“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” When the legendary 19th-century merchant John Wanamaker said this, he captured the angst of generations of business owners. Marketing and advertising clearly work—but how, and to what extent?

 Performance marketing aims to solve this tension by focusing on the part of marketing that performs in a measurable way. The term, first introduced in the mid-1990s shortly after internet marketing, was a stroke of branding genius by marketing companies. If they have the choice, why would a business owner invest in anything other than marketing that performs?

Digital advertising platforms like Google and Meta have helped make good on this promise by delivering incredible sales results and comprehensive performance data, which has grown the industry by an order of magnitude. (Meta had more than 10 million advertisers on its platform.) But they’ve also introduced a world of complex jargon, crucial budget decisions, and misaligned expectations. If business owners don’t have a clear understanding of what performance marketing is (and isn’t), they are likely to end up no better off than our friend John.

What is performance marketing?

Performance marketing is a results-driven approach to digital marketing, where advertisers pay only when specific actions or outcomes are achieved. These actions can include clicks, leads, sales, or other desired customer behaviors. Performance marketing relies on various channels, such as affiliate marketing, pay-per-click (PPC) advertising, social media advertising, and search engine marketing (SEM).

The term performance marketing was coined shortly after the advent of pay-per-click (PPC) advertising, starting with banner (display) ads and Google AdWords (now Google Search Ads).

How does performance marketing work?

Google and Meta (which owns Facebook and Instagram) are the two common platforms for running performance marketing campaigns…

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