Performance marketing is a type of digital marketing where advertisers/businesses pay marketing companies, publishers, or affiliate networks only when a specific action is completed. This could be a click, lead, or sale.
Performance marketing allows businesses to optimise ad spending and directly track return on investment (ROI) by focusing on measurable results. It has become more popular alongside the rise in available data, which makes it much easier for businesses to track their ad performance in real time.
Performance marketing vs. brand marketing
It will help our understanding going forward to differentiate between performance marketing and brand marketing before diving deeper.
Performance marketing focuses on tangible, short-term results: clicks, leads, sales, or another type of conversion. Advertisers pay based on these completed actions, which are easily trackable metrics. Since businesses can track these metrics in real time, they can adjust quickly if needed to optimise their ROI.
Brand marketing is much more about the bigger picture. Brand marketing is about building a long-term emotional connection with your audience. Brand marketing campaigns aim to:
- Raise brand awareness
- Shape public perception of the brand
- Highlight core values
- Show a brand that is consistent and authentic
As such, both brand marketing and performance marketing have roles to play in a balanced marketing strategy.
Brand marketing is a foundation that sets the stage for recognition and customer loyalty over the long term.
Performance marketing drives immediate, measurable outcomes for the business, often building on effective brand marketing to be successful.
Performance marketing vs. affiliate marketing
To further clarify the concept, we can bring in another marketing term you’ll have come across: affiliate marketing.
Affiliate marketing is actually a subset of performance marketing. In affiliate marketing campaigns, advertisers partner with third-party publishers or influencers, who are called affiliates. The advertiser/business only pays the third party or influencer (the affiliate) when a successful action occurs, like a purchase.
The affiliates essentially do the marketing, sharing an ad with their audience through a variety of potential content marketing channels:
- Via their website
- Through YouTube content
- On an Instagram post
- Via TikTok
- Through an email newsletter
Performance marketing refers to a broader range of practices, including paid search, social media advertising, native ads, and other channels alongside affiliate marketing.
The key aspect to remember is it counts as performance marketing if the advertiser only pays for trackable results.
Seeing affiliate marketing in this light helps demonstrate how performance marketing can involve many different tactics. The underlying principle is that all performance marketing tactics aim to deliver cost-effective, result-driven campaigns for businesses.
How does performance marketing work?
Performance marketing always begins with a clear, strong foundation based on clear campaign objectives. You’ll see marketers refer to these as “desired actions”. They’re what the business is hoping to achieve: the purpose of the campaign.
These tend to be wanting to improve a specific metric:
- Boosting website traffic — increasing site visits by X amount
- Generating new sign-ups to a newsletter or a subscription service
- Driving online sales
Once they’ve clarified and set objectives, advertisers then build on this foundation and launch marketing campaigns on digital channels to help them achieve their goals.
These digital channels include things like search engines, social networks, or display ad networks.
As reiterated a couple of times already, the crucial aspect is that businesses can monitor performance (the clue is in the name!). Marketers use marketing tools and tracking platforms to monitor every interaction (like a click or a completed form) in real time.
Performance marketers stay alert to campaign data (e.g., cost per acquisition, click-through rates), tweaking audiences, ad creatives, or bidding strategies if they spot areas for improvement.
Essentially, they keep an eye on whether the campaign is meeting its goals (such as cost per click or cost per lead) and make ongoing adjustments.
This data-driven approach underpins the whole process, as payment is tied directly to outcomes.
In other words, if your campaign aims to drive sales, you’ll only pay for the successful completion of those sales. This dynamic makes performance marketing theoretically highly efficient and cost-effective.
Why does it benefit advertisers and platforms?
As an example, let’s say an Australian ecommerce business runs search engine ads.
They agree to pay only when someone clicks and makes a purchase rather than clicks or impressions.
This agreement makes budget control easier: If the total cost per acquisition (CPA) is lower than the profit margin per sale, the campaign is profitable. The ad platform (e.g., Google Ads) benefits by providing demonstrable results, which keeps advertisers coming back — often with increased budgets.
When advertisers see direct revenue from their ads, they’re more likely to invest further in the platform, helping create a mutually beneficial, long-term relationship.
How do the costs typically break down?
Most search engine ad arrangements revolve around either paying for each click (CPC) or paying a commission (CPA) based on a completed sale.
Advertisers might agree to a set cost per click, whereas platforms like Google Ads collect the fees directly. In affiliate partnerships, commissions can range widely (for example, 10–30% of each sale) and may be split between the affiliate and the platform facilitating the program.
The key for advertisers is ensuring these fees remain below their average profit per sale so the campaign consistently delivers a positive return on investment.
How does AI work with performance marketing?
Even expert marketers can’t manually track and adjust potentially hundreds of ads on the fly 24/7. Thankfully, that’s where artificial intelligence (AI) can step in as a tool for marketers to lighten the load.
AI-driven systems can sift through shedloads of campaign data in an instant, automatically spotting trends and identifying winning ad variations. While humans can obviously provide the creative flair to a campaign, they simply don’t have the bandwidth to analyse data on this scale.
The helpful automation at your fingertips frees marketers to focus on those other elements of their marketing strategy where the human touch is key, leaving repetitive, mundane tasks to AI.
But it’s not just about completing burdensome work. AI can offer valuable insights. For example, AI might notice one ad consistently outperforms another among a certain audience. You could set it up to automatically divert more of the budget to that high-performing variant.
This real-time, data-driven agility helps businesses fine-tune their performance marketing campaigns on the spot without missing vital opportunities.
What are the different types of performance marketing channels?
