What is Performance Marketing, and Why is it Important?

JTN Article

What is Performance Marketing, and Why is it Important?

Every dollar your organization spends on advertising is hard-earned... so why just give money away? Ineffective marketing strategies can waste an unbelievable amount of capital – not to mention time and energy. It quite literally pays to take a smarter approach. An approach like performance marketing.

This results-based strategy ensures you only ever spend money on advertising that actually delivers on your dollar. In the following article, we'll dive deeper into how performance marketing works, the key benefits it offers, and how you can leverage this strategy to drive meaningful growth for your business.


  1. What Is Performance Marketing?
  2. How Payment Works In Performance-Based Marketing
  3. Key Components of Performance Marketing
  4. Benefits of Performance Marketing
  5. Challenges In Performance Marketing
  6. Best Practices for Effective Performance Marketing

What Is Performance Marketing?

Performance marketing is a digital marketing strategy that focuses on driving measurable results through targeted online advertising campaigns. In this model, advertisers only pay when their desired action is completed by the user. Directly tying advertising spending to tangible results ensures that marketing efforts generate a positive return on investment (ROI).

The Three Main Tenets of Performance Marketing

Performance marketing campaigns are defined by three core traits: a results-driven approach, measurability, and accountability.

  • Results: The primary focus, results, is on achieving predefined goals, such as generating leads, sales, or website traffic. This is understandably important to most businesses because it delivers sustenance and growth.
  • Measurement: Measurement and tracking allow for the continuous optimization of marketing strategies so that results can be achieved faster and in greater magnitudes. Businesses can gauge the effectiveness of their work by monitoring metrics like click-through rates, conversion rates, and cost per acquisition in real time.
  • Accountability: But above all else, performance marketing is differentiated by its foundation of accountability. That's not something you'll always get with traditional marketing methods. In performance marketing, the risk is shifted from the advertiser to the publisher or marketing platform, as they are only compensated for delivering the agreed-upon results.

How Payment Works In Performance-Based Marketing

Performance-based payment models vary depending on the desired outcome. The right performance model for your campaign will depend on your specific goals and KPIs. Many brands use a mix of models for different campaign types. The key is aligning your bidding approach with the outcomes you are trying to drive.

Here are a few examples of models commonly used in performance marketing:

Cost-Per-Click (CPC)

Advertisers pay each time a user clicks on their ad. This model is often used for campaigns focused on driving website traffic. For example, a software company might use CPC bidding to drive visits to its free trial signup page.

Cost-Per-Acquisition (CPA)

Advertisers pay when a user completes a specific action, such as making a purchase or filling out a form. This model is best for campaigns with a clearly defined conversion goal. For instance, an ecommerce brand would likely use CPA bidding to optimize for product purchases.

Cost-Per-Lead (CPL)

Advertisers pay for each lead generated, typically when a user provides their contact information. This model is often used by B2B companies or for campaigns focused on lead generation. As an example, a B2B SaaS provider might pay on a CPL basis for whitepaper downloads.

Cost-Per-Mille (CPM)

Advertisers pay for every 1,000 ad impressions, regardless of user interaction. This model is typically used for campaigns focused on brand awareness or reaching a wide audience. A consumer packaged goods brand launching a new product might use CPM bidding to maximize reach.

Key Components of Performance Marketing

Performance marketing involves the use of digital channels like search engine marketing (SEM), social media advertising, display advertising, and email marketing. These channels allow marketers to reach their target audience with precision, using data-driven insights to optimize ad placement, targeting, and creative elements for maximum impact. See a more detailed breakdown of each of the aforementioned channels below.

Search Engine Marketing (SEM)

SEM is a form of digital marketing that focuses on increasing a website's visibility in search engine results pages (SERPs) through paid advertising. The most common SEM platform is Google Ads, which allows marketers to bid on keywords relevant to their products or services. When a user searches for those keywords, the advertiser's ad may appear at the top of the SERP.

SEM is highly effective for driving targeted traffic to a website and is ideal for businesses looking to generate leads or sales quickly. That makes it an incredibly popular tool among performance markers, who are focused on driving measurable results and maximizing return on investment (ROI).

