Performance-Based Marketing: Where to Start and How to Budget Smart

I recently came across a thread from a local service business owner making about $1M in annual revenue. They shared that they were spending around $100,000 a year on a marketing agency — with little to no visible impact on their bottom line. They were asking if it was time to cut ties and take marketing into their own hands.

And all I can say is they probably wouldn’t be in this position if they had taken a performance-based approach from the start.

What is Performance-Based Marketing?

Performance-based marketing is where you only pay for specific outcomes, like clicks, leads, or sales, rather than time or deliverables.

Instead of paying an agency or freelancer a flat fee or hourly rate, you pay based on what their work actually achieves.

For example, if you hire someone to run paid ads, you don’t pay for the time spent setting up campaigns — you pay for the number of qualified leads or conversions the ads generate.

Who Can Do Performance-Based Marketing?

There are different types of professionals you can turn to to perform performance-based marketing for your business. These include:

• Freelancers – solo marketers or specialists (like PPC experts or SEO pros) who charge based on performance.
• Agencies – marketing firms that tie compensation to campaign results.
• Affiliate marketers – partners who promote your product or service and earn commissions only when they drive sales or signups.
• Publishers – websites or media outlets that drive traffic to your site and get paid when their visitors take a specific action (like filling out a form or making a purchase).

Top Performance Marketing Channels

If you’re thinking about trying this model, here are the most common channels where performance marketing actually works:

1. Paid search (Google Ads)

Probably the most classic example. You can run campaigns where you only pay when someone clicks your ad (PPC) or when they take a specific action on your site. 

It can get tricky, though. A click doesn’t always mean revenue — some clicks come from bots, and many don’t convert. That’s why you need a solid funnel and a clear attribution setup. Or, better yet, focus on deeper actions, like form submissions or purchases, to drive performance that ties back to ROI.

I’ll talk more about KPIs that matter most in a performance-driven marketing approach later in the article.

2. Paid Social (Facebook, Instagram, LinkedIn, etc.)

As with paid search, you can have your campaigns optimized for traffic, leads, or conversions. 

Just keep in mind that even if you’re outsourcing on a performance basis, you’ll still be responsible for the actual ad spend. That cost goes directly to the platform (like Facebook or LinkedIn) and is separate from what you pay the expert for the results they deliver.

3. Affiliate Marketing

Here, you partner with individuals or businesses who promote your offer and get paid only when they generate a sale, lead, or other agreed-upon result. Great for extending your reach without upfront risk.

4. Influencer Marketing (Performance-Based)

Not all influencer campaigns are paid upfront. You can negotiate deals where influencers earn a commission based on actual conversions — a win-win when you’re working with creators who have a proven track record of driving sales.

5. Native and Display Advertising

You can partner with a freelancer, agency, or work directly with publishers to run ads across content platforms, news sites, and apps.

These campaigns are usually priced per click or per action. They tend to perform best when combined with retargeting, and their success depends on strong creative and precise audience targeting. Just make sure your partner has reliable attribution in place, so you’re only paying for results that matter.

6. Email Marketing (affiliate or partner-led)

Performance-based email campaigns can be run through affiliates or partner newsletters, where you only pay if their subscribers take the desired action.

7. SEO and Content Marketing

While SEO is usually seen as a long-term play, it can be performance-based. You’ll find high-performing freelancers or agencies who tie compensation to specific results like keyword rankings, traffic increases, or qualified leads.

For example, instead of paying a flat monthly retainer, you might agree to pay when a target keyword reaches the top 3 positions, or when organic traffic hits a certain threshold.

Not sure how to pick a keyword? Luckily, there are plenty of tools out there to help. You might start with keyword tools like Ubersuggest:

SEO is a good candidate for performance-based models if you’re patient and have clear, measurable goals tied to organic growth.

Performance-Based Marketing KPIs

When you’re paying for results, it’s important to track the right results.