We’ve mentioned a few different channels in passing already. Let’s give a proper rundown of the most common options for performance marketing channels:
1. Paid search
Paid search is the name given to ads you see on platforms like Google Ads. When people search for particular terms, and the top few results on Google are marked ‘Sponsored,’ businesses have paid for this coveted spot.
Or, to be more precise, they only pay when an action is completed, whether that be a click (pay-per-click) or a sale. For example, a Sydney-based florist might target ‘wedding bouquets,’ ensuring they only pay when a potential customer shows genuine interest.
2. Social media advertising
Social platforms (Facebook, Instagram, LinkedIn, etc.) let you target specific audience segments using demographics, interests, and behaviours.
So, if you have clearly defined buyer personas, you can leverage this market research into performance marketing campaigns on social media platforms.
For example, a Melbourne-based cafe could run Instagram ads to promote a new menu. Let’s say they’re aiming for a younger audience composed mainly of students and younger professionals in their early twenties looking for cheaper alternatives to restaurants for lunch options.
Social media platforms accommodate this specificity and empower you to target this narrow audience (in theory, you pay to get your ad in front of those most likely to show an interest). Once again, you’ll only pay for measurable actions like clicks or reservations.
3. Native advertising
Native ads are a type of paid content designed to blend seamlessly with the look, feel, and function of the website or platform on which they appear. Rather than standing out like a banner, they take on the style of editorial articles, recommended content, or social posts.
You might have seen them as “sponsored content” or “recommended for you” links on news sites or as branded posts in a social media feed.
Advertisers typically have some control over the categories or types of sites their ads appear on (for instance, business, travel, or lifestyle websites), but they may not always handpick individual domains. That said, many native advertising platforms offer targeting tools (e.g., choosing topics, audience interests, or exclusions) to help you refine where your ads are shown.
Outbrain and Taboola are two major platforms that manage native advertising through their publisher website networks.
Your intention as a business is to choose environments where your content and offering align with the surrounding editorial, since you’re hoping to entice a similar audience. The ads you place should feel relevant and unobtrusive to readers.
For example, a furniture store may choose to advertise on several lifestyle sites, whereas it would be unwise and off-putting for the reader to advertise on a series of financial advice columns.
4. Affiliate marketing
We’ve already covered affiliate marketing, but it still warrants a place on the list here. As a reminder, advertisers partner with affiliates (bloggers, influencers, review sites) who earn a commission for each sale or lead they generate. An Aussie travel blogger recommending local hotels could receive a percentage of every successful booking attributed to their referral link.
5. Email marketing
Most standard email marketing platforms don’t offer pay-per-conversion billing. If you’re using an email marketing platform to send your newsletters or offers, you’ll typically pay a monthly subscription. As such, this form of email campaign isn’t really a proper “pay-for-what-you-get” performance marketing channel.
However, email marketing allows you to track key metrics like open rates, click-through rates, and conversion rates, which are crucial for evaluating the effectiveness of your campaigns.
For a true “pay only when a sale happens” model, you’d often be working with an affiliate network, agency, or partner who manages the emails and takes on some of the risks. For example, an affiliate could build or use their own email list to promote your product — and you only pay a commission once a sale goes through.
6. Influencer marketing
When treated as performance-based, influencers receive compensation only if they reach agreed-upon outcomes like clicks and sign-ups. This arrangement ensures accountability for both the brand and the influencer.
Equally important is partnering with someone whose audience closely matches the audience you’re trying to reach. An influencer with a similar demographic or shared values can extend your brand’s reach authentically, boosting conversions and building stronger connections with potential customers. That’s because the right influencer will already feel like they could be part of your brand community.
Each channel explored here has one key aspect in common — they also focus on tracking specific actions. This puts the ‘performance’ in performance marketing. Tracking these specific actions allows marketers to refine campaigns as they go. This pay-for-results model can be a powerful way to hit ambitious sales or lead generation targets.
What are the benefits of performance marketing?
As with any marketing campaign, you reap what you sow; any performance marketing initiative will need to be fuelled by sufficient market research and effective messaging, among other elements.
1. Efficient ad spend
Because you pay only for completed actions (like clicks or sales), you use your budget precisely where it matters most. This differs from, say, paying for commercial space on TV or radio, in which you put money upfront with no guarantee that it will reap any reward.
2. Data-driven insights
With constant tracking and measurement, made even easier with the latest AI tools, you can immediately see what works. Perhaps even more importantly, you can see what doesn’t work.
This dynamic provides quick feedback loops for better campaign performance. Again, compare this to more traditional ads like TV commercials. With this channel, once you commit to a commercial and some ad time, you just hope for the best. You have no option to amend the ad in real time or tweak it for a better outcome.
3. Greater control
With this data at your disposal, there’s less guesswork. You can swiftly pause underperforming ads, shift budgets, or test new variations.
4. Flexibility for businesses of all sizes
Any organisation can launch performance-based campaigns with marketing budgets that make sense for them. A local bar in Brisbane can launch a performance-based campaign just as a national chain of restaurants can.
5. More precise targeting
Marketers can zero in on particular segments. This is marketing 101: you want to be able to give a tailored message to those who are most likely to convert. With the ongoing data on hand, you can keep tweaking your performance marketing campaign to suit your audience better. This level of precision often boosts conversion rates significantly.
In general, by pivoting focus to the outcome, performance marketing helps companies avoid spending on impressions or general brand lifts that don’t lead to or correlate to tangible results. This laser focus on the results aspect makes performance marketing an excellent addition to any data-driven digital marketing strategy.
Performance marketing doesn’t guarantee overnight success
The effectiveness of your campaign still relies heavily upon other elements, such as:
- Accurate tracking
- Compelling offers
- Continuous testing
- Your brand recognition
- Competition levels
- User experience