SEM campaigns can be structured in various ways depending on an advertiser's goals. For example, a campaign may focus on generating clicks to a website, driving phone calls, or encouraging app downloads. Advertisers can set daily budgets, target specific geographic locations, and choose the times of day their ads appear. They can also use advanced targeting options, such as remarketing to users who have previously interacted with their website or creating custom audiences based on email lists or customer data.

Social Media Marketing

Social media marketing is the practice of promoting a brand, product, or service on platforms like Facebook, Instagram, Twitter, and LinkedIn. An increasing number of businesses are using these channels to create organic content, engage with their audiences, and build brand awareness. In this context, organic content refers to media that a brand creates and shares without paying for placement, such as posts, stories, and tweets.

Social media marketing becomes more relevant to performance marketing when paid ads come into play. Most major social networking platforms today offer some form of paid advertising. These ads can take many forms, such as sponsored posts, stories, or videos that appear in users' feeds or as display ads in the sidebar or other areas of the platform.

Paid social media advertising allows marketers to reach a larger audience beyond their organic followers. It also provides granular targeting options, enabling brands to reach specific demographics, interests, and behaviors. For example, a fashion retailer could target women aged 18-35 who have expressed interest in fashion and beauty products. Two common metrics, click-through rates and conversion rates, are tangible and therefore fall into the bucket of performance marketing.

Display Advertising

Display advertising refers to the use of visual ads in the form of banners, videos, and images, on websites and apps. Placements are served through ad networks like the Google Display Network and targeted based on demographics, interests, browsing behavior, and other factors.

Display ads are effective for building brand awareness, but they're also very useful for performance marketing campaigns. Retargeting ads, for example, can be used to show relevant products or offers to users who have previously visited a website, increasing the likelihood of a conversion. Display ads can also be used for direct response campaigns, where the goal is to drive a specific action like a purchase or signup. In these cases, ads are typically designed with strong calls-to-action and optimized for click-through rates.

Another important aspect of display advertising for performance marketing is the ability to track and measure results. Ad networks provide detailed reporting on impressions, clicks, conversions, and other key metrics. This data allows marketers to continually optimize their campaigns for better performance, adjusting targeting, bids, and creative elements as needed.

Email Marketing

Email marketing involves sending promotional or informational messages directly to a list of subscribers via email. It's considered highly effective for nurturing leads, driving sales, and building customer loyalty. It is also relatively low-cost compared to other digital marketing channels, which creates the potential for disproportionately large returns on advertising spend

Email campaigns can be designed and optimized to generate leads, drive sales, increase customer loyalty, or achieve other specific performance goals. Every element of an email campaign, from the subject line to the content to the calls-to-action, can be tested and refined to improve conversion rates and ROI.

For more inspiration and a broader range of tactics, take a look our dedicated article about performance marketing examples.

Benefits of Performance Marketing

Performance marketing has the potential to pay off big time. The time and money invested into this strategy comes with a guarantee of measurable results, allowing businesses to see exactly where their marketing dollars are being spent and what kind of return they are getting on that investment. Every aspect of a performance marketing campaign can be tracked and measured, from the number of impressions and clicks to the conversion rates and revenue generated. This level of transparency is invaluable for businesses looking to optimize their marketing efforts and maximize their ROI. It's also ideal when working with stakeholders who want hard data to justify their marketing spend.

To expand on that, businesses similarly benefit from performance marketing because it's inherently cost-effective. Every dollar spent on performance marketing goes towards a specific action that is valuable in some way. Liken it to paying for a cab ride - you only pay for the distance traveled to reach your specific destination. With performance marketing, you only pay when a desired action, like a click or sale, is completed. There's no wasted spend on impressions or clicks that don't convert.

In contrast, traditional marketing methods like TV ads or billboards are more like paying for a bus pass. You pay a fixed fee regardless of whether you take one ride or fifty. It's less targeted and there's bound to be some inefficiency and wasted spend.

Ultimately, the combination of measurable results and cost-effectiveness offered by performance marketing strategies creates the potential for significant returns on investment. Everyone wants that, especially as markets become more competitive and advertising dollars don't go as far as they used to.

Performance marketing is also invaluable in the sense that it informs ongoing optimization and refinement of marketing strategies. The real-time data and insights provided by performance marketing campaigns allow businesses to continuously test, learn, and improve their approach.
A/B testing different ad creatives, landing pages, or audience targeting parameters becomes much easier with the granular data available. Marketers can experiment with various elements to see what resonates best with their target audience and drives the most conversions.

