What is performance advertising?

Performance advertising, also known as performance-based advertising or as pay for performance advertising, is a form of advertising in which the purchaser pays only when there are measurable results.

Performance advertising has become more common with the widespread of the Internet, where it is technically possible to measure user actions resulting from advertisement.

There are four common pricing models used in the online performance advertising market – CPM, CPC, CPL, CPS – whereas the last two CPL and CPS are often referred to as just CPA.

CPM – Cost per Mille or Cost per Thousand. You pay X eur for every 1000 people who see the advertisement. For example 5 eur for every 1000 impressions. The problem with CPM advertising is that advertisers are charged even if the target audience does not click on the advertisement.

CPC – Cost per Click. You pay when someone clicks on the advertisement. For example 0.4 eur for every click. CPC advertising overcomes the problem there is with CPM and charge advertisers only when the consumer clicks on the advertisement. However, due to increased competition, search keywords have become very expensive.

CPA – Cost per Action or Cost per Acquisition. You pay when a person performs a specific action on your website. There are typically two variations of CPA’s and as an advertiser, you have to choose wisely between the following:

CPL – Cost per Lead. You receive a prospect, a lead, but not an actual customer. Your sales team still has to sell the product or service to this lead. CPL models allow advertisers to pay only for qualified leads as opposed to clicks or impressions and bring great ROI and are often referred to as the most advertiser-friendly performance pricing model.

CPS – Cost per Sale. You receive a real customer who buys the product or service that you are offering. The advertiser typically pays for a completed sale involving a payment transaction. If a visitor to the website doesn’t buy anything, there’s no commission.

Traditional advertising networks and performance-based advertising channels such as Google Adwords and Facebook Ads are usually working based on CPM and CPC pricing models.

In the affiliate marketing world mostly CPL and CPS models are used by merchants and affiliate networks which is also the reason why affiliate marketing is described as having an army of online sales representatives that only get paid when they deliver you an actual customer.

Read more: Affiliate marketing explained

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