An affiliate marketing program is a method of encouraging website owners and other online publishers to promote another business’ products or services in return for a fee, normally a commission.
Many successful online traders use this performance-based marketing method, but it is often overlooked by small businesses despite it being cost effective.
Affiliate marketing is a way for merchants to reward other businesses for referring customers or visitors to them. A ‘merchant’ can be any business with an online presence, such as a retailer, service provider or advertiser. An ‘affiliate’ can be any business that publishes online, either via a website or an electronic newsletter.
The merchant provides the affiliate with the necessary information and tools and the affiliate then promotes the merchant’s products or services. The merchant makes a payment to the affiliate for every customer or visitor referred from the affiliate’s website who completes a predetermined action, for example by making a purchase or signing up for a newsletter. Affiliate marketing is a cost-effective option for merchants because affiliates get paid only when they deliver results.
How do affiliate marketing programs work?
Affiliate marketing programs work by tracking referrals from affiliates to merchants and converting the tracking results into rewards paid to the affiliates. Referrals can take the form of clicks, registrations or sales, and are usually tracked using custom links that identify the affiliate. The reward or compensation method varies, with the most common being:
- Cost per sale (CPS). This is a revenue-sharing model where merchants pay affiliates a commission for every sale made from a referral.
- Cost per action (CPA). This is a compensation method where merchants pay affiliates a reward every time a referred visitor completes a specific action, such as signing up for a newsletter.
- Cost per click (CPC). This is a method where merchants pay affiliates a fee every time a user is driven to click on a promotional link or banner that links them to the merchant’s website.
- Cost per mille (CPM). Also known as cost per thousand, this method pays affiliates for every thousand visitors driven to the merchant’s website.
Some merchants run their own in-house affiliate programmes, which require them to set up and maintain the programming infrastructure, manage affiliates, track referrals and administer reward payments. However, many merchants use affiliate networks that connect merchants to affiliates and make the administration of programmes easier.
What are good examples of affiliate marketing programmes?
Many successful online services operate some form of affiliate marketing programme. Mobile phone networks, bookmakers, credit card providers, insurance companies, broadband providers, travel agents, utility companies, digital television providers and retailers of clothes, food, and entertainment products have all benefited from them as part of their marketing activities.
The online retailer Amazon (www.amazon.co.uk) has one of the best-known affiliate marketing programmes. Amazon launched its affiliate programme in 1996 and although it was not the first, it soon became established as a benchmark for affiliate marketing programmes. Amazon set up a system where affiliates can link to any product or page on the Amazon website and receive a commission on any products sold. Go to https://affiliateprogram.amazon.co.uk for further details.
ClickBank (www.clickbank.com) is an online retailer of digital products and has paid out more than $2 billion to more than 100,000 affiliates since it was founded in 1998. ClickBank sells products on behalf of more than 12,000 vendors and makes sales in more than 145 countries. Its affiliates sign up for a free account and then choose the products they wish to promote. They are provided with bespoke links and are encouraged to post these online. Whenever someone clicks on one of these links and purchases a product, ClickBank pays the affiliate a commission of up to 75% of the sale.
Smaller businesses can also operate successful affiliate marketing programmes. SiteSell’s Site Build It! (www.sitesell.com) is a tool to help individuals build a small business online. The programme is highly rated among affiliates as it pays commission on each subscription generated and offers lifetime commission on subscription renewals. The programme has proved to be very effective for the merchant. Go to https://affiliates.sitesell.com for further information about the SiteSell affiliate programme.
What are the benefits of affiliate marketing programmes?
Affiliate marketing programmes offer benefits to both the merchant and the affiliate:
• As the merchant, affiliate programmes bring new customers and visitors to your website. The benefit of this is that you pay only on results, with the onus on the affiliate to promote your product or service in order to earn revenue.
• As an affiliate, you can earn commission or fees by promoting merchants’ products or services without having to become a merchant yourself.
How important is tracking and reporting?
For an affiliate marketing programme to work effectively, it is essential that all referrals (clicks and sales) are accurately tracked so that merchants can reward each affiliate appropriately. Affiliates must be able to trust their merchants and be confident that all referrals are tracked and correct payments made. Transparent reporting is required and most programmes have systems that allow affiliates to log in to check up-to-date referral and payment reports.
What are affiliate networks?
Affiliate networks are third parties that act as a link between merchants and affiliates, often providing administration services, such as tracking and reporting, for affiliate marketing programmes. Affiliate networks also make it easier for merchants to find suitable affiliates and vice versa. Some of the major affiliate networks include:
- Affiliate Window
- Commission Junction
- Rakuten Marketing
What industry standards and laws affect affiliate marketing programmes?
Although there are no agreed industry standards for affiliate marketing, the leading affiliate network, Commission Junction, introduced a code of conduct in 2002 (updated 2007), which has subsequently been adopted by other networks, merchants, and affiliates. Among its requirements, the code stipulates that merchants should not reverse payments to affiliates illegitimately and that they must disclose any conditions or restrictions that could have a negative effect on affiliate commission. Affiliates must not interfere with referrals or improperly use merchant trademarks, copyrights or brand names. Go to ww.cj.com/code_of_conduct.html to read the code of conduct.
How can you start an affiliate marketing programme?
The first step in starting an affiliate marketing programme is to decide whether it will be set up and operated in-house or via an affiliate network. Merchants running an in-house programme will require appropriate software to handle tracking, reporting and payment administration.
The next step is to create links and banners for affiliates to use. Most merchants provide banners in a range of sizes and formats and text links that can be incorporated into websites easily. The links and banners should be updated regularly to feature new products and developments. Dynamic links can also be created: these will update automatically without the affiliate having to change them manually. It is also important to create specific landing pages on your website, or ensure that links point to appropriate pages. For example, a link for a newsletter sign-up should point to a specific newsletter sign-up page rather than the merchant’s homepage.
Deciding on a suitable payment method and schedule is crucial to attracting affiliates and ensuring that the programme produces a healthy return on investment. If the payment offered is too low, few affiliates will be interested. If it is too high, the programme could damage the merchant’s profit margin. Affiliate programme operators usually list the payments offered to affiliates on their own websites where they can be researched and compared.
How are affiliates paid?
It is common for merchants to pay affiliates electronically, either by bank transfer or via an online payment system such as PayPal. Some merchants also offer payment by cheque. Payments are made at regular intervals – monthly or quarterly, for example – usually only if the monies due for that period are above a certain threshold. For example, some merchants will only pay when the amount due for the period exceeds £50 in order to reduce the potentially costly administration of very small payments. Although affiliates will expect to be paid promptly, accurate reporting can take time to process and it is not untypical for payments to be made up to three months in arrears.
Hints and tips
- In general, affiliate marketing is more suitable for products than services.
- Effective affiliate marketing programmes can increase a merchant’s sales or website visits. They also increase awareness of the merchant’s name and presence across the web.
- Joining an affiliate network can make it easier to administer an affiliate programme and attract new affiliates.
- Ensure accurate tracking and reporting to keep the programme running effectively and to maintain affiliate confidence.
- Keep banners and links fresh and up to date to encourage affiliates to use them and consumers to click on them.
- Check and approve affiliate applications to ensure the programme is promoted by suitable websites.
- Build relationships with affiliates, keeping them updated about new developments and encouraging loyalty