Over time, this iterative process of testing and optimization leads to more effective marketing campaigns. Messaging becomes more precise, targeting gets sharper, and conversion rates climb higher. It's a constant cycle of improvement that keeps businesses ahead of the competition.

Challenges In Performance Marketing

We won’t lie to you and say that performance marketing is the catch-all solution to every business’ advertising needs. Far from it, in fact. The benefits of this approach are only reaped – and only matter – when case-specific goals and limitations are considered ahead of time. The sections below explain three potential areas where performance marketing might create unnecessary risk, work, or spending for your business.

Compliance and Privacy Issues

Performance marketing is like all powerful things in that it has rules – particularly with respect to how the data that guides it is obtained and used.

We live in a world rich with information, and everyday consumers share plenty of it when they go online. Advertisers use what they learn from this behavior to better plan and target campaigns to specific audiences. That’s how it has always worked, but after years of violated trust, it may not be the status quo for much longer.

The issue of data privacy has ballooned in relevance with technology’s integration into our daily lives. More people online means more information being circulated, and therefore greater exposure to misuse. Certain companies have engaged in practices that don’t wholly respect the sensitivity of the data they collect. Misleading terms of service, undisclosed data sharing, and security breaches have left many feeling betrayed and vulnerable.

You don't need to look far back to find real-life examples. The world's largest social media platform, Facebook, has a long track record of privacy missteps. In 2018, it was revealed that the company allowed third-party developers to access user data without explicit consent, resulting in the improper harvesting of millions of profiles by Cambridge Analytica. More recently, a data leak exposed over 500 million users' personal information online.

These high-profile incidents have eroded public trust and galvanized calls for better consumer data protection. Users are demanding more control over how their information is collected and used. Governments are taking notice and enacting policies to enforce accountability.

The advertising industry is at a crossroads as it reckons with this new landscape. Brands and their partners must adapt their data practices to stay above board while still delivering the personalized experiences consumers expect. Doing so is important to maintaining trust with the public, of course. But it’s also becoming law in many regions around the world.

Europe’s General Data Protection Regulation (GDPR) laid the foundation for consumer privacy policing and enforcement when it was first implemented in May 2018. The framework protects citizens of all member countries of the European Union from data misuse by requiring companies to obtain explicit user consent before engaging in any collecting or processing activities. It also provides the public with a list of rights such as the right to access, rectify, delete, and restrict the processing of their personal data.

The GDPR, along with the California Privacy Rights Act (CPRA), the Virginia Consumer Data Protection Act (VCDPA), and other laws like it, complicate performance marketing. Every region has its own rules on what does and does not constitute lawful collection and processing, so what's legal in one area may not be legal in another.

Third-party cookies -- the main technology marketers use to acquire detailed data about online audiences -- are one of many collection methods under threat for their privacy implications. Companies are expected to go about using them differently depending on the consent laws in an individual user's country of residence.

Fines for Non-Compliance

While in place to protect people from unscrupulous practices, the growing body of privacy regulations around the world complicates and heightens the stakes of tactics like performance marketing.

For instance, the GDPR applies to any organization that processes the personal data of EU citizens, regardless of where the organization is based. Non-compliance can result in hefty fines of up to 4% of a company's global annual revenue or €20 million, whichever is higher. For some companies, the mere risk of having to pay that penalty is enough to pursue alternative marketing strategies.

Fraud and Invalid Traffic

Fraud and invalid traffic are two other potentially deal-breaking drawbacks. Kind of like how there are tools designed to help students cut corners during the essay writing process, technology exists to help fraudsters generate fake clicks, leads, and conversions. These tools make it possible for bad actors to manipulate campaign data and drain advertising budgets without providing any real value in return.

The risk is especially pertinent to performance marketing endeavors, where success is defined by measurable results. An uninformed marketer may see great numbers on their reporting dashboard but really only have earned a fraction of the clicks and views presented through effective marketing. Artificial traffic can't be attributed to anything and likewise can't deliver any return on campaign spend.

