Chapter 1: Affiliate Marketing

Simply stating; Put simply: affiliate marketing is an online advertising channel connecting digital advertisers with a network of publisher websites. A publisher site is much like a traditional newspaper or magazine where advertiser(s) pay to be featured.

Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate's own marketing efforts. The industry has FOUR CORE PLAYERS: the MERCHANT (also known as 'retailer' or 'brand'), the NETWORK (that contains offers for the affiliate to choose from and also takes care of the payments), the PUBLISHER (also known as 'the affiliate'), and the CUSTOMER. The market has grown in complexity, resulting in the emergence of a secondary tier of players, including affiliate management agencies, super-affiliates and specialized third party vendors.

Merchant/Advertiser - In the world of affiliate marketing, an advertiser can be a company selling a product like electronics, airline tickets, clothing or car parts, or an advertiser could also be an insurance company selling policies. The most important thing to remember is that you are an advertiser if you are ready to pay other people to help you sell and promote your business.

Network -Third parties that provide a link between a publisher and a company to allow publishers the ability to find and join affiliate programs. Businesses that comprise an affiliate network can cover a variety of different marketing mediums, such as the internet or direct mail, or can operate in related industries. A company looking to acquire new customers will pay members of its affiliate network for the sales leads that they provide.

Publisher - A publisher is an individual or company that promotes an advertiser’s product or service in exchange for earning a commission. Advertisers contractually agree to work with a publisher, then provide the publisher with creative – in the form of links, banner or text ads or even unique phone numbers – that the publisher incorporates into their website.

Customer - The final component that completes the affiliate relationship triangle is the consumer. The consumer is the one who actually sees the ad and then makes an action (either by clicking a link or by submitting their information via a form) that takes them from the publisher’s website to the advertiser’s to complete the action, which we call a conversion.

Compensation Methods

Predominant compensation methods

Eighty percent of affiliate programs today use revenue sharing or pay per sale (PPS) as a compensation method, nineteen percent use cost per action (CPA), and the remaining programs use other methods such as cost per click (CPC) or cost per mille (CPM, cost per estimated 1000 views).

Diminished compensation methods

Within more mature markets, less than one percent of traditional affiliate marketing programs today use cost per click and cost per mille. However, these compensation methods are used heavily in display advertising and paid search.

Cost per mille requires only that the publisher make the advertising available on his website and display it to his visitors in order to receive a commission. Pay per click requires one additional step in the conversion process to generate revenue for the publisher: A visitor must not only be made aware of the advertisement, but must also click on the advertisement to visit the advertiser's website.

TYPES OF AFFILIATE MARKETING

There are actually different types or classes of affiliate marketing, and the number of types will depend on how one will classify them.

1.       Single-Tier

2.       Two-Tier

3.       Multi-Tier

Types of Single-Tier Affiliate Marketing

• Pay Per Click (PPC)

In this affiliate marketing type, the merchant pays his affiliate whenever a visitor is referred to his site that is whenever someone clicks through the merchant's banner or text ads. The affiliate gets paid a certain amount even if the visitor he referred does not purchase anything from the merchant's site.

• Pay Per Performance (PPP)

In this type of affiliate program, the merchant only pays the affiliate whenever his referral translates into an action—that is whenever the visitor he has referred actually buys something from the merchant's site or when the visitor becomes a lead. For commissions in PPP affiliate marketing usually comes in the range of 15% to 20% of the actual product sales.

Pay-per-performance affiliate marketing can be further classified into two popular types: pay-per-sales (PPS) and pay-per-lead (PPL).

Pay Per Sale (PPS)

In a pay-per-sale type of affiliate marketing, the merchants pay the affiliate a certain fee whenever the visitor he has referred to the merchant's site actually buys something from the merchant's site. Affiliates are often paid on commission basis, although other merchants would opt to pay a fixed fee. But no matter what the basis of the fee is, it is generally higher than the fee paid to affiliates in a pay-per-click affiliate program.

Pay Per Lead (PPL)

The pay-per-lead type of affiliate marketing is a slight variation of the PPS type and is often used by insurance and finance companies and other companies who rely on leads for their company to grow. In this type of affiliate marketing, the affiliate is paid whenever the visitor he referred to the merchant's site fills up an application form or any similar form related to the business of the company. Compensation for this type of affiliate marketing is based on a fixed fee whose rates approximate that of the fixed fee in the PPS type.

