Last Updated: November 25, 2020

When reading a magazine, do you take the time to read every advertisement, or do you skip past all but the most eye-catching ones? When purchasing an ad in a magazine with a large audience, a company must pay for that large audience—but many readers may still never notice the ad (particularly if it faces one of the least interesting articles in the magazine, which is also not read). Rather than pay full price for a magazine advertisement without any indication of its performance, more companies are looking online for cheaper alternatives.

What is performance-based marketing?

Performance-based marketing is a method of interactive advertising paid for not with a set price, but with a variable price that depends on the performance of the ad. For example, the cost of an ad might be based upon how often it’s viewed on a webpage, how often it’s actually clicked, how often it actually generates a lead, or how often it results in a sale.

While this form of advertising has been created for and developed on the Internet, and lately expanded to mobile marketing, versions of it can also work in other media. For instance, CPM advertising (see Performance-based Marketing Payment) has been implemented by directory-assistance providers.

A subset of performance-based marketing is affiliate marketing, which pays Internet publishers (affiliates) to promote a particular product or service, paying a commission for each lead or sale generated by the affiliate website.

Who implements performance-based marketing?

Performance-based advertising is purchased by companies that use the Internet to reach customers. These range from car dealerships to fashion retailers to insurance companies, to those questionable sellers that promise “one trick” to look younger or lose weight. Meanwhile performance-based ads are particularly attractive to small businesses with smaller budgets. By purchasing cost-per-action (CPA) ads, they can be assured that every advertising dollar leads to a positive return on investment.

Performance-based advertising can be purchased from a wide variety of web publishers—pretty much any website that seeks to make money from the traffic it generates, as opposed to (or in addition to) selling its own products and services. Popular hosts of performance-based advertising include search engines such as Google, popular home pages such as Yahoo!, social media networks such as Facebook, e-mail providers such as Juno, and a number of individual blogs. (See also Search Marketing)

For what kinds of customers is performance-based marketing effective?

As an Internet tool, performance-based marketing typically reaches those who spend the greatest amount of time online. Additionally, while a CPM advertisement can promote an offline purchase, most performance-based advertising promotes online sales; therefore, it’s assumed that the audience for a given ad is already comfortable with making transactions online. This makes such messaging less effective for seniors than for a generation who has grown up with mobile devices and online commerce.

How is a performance-based marketing campaign developed?

While performance-based advertising only costs money when it is effective, this feature does not automatically elevate it above other forms of marketing. The return on investment may be positive, yet smaller than with alternative methods. In order to make performance-based marketing work, businesses must develop attractive ads and easy-to-understand landing pages and click-thru processes.

There are several kinds of Internet ads available for purchase on a cost-per-view (CPM; “M” being the Roman numeral for a thousand) basis, including banner ads and pop-up/pop-under ads. However, this is the weakest form of performance-based advertisement—because while companies pay according to audience size, there’s still no guarantee that the audience will respond to the ad.

Cost-per-click (CPC) is a better option, since companies only pay when customers actually respond to the ad. But will they buy? This part depends upon where their click takes them—the “landing page” provided.

The landing page should be optimized for the user’s experience; it must be easy to read, easy to use, and present a compelling value proposition to the customer (who, remember, has come to the page on purpose). An ineffective landing page means that a company pays for customers to show up, shake their heads, and go home. Therefore, the marketing campaign must involve both the advertising and web development teams, emphasizing that CPC ads are only effective when connected to effective landing pages. (See also “Pay-per-Click Marketing)

CPC ads work best when posted with relevant content, such as a blog which discusses the industry or reviews products such as the ones sold. One of the most powerful methods to align with relevant content is to advertise with a search engine like Google; by linking a CPC ad with a search keyword, it will only appear to people running searches related to the ad.

However, the most popular keywords are naturally the most expensive (simple supply and demand: many advertisers, limited space to display the ads). Thus a popular keyword may cost several dollars per click, while a less-popular keyword costs only a few cents per click. The exact cost is usually determined by auction. (However, the seller may choose to sell to other than the highest bidder: If a lower per-click bidder is anticipated to have a much bigger response—and thus, produce more clicks total—the seller may make more money from them instead.)

What career titles work with performance-based marketing strategies?

Internet Marketing Manager

Advertising Account Manager

Web Developer

How can a marketing school help you succeed?

Performance-based advertising may reduce a company’s risk, but in order to make it effective in generating sales, those employing it need to evaluate the various opportunities found in the online market, and present clear and persuasive communication to both consumers and advertising hosts.

Marketing programs emphasize communication and analysis, helping you not only develop persuasive verbal skills, but build proficiency with graphic messages, pragmatic context, and multimedia to increase the impact of your messages. Meanwhile, marketing classes will help you to understand both markets as a whole, as well as how smaller market segments function. You will learn how to identify a target market, and collect data about how it responds to different communications.

Classes in statistics and in economics will further develop your ability to analyze markets, and seize opportunities. Classes specific to Internet business and e-commerce will equip you with the knowledge and skills to successfully engage in Internet marketing, including performance-based advertising. You will be able to handle your client’s role as both a seller (of products or services) and a buyer (of advertising) in its respective markets. Finally, classes in business management and leadership will prepare you for your career environment, so that you can work with and over people in achieving business results.

To learn more about what a marketing program can help you professionally, request information from schools with degrees in marketing, and discover what they can do for your own career performance.