Advertisers can protect themselves by partnering with reputable ad networks and agencies, implementing fraud detection solutions, and closely monitoring their campaigns for suspicious activity. It takes a multi-pronged approach to ensure performance data is valid, which again comes with extra work for businesses.

Ad Blockers

Ad blockers are highly appreciated among consumers who are tired of having the same-old pop-ups interrupt their online experiences. At the same time, these tools make marketers' lives one hundred times harder by blocking the ads they work so hard to create and limiting the data they can collect.

The numbers-driven discipline of performance marketing is particularly affected by the increasing use of ad blockers. Campaigns are only as good as they are well-informed, and ad blockers limit the insights marketers can glean about their audiences and the performance of their campaigns.

Without detailed data on ad visibility, click-through rates, and conversion metrics, it becomes much more difficult to optimize campaigns for maximum ROI. Marketers must find creative workarounds and alternative strategies to connect with ad-blocking consumers and gather the data they need to effectively measure and improve their efforts.

Best Practices for Effective Performance Marketing

You don't want to go into the performance marketing game blind. While results are technically guaranteed, success isn't. All too many businesses make the false assumption that they're doing enough by simply running a results-based campaign. Truly maximizing the return of your advertising spend requires a lot more work. Keep reading to learn what best practices are capable of making the biggest difference in how much you benefit from performance marketing.

Set Clear Goals and KPIs

As an inherently numbers-driven strategy, performance marketing involves the heavy use of Key Performance Indicators (KPIs). Metrics serve as a way of monitoring progress against goals, and it’s through changes in them that brands understand which actions they take have the most effect. Not all KPIs are worth tracking, however. Data is only valuable when it’s relevant to the campaign and objectives at hand.

As a reminder from earlier, performance marketing campaigns typically focus on a core set of KPIs that directly tie to the primary goal, such as:

  • Cost Per Acquisition (CPA): The average cost to acquire a new customer. Calculated as total ad spend divided by number of new customers acquired.
  • Return on Ad Spend (ROAS): The revenue generated for every dollar spent on advertising. Calculated as revenue from ads divided by ad spend.
  • Click-Through Rate (CTR): The percentage of ad impressions that result in a click. Calculated as the number of clicks divided by the number of impressions.
  • Conversion Rate: The percentage of ad clicks that result in a conversion (e.g. a purchase or lead). Calculated as the number of conversions divided by the number of clicks.

To select the most impactful KPIs for your performance marketing campaigns, consider the following best practices:

Align KPIs with Business Objectives

Your KPIs should directly measure progress against your primary campaign goal, whether it's driving sales, generating leads, or another key outcome. Avoid "vanity metrics" that don't tie to bottom-line results. For example, if your goal is to drive sales, focus on KPIs like Cost Per Acquisition (CPA) and Return on Ad Spend (ROAS) rather than metrics like impressions or likes that don't necessarily translate to revenue.

Focus on a Core Set of 3-5 KPIs

Tracking too many KPIs leads to data overload and loss of focus. Hone in on the 3-5 most critical indicators of success. You can always layer on secondary KPIs later as needed. For instance, an ecommerce brand might focus on ROAS, CPA, and Customer Lifetime Value as their core KPIs, while treating metrics like CTR as secondary.

Select KPIs That are Actionable

The metrics you track should provide insights you can act on to optimize performance. If a KPI doesn't help inform your marketing decisions, it may not be worth including. As an example, tracking the Bounce Rate on your ad landing pages is highly actionable, as a high bounce rate indicates the need to improve the page's relevance and user experience.

Conversely, tracking Ad Frequency provides little actionable insight.

Establish Targets for Each KPI

Define clear performance targets you are aiming to hit. This provides a benchmark to measure progress against. Targets should be ambitious but achievable based on past performance and industry benchmarks. For example, if your average CPA last quarter was $50, you might set a stretch goal of reducing it to $45 this quarter, assuming that aligns with industry CPA averages for your vertical.

Regularly Review and Adjust

As your campaigns run, analyze your KPI data to see what's working and what's not. Don't be afraid to adjust your KPI mix if you find certain metrics are more or less relevant than expected. Performance marketing requires ongoing optimization. For instance, say you initially included CTR as a core KPI, but after a month you find that CTR is high while conversions remain low. This suggests CTR is not a strong indicator of success for your campaign, and you may want to replace it with a metric more predictive of bottom-line results, like Conversion Rate.

