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"Half the money I spend on advertising is wasted; the trouble is I don't know which half."

This quotation from Industrial Age retailer John Wanamaker is as true for most retailers in 2012 as it was for Wanamaker in 1838, but it doesn't have to be. In fact, if you use the performance marketing model, you can know with almost 100 percent surety what every single cent -- and even half-cent -- of your advertising dollar is doing.

Why use performance marketing?

The reason performance is used today by so many merchants and online publishers today is simple: performance marketing works. It's also the best way for you to track where every single cent of your advertising dollar goes. That's because it takes offline direct marketing methods and applies the most up-to-date online tracking technology. Ad tracking technology doesn't just tell you which products sell best at which prices. You can also harvest data on which demographics buy which products at which price points, in conjunction with which other items. Best of all, this data will eventually show you a pattern that tells you how people buy, which helps you also figure out the why. Those who are experienced at performance marketing know how to deliver the right ad at the right time to the right person.

Where performance marketing fits in

Performance marketing has been used to sell everything from acai pills to cars on eBay. The way it typically works is that affiliates or associates find out where buyers are and how to advertise to them. In exchange for sending these buyers to the merchant, marketers typically receive a commission on sales. This type of marketing has sometimes received a bad name due to some of the shadier practitioners; remember the "Oprah endorses acai" scams from a few years ago? This type of sales methodology is also used by major retailers, nonprofits looking to fund the coffers and just about every hungry college student with an Amazon ad on their blog.

How performance marketing is changing e-commerce

Broad, sweeping, difficult-to-measure branding campaigns are still alive and well on the Internet. But for small operators, as well as some online giants such as Amazon.com, using the performance model is becoming the new standard. One reason for this is because online retailers can trade the uncertainty of ad spend for a commission-based model. In other words they don't have to worry about pouring thousands or tens of thousands of dollars into an ad campaign without knowing whether they'll ever see the money come back home. Instead, they'll only have to pay advertising fees on money they drew in, which can usually be written off as a commission. This makes the performance marketing model look awfully good for the small specialty operator. It turns the basic model of success into:

• Find a price point that supports competitive commissions while keeping the business profitable
• Find (or develop) a system to track which commissions are owed to whom
• Put the word out to performance marketers about the commission program

The thing that stops many small merchants is the belief that they need to develop and run their own tracking software in order to take advantage of this model. But that's simply not so. A number of ad networks and affiliate programs exist to put merchants in touch with marketers. The key is spending some time with different networks to decide which one is right for you.

Author Bio:
This is a guest post by Lindsey from ProfessionalIntern.com.