How do you measure performance marketing? Top Performance Marketing Software Top Performance Marketing Verticals

What is performance marketing?

Performance marketing is a digital marketing strategy driven by results, where advertisers (like a brand or business) only pay once a goal is met, which can be anything from making a purchase to filling out a form on a landing page.

With a traditional ad campaign approach, there's no guarantee you will get a return on your investment, and you can only monitor performance and make adjustments after it launches.

Even seasoned media buyers can have unsuccessful campaigns if there's a misalignment between the campaign and the target audience.

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

Your campaign is less risky There's 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.

Affiliate marketing is a subset of performance marketing based on paying a commission after each sale or target goal/conversion.

Performance marketing has grown broader than just affiliate marketing, with the target goal of improving a company's performance as a whole.

Types of Performance Marketing

There are various performance 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 the conversions from their unique link. Influencer marketing: Brands work with creators and influencers that promote their offer to their unique audiences to inspire them to take action. Paid marketing and advertising: Businesses work with a publisher to display their ad (like on a webpage) and pay the publisher for actions like clicks, purchases after clicking, or the number of impressions from where they feature the ad. Search engine marketing (SEM): Advertisers feature advertisements in search results for business-related terms and pay the publisher if their ad is clicked. Native advertising: Advertisers create ads that blend in on the channels they’re on, and advertisers pay an affiliate or influencer based on their target conversion. Social media marketing: Creators and influencers advertise for partners on different social media channels.

How Performance Marketing Works

Executing a performance marketing strategy relies on three key players:

The advertiser (like a retailer, merchant, brand, etc., who is looking to improve performance) A publisher or an affiliate partner (someone who promotes for an advertiser) An affiliate tracking network (a third-party system where advertisers and publishers connect and can track performance and receive payments).

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

How To Create a Performance Marketing Strategy

1. Define your goals.

With any digital marketing campaign, establishing your objectives is key.

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

Once you define 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 it’s how you inspire people to convert.

Today, influencers are some of the most popular partners because of the high level of trust they have with their audience. The influencer could be a YouTuber that 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’ve found your partner or preferred channel, you also outline a payment structure. For example, with SEM, you’d likely design a program where you pay Google for impressions or clicks, and with an influencer, you’d decide how and how much you’d pay them whenever your goal is met.

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

3. Generate and assign IDs.

The next step is to get your unique tracking links/URLs and codes ready.

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

You may do this manually at first, but many people rely on automated tracking systems to ensure all conversion attributions are correct.

How do you measure performance marketing?

Overall, the metric you use determines what actions trigger a commission payment and the ROI of your efforts. The more actions you drive, the more successful your campaign.

Let’s say I’m an influencer partnered with Brandon Blackwood. I share a 10% discount code "MARTINA10" with my followers to use at checkout when purchasing an item from the brand. Whenever someone used my code to 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 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’d measure the success of your campaign by the number of sales and pay your partners every time someone buys a product that is directly traceable to them. Cost Per Click (CPC)/Pay Per Click - If your goal is to drive clicks to your page or offers, you’d pay each time your partner drives someone to click (which is why tracking URLs are crucial in distinguishing regular traffic from partner-inspired traffic). Cost Per Lead (CPL)/Pay Per Lead - You’d pay each time you get new information on a user (like after they fill out a form) because the partner inspired them to submit their information. You’d then further nurture the lead with the end goal of converting them into a customer. Cost Per Impression (CPM) - Also called cost per mille, you’d pay based on the number of impressions you get from an ad that a partner shares or that is displayed somewhere. CPM usually pays out 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 go through some top tools in each category.

Performance Marketing Partnership Tools

1. PartnerStack

Price: 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 preferred partners. Custom partner portal and automated onboarding to share relevant training resources. Campaign tracking to understand performance and initiate payments.

2. Partnerize

Price: 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 to real-time campaign data to view partner performance. Custom commission structure for each partner and automate the payment and reward process.

3. Everflow

Price: $750/mo (Core plan), contact for custom pricing

Everflow helps you simplify partnership management to ensure you drive results.

Key Features

Easy-to-use portal to onboard partners and manage your relationships. Track every referral and lead and accurately attribute conversion events to each partner. Design a custom payout structure to pay partners when they deliver on your goals.

One of the biggest struggles of working with affiliates is creating and tracking links and codes at scale. Below we’ll go over some helpful tools.

Performance Marketing Tracking Tools

1. LeadDyno

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

LeadDyno gives brands tools to grow a successful affiliate program that aligns rewards to your target actions.

Key Features:

Create links, codes, or assign specific URLs to each partner. Unique affiliate dashboard to ensure you attribute conversions correctly. Customize a payment structure based on your key metrics and seamlessly send payments.

2. AnyTrack.io

Price: 14-day free trial; $50/mo (Basic), $150/mo (Personal), $300/mo (Advanced)

With AnyTrack, attribution reporting is easier.

Key Features

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

3. Impact

Price: Contact for pricing

The Impact tool streamlines the partnership process from initial contact to payout.

Key Features

Universal tracking tag helps you track the traffic your partners drive on all properties across any device. Create payment contracts and automatically pay partners when they bring results on your key metrics. Find partners that align with your needs or import your existing affiliate network.

Top Performance Marketing Verticals

Wondering which industries use performance marketing the most? According to a 2022 study by the Performance Marketing Association, advertisers in the retail sector spent the most on performance marketing – accounting for 76% of total spending. The financial sector followed with a steep drop to 12%, then the travel industry with 5%.

In terms of revenue, the sector with the highest revenue was retail at 84%, followed by travel at 10%. Industries like automotive, healthcare, and telecoms only accounted for 1% of the total performance marketing revenue.

However, despite having the biggest spending and highest revenue percentages, the retail industry didn't offer the best ROAS. According to the report, the automotive industry offered the best return at $26, followed by travel at $21 and retail at $12.

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