Vanity metrics like impressions, clicks, or reach might look impressive on a report, but they don’t always tie back to revenue.

In a performance-based setup, you’ll want to focus on KPIs that clearly reflect business impact. These often include:

• Leads generated – new contacts who meet your qualification criteria (e.g., filled out a form, booked a call).
• Conversions – completed actions tied to value, like purchases or sign-ups.
• Cost per acquisition (CPA) – how much you’re paying per actual customer or lead.
• Return on ad spend (ROAS) – revenue generated compared to what you spent on ads.
• Customer lifetime value (LTV) – especially useful if you’re optimizing for long-term revenue, not just one-off sales.

Leads and conversions are good for short-term campaigns. They’re easy to track and give quick results.

But if you’re working with someone long-term, it’s better to focus on deeper metrics like CPA, ROAS, and LTV. These show how well your money is being spent over time.

They can be harder to measure, and results won’t come right away. But if your marketing partner can meet those goals, it usually means your investment is paying off.

At Neil Patel Digital, we focus on driving measurable performance for our clients. For ZAGG, that meant starting with an 18% reduction in cost per conversion and a 26% increase in sales per click. Over time, those gains helped boost total revenue from paid search by 38% year-over-year.

Pros and Cons of Performance Marketing

Performance-based marketing is a results-driven approach that works well for many, but it also has its share of limitations.

The Benefits of Performance-Driven Marketing

Higher Chances of Positive Outcomes

When someone’s income depends on the results they drive, they’re more likely to dig deeper, test smarter, and work harder to hit your goals.

Easier to Analyze and Justify ROI

You’re not paying for vague deliverables like “brand awareness” or “engagement.” You’re paying for actions tied to revenue, which makes it much easier to track what’s working and what’s obviously not.

Better Overall Understanding of Your Target Audience

Over time, you end up with a clearer picture of who your best customers are and what messaging, offers, or channels bring them in.

Lower Risk

You’re not throwing thousands at a marketing agency and hoping for the best. You only pay when the agreed-upon results show up, so your budget is protected from underperforming campaigns.

*That is, of course, assuming you’re paying for revenue-tied KPIs — not vanity metrics like clicks, which can be inflated by bots or low-quality traffic.

Scales With Your Growth

Performance-based fees often scale with volume, so you only pay more when you’re earning more. That’s a big plus if you’re trying to grow without inflating fixed marketing costs.

The Limitations of Performance-Driven Marketing

Too Much Focus on Immediate Results

Good marketing takes time. You need space to test, learn, and optimize before things really start to click. But if you’re in a rush to see conversions right away, you might miss the insights and fine-tuning that actually make campaigns successful long-term.

Revenue-Based Results Take Time

If you’re tracking ROAS or LTV, you won’t always see results right away. You’ll likely need to start with more attainable goals early on (like leads or conversions) and work toward deeper revenue-based metrics as your relationship with the marketing partner develops.

Not Every Marketer Will Offer This Model

Sometimes, the marketer or agency you want to work with might not offer performance-based pricing. That doesn’t mean they won’t deliver results — but they might have concerns about things like how long it takes to see meaningful outcomes, or the complexity of your industry and buyer journey.

Tracking Needs to be Bulletproof

If you’ve ever tried setting up tracking yourself, you know how easy it is for data to get lost or misattributed along the way.

When you’re tracking more than just traffic or clicks, there’s a lot more room for error. So you’ll need to keep a close eye on performance data or make sure your marketing partner has solid tracking in place.

You Can’t Always Measure Marketing Impact

No visible impact doesn’t necessarily mean no impact at all. 

If your buyer journey is on the complex side, chances are your audience needs time to notice you, trust you, and eventually buy from you. That kind of slow-burn impact — like building brand awareness or warming up leads — is harder to measure but just as important for long-term growth.

Is Performance-Based Marketing Right For You?