Know How to Target Your Ideal Customer

This best practice should be obvious, but you’d be surprised by how many businesses fail to properly define their ideal customer. It’s not just a marketing exercise – audience research forms the basis of ad planning and targeting. As such, it also has a massive influence on the success of performance marketing campaigns. The more you know about each customer, the better you can tailor your ads to their individual needs and interests, and the more likely you are to see engagement.

How to Build an Ideal Customer Profile for Performance Marketing

To create an ideal customer profile, start by gathering data on your existing customers. Look at demographics like age, gender, location, income level, and education. Then dig deeper into psychographics - their interests, hobbies, values, and lifestyle. Analyze their behavior too, such as how they interact with your brand, what channels they use, and their purchase history.

Next, identify patterns and commonalities among your best customers. What characteristics do they share? Use this information to build a detailed profile of your ideal customer. Give them a name, a face, and a story.

For example: Meet Sarah, a 35-year-old working mother living in the suburbs. She's college-educated, with a household income of $75,000. Sarah is health-conscious and enjoys yoga, organic cooking, and spending time outdoors with her family. She's always on the lookout for natural, eco-friendly products that can simplify her busy lifestyle.

Sarah primarily shops online for convenience and frequently uses her smartphone to browse and make purchases. She's active on Instagram and Facebook, where she follows her favorite brands and engages with their content. Sarah values quality, sustainability, and brands that align with her values.

Generating performance - or engagement - from an ideal customer like Sarah would mean showing up where she is already active and engaged (Instagram and Facebook). It would also mean creating content that resonates with her values and interests, such as eco-friendly product spotlights or healthy lifestyle tips.

The ad creative should feature images and messaging that speak directly to Sarah's lifestyle and aspirations. For example, an ad might show a woman who looks like Sarah practicing yoga in a beautiful outdoor setting, with a headline like "Simplify your wellness routine with our eco-friendly yoga gear."

The ad copy could emphasize the key benefits that matter most to Sarah, such as:

  • Made from sustainable, organic materials
  • Designed for busy, active lifestyles
  • Helps you look and feel your best, naturally

The call-to-action should be clear and compelling, urging Sarah to take the next step, whether it's learning more about the product, signing up for a newsletter, or making a purchase.

Tap Into First-Party Data

We’ve already talked about the prevalent but problematic use of third-party data-sourcing technology at length. Given all of the uncertainty and risk that comes with it, you might want to consider an alternative, or at the very least complementary, method.
First-party data is data you collect directly from your customers. Unlike third-party data, which is defined by tracking, sharing, and buying personal information, this type of data comes directly from your audience's behaviors and interactions with your brand. It can include information like purchase history, website activity, email engagement, customer feedback, and more.

The key advantage of first-party data is that it is unique to your business. No other company has the exact same set of customer insights that you do.

Some effective ways to collect first-party data include:

  • Encouraging account creation and logins on your website
  • Offering loyalty programs or rewards for repeat purchases
  • Conducting customer surveys and feedback requests
  • Tracking engagement with your email marketing campaigns
  • Analyzing on-site user behavior through web analytics

First-party data can be just as valuable to performance marketing campaigns as the third-party kind. For example, you can use data on existing customers' purchase history and product preferences to create lookalike audiences for prospecting ads. Or leverage email engagement data to retarget active subscribers with relevant offers.

Engage In Continuous Optimization

No strategy is perfect on the first try. That’s especially true in performance marketing, which is a discipline defined by ongoing iteration and improvement. There's really no limit to how successful an advertising campaign can be. Performance marketing is all about leveraging data to see just how far you're able to go.

Yet many continue to underappreciate the importance of continuous optimization. It's something that ought to be done regularly, not out of a lack of confidence in one's initial strategy, but out of an understanding that there is always room for improvement. Complacency is the enemy of success in this field.

The ideal frequency and cadence for optimization will vary depending on factors like your budget, audience size, and the nature of your campaign. At a minimum, you should be analyzing performance and making adjustments on a weekly basis. For larger budgets and more complex campaigns, daily optimizations may be necessary.

When assessing areas for improvement, start by looking at your key performance metrics like click-through rates, conversion rates, and return on ad spend. Identify elements that are underperforming and prioritize optimizations that will have the greatest impact.