Two-Tier Affiliate Marketing

• In two-tier affiliate marketing programs, the affiliate is not only paid for the direct traffic or sales that he refers to the merchant's site, but also on every traffic or sales referred by various other affiliates who joined the affiliate program through his recommendation. Multi-tier affiliate marketing works the same way, although the affiliate gets additional commission for a wider number of affiliates in different tiers in the affiliate network. 

Methods of Promoting Affiliate Marketing

Publishers promote ads through multiple different methods which include but are not limited to:

1.       Onsite Banners

2.       Feature Articles

3.       Email Newsletters

4.       Social Media

5.       Interactive XML Feed

6.       Co-registration

Publishers make money simply by sharing an ad with their audience and typically benefit in the following ways:

·         Generating Sales via a CPS campaign (Cost Per Sale)

·         Generating Traffic via a CPC campaign (Cost Per Click)

·         Generating Leads via a Lead-Gen campaign (also referred to as a CPL-Cost Per Lead or CPA- Cost Per Acquisition)

The advertiser benefits by using a ‘pay for performance’ model, which costs the advertiser only on the basis of results…it is essentially what all advertisers could ever hope for, as nothing comes out of their pocket without a customer action occurring first. It’s a genius model that represents low-risk and high- rewards to both parties, and is dependent upon only traceable results.

Important Terms

·         Above the Fold

The section of a website or blog that appears in a browser when someone lands on a page on your site without them having to scroll.

·         Advertiser

This is the company that produces the products or services that you promote as an affiliate. More commonly referred to as the Merchant.

·         Adware

Also referred to as “spyware”. Adware is usually included in free computer programs users download without realizing the Adware is also part of the package. In many cases, the advertisements are unwanted and difficult to get rid of, even after uninstalling the offending program. Most merchants will not work with affiliates who want to promote their offers via Adware. Get more information on affiliate adware.

·         Affiliate

An individual who promotes products or services for a merchant in exchange for receiving compensation for the sales or leads they drive. See my post on how affiliate marketing works for additional information.

·         Affiliate Link

A link provided to you by the merchant that includes a unique tracking code specifically assigned to you for the merchant to track the sales you are responsible for generating for them.

·         Affiliate Network

A third party who provides affiliate program management to a merchant. Affiliate networks provide the technology for tracking affiliate efforts, ensure that sales are properly tracked, commissions are paid to affiliates, handle reporting for both the merchant and individual affiliates and help expose the merchant to potential affiliates for their products and services. You can find a list of the more mainstream affiliate networks here.

·         Affiliate Program

A program offered by a merchant to allow individuals to recommend or refer people to their products or services in exchange for the person doing so receiving a commission based upon a predefined desired outcome generated by the referral. The “individuals” sending the referrals are called affiliates.

·         Affiliate Software

A software program that a merchant can use to run their own affiliate program in house as opposed to using an affiliate network that helps the merchant track affiliate efforts and generate affiliate reporting.

·         Affiliate Tracking

A unique ID attached to the links you use to send traffic to the merchant that is specifically for you to track your sales for or referrals to the merchant. Example of affiliate tracking in a link: merchant.com/?ID=YOURUNIQUEID

·         Charge Back

Refers to a product being returned or a sale “falling through” that you were already paid for. Since the sale didn’t actually finalize, the merchant will deduct the amount you were previously given in commission for that sale from your affiliate commissions. In lead generation, this can also occur if the merchant decides the leads sent were unqualified or fraudulent in nature.

·         Click Fraud

In regards to affiliate marketing, click fraud most often refers to generating “fake” clicks to a merchant program that is based on a PPC compensation method. The fake clicks (which can be generated in a manual or automated fashion) have no chance of converting for the merchant since the traffic clicking the ads have no real interest in the product or service the merchant is selling.

·         Click-Through

Also sometimes spelled as “Click Thru”. This refers to the act of someone clicking on your affiliate link and being taken to the merchant’s website.

·         Click-through Rate (CTR)

Also sometimes spelled as “Click Thru Rate”. A metric used to show the number of times your affiliate link has been clicked on compared to the number of times the link has been viewed displayed as a percentage. To find your CTR, simply take the number of clicks the link has received and divide it by the number of impressions (times the link was shown) and times the result by 100 to get your CTR percentage. Example – if you are displaying a banner ad that has had 100 impressions and received 1 click, then you would take 1 (clicks) and divide it by 100 (impressions) to get .01 (result) and multiply that by 100 to arrive at a CTR of 1%.

