Foundations · Lesson 1 of 6
What performance marketing is, and the one number behind it
About 9 minutes · Yogender Kumar, Managing Partner
By the end of this lesson you'll be able to
- Explain the difference between paying for attention and paying for results
- Work out the most you can afford to pay to win one customer
- Name the five main performance channels and what each one charges for
Why this matters
Picture a Monday budget meeting. Last month you spent £10,000 on advertising, and the finance director asks a simple question: how many customers did that bring in, and did we make money on them? If nobody can answer, the advertising budget is usually the first thing cut. Performance marketing exists to make that question easy to answer.
The core idea
Traditional advertising buys attention. You pay for impressions, airtime or two weeks on a billboard, you pay up front, and you hope it works.
Performance marketing starts from the other end. You decide what result you're buying (a sale, a qualified lead, an app install) and you pay when that result happens, or you steer every pound towards it. That moves much of the risk from you to whoever sends the traffic. It's also why tracking matters so much: if you can't count a result reliably, you can't pay for it reliably.
The number that holds it all together is cost per acquisition (CPA): what you pay, on average, to win one result. On its own a CPA tells you very little. It only means something once you set it against what a customer is worth to you.
Two ways to buy advertising
Paying for attention
Paying for results
Worked example
Northfield Home is an imaginary online homeware shop, so the figures here are illustrative. Its average order is £60, and after product and delivery costs it keeps 40%, which is £24 per order.
That £24 is the break-even CPA. Pay more than that to win an order and the first sale loses money. Northfield wants to keep at least £6 on every first order, so its target CPA is £18.
Northfield puts £3,000 into each of two campaigns:
- Campaign A buys 1,000,000 display impressions. Tracking shows 60 orders, so the CPA is £3,000 ÷ 60 = £50. That's £26 more than an order earns.
- Campaign B pays affiliate partners £15 for each validated sale. It brings in 200 orders, so the CPA is £3,000 ÷ 200 = £15. Northfield keeps £9 on each order, or £1,800 in total.
The two campaigns cost exactly the same, but only one of them pays its way, and the target CPA is what shows it. Without it, both would just be "£3,000 of marketing".
To be fair to Campaign A, display ads can build awareness that helps later sales, and Track 7 shows how to test that. Customers who come back to buy again also raise what you can afford to pay, which Lesson 3 covers.
Cost per order, against the shop's limits
The five main channels
- Affiliate and partner marketing: you usually pay a commission per sale or lead.
- Paid search and paid social: you pay per click, and the platform steers towards sales or leads.
- Programmatic, bought through a DSP: you pay per thousand impressions, steered towards results.
- Retargeting: you pay for clicks or impressions, shown only to people who have already visited.
- Influencers and creators: a fee, a commission through tracked links and codes, or both.
In practice
- Write down the one result you're paying for: a sale, a lead or an install.
- Work out your margin per result. That's your break-even CPA.
- Set a target CPA below break-even.
- Check that your tracking counts each result once, and only once.
- Look at cost per result every week, channel by channel.
Common mistakes
- Judging by clicks or impressions. A cheap click that never buys is the most expensive click you have.
- Treating revenue as if it were profit. A £60 order does not give you £60 to spend on winning it.
- Adding up every platform's own report. Each platform counts the sales it thinks it caused. Add them together and you'll often "find" more sales than your shop actually took. Pick one source of truth and remove the duplicates.
Try it yourself
Your average order is £80, and you keep 35% after product and delivery costs. You want to keep £8 on every first order. What are your break-even CPA and your target CPA?
Show answer
Margin per order is £80 × 0.35 = £28, so your break-even CPA is £28. Your target CPA is £28 − £8 = £20.
Quick check
Not scored. Pick an answer to see the explanation.
What makes a campaign performance marketing?
Your average order is £50 and you keep 30%. A partner wants £20 per sale. Is that a good deal on the first order?
Key takeaways
- Performance marketing buys results, not attention, and moves risk on to whoever sends the traffic.
- Your margin per order sets the most you can pay to win a customer.
- Target CPA is your break-even CPA minus the profit you want to keep.
- If a result can't be tracked reliably, it can't be bought reliably.
Further reading: the full guide on our blog