This could involve things like:

  • Adjusting bids and budgets
  • Refining audience targeting
  • A/B testing ad creative and landing pages
  • Experimenting with new ad formats and platforms
  • Pruning low-performing placements, ads, and keywords Reallocating budget to top-performing segments
  • Expanding to new geographic markets
  • Adjusting dayparting and ad scheduling
  • Testing new bidding strategies and algorithms
  • Leveraging automation tools to optimize at scale
  • Conducting full-funnel analyses to identify drop-off points
  • Gathering qualitative feedback to supplement quantitative data

Sometimes small tweaks can make a big difference, while other times you may need to overhaul major components of the campaign. The key is to always be testing and iterating based on hard data rather than assumptions.

It's also important to keep a pulse on your market and competition. Regularly analyze what other advertisers in your space are doing. Tools like Adbeat and WhatRunsWhere allow you to dissect their ad creative, landing pages, and publishing partners to derive insights you can apply to your own campaigns.

Leverage Technology

Performance marketing has existed for a long time, but how it’s been approached has evolved significantly over the years. Modern tools provide today’s marketing teams with access to much more data than they would have 20 or even 10 years ago. It’s now easier to obtain an understanding of who your audience is, what they like, how they think, and where they’re most receptive to advertising outreach. Technology similarly enhances businesses’ ability to target ideal customers.

Performance marketing has existed for a long time, but how it’s been approached has evolved significantly over the years. Modern tools provide today’s marketing teams with access to much more data than they would have 20 or even 10 years ago. It’s now easier to obtain an understanding of who your audience is, what they like, how they think, and where they’re most receptive to advertising outreach. Technology similarly enhances businesses’ ability to target ideal customers.

As consumer attention becomes harder and harder to catch through traditional ad placements, features like intent targeting will become indispensable for businesses looking to optimize their marketing campaigns for optimal performance. This technology goes beyond basic demographic data with the goal of understanding a user's mindset and objectives in a given moment.

For example, consider a user who has been browsing various websites to compare car models and prices. An intent-targeting platform could recognize this behavior and serve the user an ad for a local car dealership offering competitive deals. The ad would reach the user at a time when they are most likely to be receptive and take action.

Of course, intent data is just one part of a successful performance marketing campaign. With the value of technology-driven data insight being established, human judgment still plays a large role in garnering ROI. Because it still takes an understanding of the real world to effectively match consumers with relevant ads, and likewise create placements that effectively evoke the desired action from the audience. Marketers must be able to interpret data signals to craft compelling creative assets and calls to action that will resonate with their target customers. This ties back to the value of working with a qualified marketing agency. Rich in both resources and expertise, professional service providers are well-equipped to fulfill the multifaceted needs of a modern performance marketing campaign.

Perform at Your Best with the Help of JTN

Performance marketing is an incredibly powerful domain with the potential to drive tangible results for businesses of all sizes. Like any other aspect of marketing, though, it isn’t foolproof. Executing a successful campaign takes a lot of work, which must be invested both upfront and on an ongoing basis. The advanced tactics and tools used for performance marketing come with a learning curve as well. Most small to medium-sized businesses don’t have enough expertise to make the most of this approach in-house. Even larger companies struggle to make the most of the investments they put into performance-oriented campaigns. Going back to increasing legal and regulatory guardrails on how marketing data is collected and used, it’s safe to say that a majority of organizations aren’t equipped to properly conceive, plan, launch, and maximally benefit from performance marketing on their own.

An experienced New York performance marketing agency like JTN can lead you through the process with cost-effectiveness and confidence. Experts who have been around the proverbial block of performance marketing before know what works – and also what doesn’t. You could opt to learn this yourself by making mistakes or save a lot of time and money with the kind of foresight that comes with years of experience in the marketing space. Our group is well-respected globally because it delivers on its promises of performance. Take the first step towards performance-based marketing - get in touch with JTN to discuss options and recommendations.

What is Performance Marketing, and Why is it Important?
Lucinda Moorefield

Lucinda is a Marketing Manager at JTN Group in London where she leads the Paid Social team. Outside of her work Lucinda plays sports on three continents and coaches and participates in international debating competitions. Learn more about JTN Group here.


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