·         Cloaking

Hiding content on a webpage or hiding affiliate tracking code in links. Hiding content on a webpage is bad as it is against the guidelines of the mainstream search engines such as Google. Hiding affiliate tracking in a link is an acceptable and widely used practice. If you’d like more information, I wrote an article on why and how I cloak affiliate links.

·         Contextual Link

Refers to a text link placed within your website or blog content versus a link that is placed in the sidebar as a more traditional advertisement.

·         Co-Branding

Some merchants will create a specific and custom landing page for an affiliate to send referrals to that contains both the merchant’s branding and the referring affiliate’s branding. Example – a merchant might create a page on the merchant’s website that shows a lead form that contains both the merchant’s logo and the specific affiliate’s logo on the page. This is referred to as Co-branding. Many times merchants limit Co-Branding opportunities to only being available to Super Affiliates.

·         Cookies

A text file that is sent from a website to a file within a user’s web browser. Cookies are used for various reasons on the web as a whole. In regards to affiliate marketing, Cookies are used to assign an ID to a user that has clicked on your affiliate link to get to a merchant website for a predefined period. If the user returns within that predefined period (whether or not they click on your affiliate link again) then you will be credited with the sale. Example – a user clicks your affiliate link (cookie gets “dropped” to their browser) and then bookmarks the merchant’s website to buy later. The user returns before the Cookie Expiration and makes the purchase. You would receive credit – and this commission – on the sale.

·         Cookie Expiration

The amount of time a Cookie set by someone clicking on your affiliate link has to show a conversion before you are no longer credited with a sale even if that user eventually ends up making a purchase. The standard length of a Cookie is typically between 30-90 days. Anything below 30 is considered low/short while anything above 90 is considered to be healthily above average.

·         Cookie Stuffing

A practice that underhandedly deposits cookies from merchants onto users computers when the user has never visited the merchant through the affiliate’s link and potentially may not have even the affiliate’s website. Cookie stuffing is done with the intent of stuffing as many cookies as possible onto as many user computers as possible in the hopes that they eventually come accross the merchant website and make a purchase. The larger and broader the merchant, the more likely that is to occur (think Amazon). Cookie stuffing is heavily looked down upon by legitimate affiliates and most merchants ban affiliates using cookie stuffing in their affiliate agreements.

·         CPA

Cost Per Action (also referred to as Cost Per Acquisition). Refers to the amount of money paid to obtain a desired outcome (usually something like a sale or signup).

·         CPC

Cost Per Click. Refers to the amount of money paid to generate a click by a user on one of your links. Example – if you spent $200 on an ad campaign and received 100 clicks on that campaign, then your CPC would be .50 cents (clicks generated / campaign cost = CPC).

·         CPM

Cost Per Thousand. Refers to the amount of money it costs to display an advertisement per 1000 impressions. Example – if you wanted to buy advertising on a website that offered their advertising at a $6 CPM and you wanted that ad to show 10,000 times, then you would need to pay $60 (desired impressions / 1000 * CPM) for that advertising.

·         EPC

Stands for Earnings Per Click. Your earnings per click is the average amount you earn every time someone clicks on your affiliate link. To find your EPC you would take the amount you have generated in commissions from an affiliate link and divide it by the total number of clicks that link received. Example – if an affiliate link has generated $4000 in sales over the lifetime of your affiliate relationship and the same link was clicked on 12,000 times, then you would divide $4,000 (sales) by 12,000 (clicks) to get an EPC of 33 cents. This means you earn an average of 33 cents each time someone clicks on your affiliate link.

·         First Click

In affiliate marketing, first click is often used to describe an affiliate program where the first affiliate to get a user to click a link and make a purchase within the limits of the cookie expiration is the one to be credited with the sale, even if the user landed on another affiliate’s website and actually converted after clicking on a link from the second site. There has long been a debate between whether first click or last click is most beneficial to both the affiliate and the merchant.

·         Impression

An impression is measure of how many times an ad is shown on a page. For every time the ad is shown, one impression will be counted.

·         In House

Refers to a merchant who runs their affiliate program by themselves using an Affiliate Software and not by using an Affiliate Network.