Performance-based marketing is a great fit if you:

• Want to reduce upfront risk
• Have clear, measurable goals (like lead generation or product sales)
• Are working with a channel that’s easy to track (like paid search or affiliate marketing)
• Have a funnel that’s already converting or are willing to invest in building one

But it might not be the best model if your goal is brand awareness, if your sales cycle is long and complex, or if you don’t yet have a way to accurately measure what counts as a “win.”

Even then, a hybrid approach could work — for example, paying a base retainer with performance bonuses once certain goals are met.

How to Start With Performance Marketing

When you’re ready to try performance-based marketing, these three steps will help you get off on the right foot.

Define What Success Looks Like

Define success in terms of outcomes that tie back to business growth. A few examples:

• Qualified leads (not just any form fill — leads that meet your criteria)
• Purchases or trial signups
• Booked calls or demos
• Revenue milestones, like X amount of sales from a specific campaign

You won’t always be able to tie results directly to revenue — especially if your sales cycle is long or has lots of steps. In that case, focus on earlier signals that usually lead to revenue, like qualified leads or booked demos. Just make sure you can back it up with solid attribution.

Speaking of which…

Nail Attribution

Attribution helps you connect the dots between your marketing activities and business results — so you can confidently say, this lead came from our LinkedIn campaign or that sale was driven by a specific partner email.

Without it:

• You risk overpaying for results that weren’t actually driven by your partner
• You might underpay a contributor who’s driving high-quality leads but not getting credit
• You’ll struggle to double down on what’s working or cut what’s not

To set up attribution that works:

1. Use UTM parameters and trackable links for every campaign
2. Set up conversion tracking in tools like Google Analytics, Meta Ads Manager, or your CRM
3. Align on what counts as a conversion
4. If your sales cycle is long or complex, consider using a multi-touch attribution model (e.g., first-touch, multitouch, or last-touch)

Choose the Right Channels

Not every marketing channel works well with a performance-based approach. You’ll want to focus on channels where:

• Actions are trackable (like clicks, signups, or purchases)
• Results can be tied back to a specific campaign or partner
• Attribution is straightforward (or at least manageable)

That’s why paid search, paid social, affiliate, and email partnerships are often the go-to. They allow for clear tracking and quick feedback loops. 

On the flip side, channels like organic social or brand PR might still support your funnel — but they’re much harder to tie to specific outcomes and better suited for long-term brand building.

Budget for Learning Before Expecting Results

Before you expect leads to start rolling in, you need to invest in understanding what actually works. Set aside a few thousand dollars (or more, depending on your market) specifically for learning, not for conversions. 

This budget isn’t just for testing ad channels or creatives, but also for figuring out if your website converts, if your messaging resonates, and where the friction points are in your funnel.

Consider Gradually Moving to a Performance-Based Model

It might sound appealing to only pay for results, but until you’ve built baselines — average CPLs, conversion rates, sales cycles — you’re flying blind. 

Instead, propose a 2–3 month learning phase where you pay a flat fee. This gives your marketing partner the space to test, optimize, and gather real data without being pressured to deliver instant ROI. 

If you want to add an incentive, let them know any customer they help bring in during that period will count toward future performance-based compensation. It will set you both up for a more sustainable, fair partnership.

FAQs

What is performance marketing in simple terms?

Performance marketing is a type of marketing (often outsourced) where you only pay when a specific action happens, like a click, sign-up, or purchase.

What is the goal of performance marketing?

The goal is to get measurable actions from your marketing campaigns without wasting money. Every dollar spent should bring a clear return.

Is performance marketing the same as SEO?

No, they’re not the same. SEO is a marketing tactic focused on getting your site to show up in organic search results. Performance marketing is a broader approach that might include SEO, but isn’t limited to it.

What is the difference between marketing and performance marketing?

Marketing is a broad term that includes everything from building brand awareness to writing blog posts. Performance marketing is just one part of that, and it focuses only on activities where results can be tracked and measured.