·         Indie program

Short for “independent affiliate program” and refers to a merchant who runs their affiliate program in house themselves using Affiliate Software and not via an Affiliate Network.

·         Last Click

In affiliate marketing, last click is often used to describe an affiliate program where the last affiliate to get a user to click a link and make a purchase is the one to be credited with the sale – even if a valid cookie from a prior click on a different affiliate’s link still exists on the users computer. There has long been a debate between whether first click or last click is most beneficial to both the affiliate and the merchant.

·         OPM

Outsourced Program Manager. Also known as an Affiliate Manager.

·         PPS

Stands for Pay Per Sale. In a PPS based affiliate program, the affiliate is paid a commission whenever an actual sale is generated.

·         PPL

Stands for Pay Per Lead. In a PPL based affiliate program, the affiliate is paid a commission whenever a lead is generated. A lead could be a form filled out, a quote requested or whatever else the merchant has specifically identified as a commissionable lead.

·         PPC

Stands for Pay Per Click. In a PPC based affiliate program, the affiliate is paid a commission whenever someone clicks on their affiliate link to the merchant, whether or not a sale or lead is generated. Pay Per Click can also refer to an advertising option like Google AdWords.

·         Payment Threshold

The dollar amount of commissions an affiliate has to accrue before being paid. Some merchants set a minimum payment threshold themselves (to lower accounting costs by paying less frequently to people sending very few sales) while others allow the affiliate to do so (usually to avoid receiving frequent smaller checks and instead receive one larger one).

·         Raw Clicks

Refers to a term often used in affiliate reporting that allows you to see how many overall clicks have occurred on your affiliate link. Raw clicks show every click that occurs, even if it is the result of the same person clicking an affiliate link 8 times in a day. Raw clicks are often shown in conjunction with Unique Clicks to give an affiliate a fuller picture of affiliate link activity.

·         Residual Earnings

Also referred to as “lifetime commissions”. In an affiliate program that offers residual earnings, you are credited on the lifetime sales for any new customer you refer to them, indefinitely versus only being paid on the first, initial purchase made by the referral.

·         ROAS

Stands for Return on Advertising Spending, also shortened many times to Return on Ad Spend and can also be referred to as ROI. It refers to the amount of money made as a result of a specific advertising campaign. To find the ROAS of a campaign, you take the revenue divide it by the ad spend and multiply the result by 100. The result is presented in percentage form. Example – if you spent $200 to run a campaign and you made a gross profit of $600, you would take $600 (revenue) and divide it by $200 (ad spend) to get 3 and then multiply that by 100 to get 300 – displayed as a 300% ROAS. The amount over 100% using this method of calculation is your profit. In this example, that would mean you received a 200% profit on the campaign.

·         ROI

Return on Investment. I can be calculated via the same method as ROAS, but in the interest of diversity, I’ll show you an alternate option to calculate it. To calculate the ROI on a campaign, you can take the gross profit from running the campaign minus the cost of running the campaign and divide it by the cost of running the campaign and times it by 100 to get a percentage that the investment returned. Example – if you spent $200 to run a campaign and you made a gross profit of $600, you would take $600 (gross profit) – $200 (campaign cost) to get $400 and then divide $400 by $200 (campaign cost) to get 2 and multiply that by 100 to find a 200% ROI for the campaign.

·         SID Tracking

Also referred to as CID tracking, MID tracking and TID tracking. “SID” is the abbreviation for the sub campaign tracking abilities offered by Commission Junction. Almost every mainstream network refers to it differently. SIDs allow you to create specific tracking codes for your affiliate links to track the success of a specific effort. I wrote a whole article about SID, CID, MID and TID tracking codes if you’d like more information about what they are and how they’re used.

·         Squeeze  Page

Refers to a page where designed to only have one goal or desired conversion in mind. Typically, squeeze pages remove any and all distractions for the desired goal. Example – navigation elements on the page may be removed to keep the user focused solely on the specific “pitch” being made.

• White-label

White-labeling refers to a merchant allowing an affiliate to sell products under their own brand with no mention of the actual merchant. Visitors to the affiliate’s website would likely believe it was the affiliate who was actually selling the items or taking the leads since there is no mention of an outside merchant. This typically occurs by the merchant creating a website branded solely to the affiliate on their own server under their control and allowing the affiliate to “mask” that website as appearing to be a subdomain on the affiliate website. Many times merchants limit White-labeling opportunities to only being available to Super