Online marketing basics: affiliate marketing

Affiliate marketing is con­sid­ered a classic dis­ci­pline in online marketing. The foun­da­tion for this now worldwide marketing model can sup­pos­ed­ly be at­trib­uted to an in­ter­na­tion­al­ly renowned trading platform: Amazon. The idea was to advertise products on the­mat­i­cal­ly similar websites and then pay the website operator a little com­mis­sion if this led to a new customer. Within the last 20 years, this simple model has developed into a powerful marketing tool that should be con­sid­ered an essential part of any online marketing plan.

As pre­vi­ous­ly discussed, there are various methods of com­pen­sa­tion for the affiliate. The following models are the most commonly used forms of re­im­burse­ment in affiliate marketing:

Pay-per-sale

Pay-per-sale or pay-per-order is the most widely used com­pen­sa­tion model in affiliate marketing. The exchange is completed after a customer suc­cess­ful­ly places an order with the merchant. Com­mis­sion must then be paid ac­cord­ing­ly if the customer reached the merchant’s website via an affiliate link or an embedded banner before placing the order. There’s usually either a fixed fee or a per­cent­age fee, depending on the product or service offered, but a mixture of the two is also common. There’s typically also a com­mis­sion if customers visit a merchant’s site via affiliate marketing and then return to buy the product later, too. This is made possible thanks to cookies that preserve the product link for between 30 and 60 days after. 

Pay-per-click

This method cal­cu­lates the number of clicks on the ad – though the use of this model is becoming in­creas­ing­ly rare. In the early stages of affiliate marketing, the pay-per-click com­pen­sa­tion model was wide­spread and fre­quent­ly used, above all because of how simple it was to implement. But research proved that, in most instances, the ROI (return on in­vest­ment) for the merchant remained quite low. At the same time, there’s a risk of ma­nip­u­la­tion by the affiliate. Prices in pay-per-click com­mis­sion tend to be very low.

Pay-per-click-out

In pay-per-click-out, visitors who click to visit a merchant’s website must make at least one ad­di­tion­al click (click-out). This is designed to help mitigate the dis­ad­van­tages of the simple pay-per-click model. Once the potential customer has made a second move on the merchant’s website, a com­mis­sion is paid.

Pay-per-lead

In the pay-per-lead com­mis­sion model, contact must be es­tab­lished with a customer before payment is made (i.e. when a customer fills out a contact form or requests further in­for­ma­tion). Pay-per-lead is typically employed for products that rely on a lot of con­sul­tan­cy, like insurance. This is because a customer will usually take some time to consider the contract, often even going into a store to sign an agreement; making pay-per-sale less relevant. The merchant pays a com­mis­sion to the affiliate for every contact made to a customer, known as a lead.

Pay-per-sign-up

Pay-per-sign-up is a form of the pay-per-lead model. The affiliate claims com­pen­sa­tion whenever a user registers on the website of the merchant.

Pay-per-install

Pay-per-install is a de­riv­a­tive of the pay-per-sale model. The (initial) user software in­stal­la­tion triggers a com­mis­sion. This is usually used for browser toolbars or free demo versions.

Pay-per-link

Pay-per-link is com­mon­place in what are known as ad­ver­to­ri­als or sponsored posts. For example, if a blogger includes a link to a merchant’s product in one of their posts, a one-time com­mis­sion is paid.

Lifetime com­mis­sion

In what’s known as a lifetime com­mis­sion, an affiliate receives a steady im­burse­ment after the first action of a customer. This com­pen­sa­tion continues for a ‘lifetime’, which in this instance refers to the length of time that the newly acquired customer remains loyal to the merchant’s company. This method of com­pen­sa­tion is commonly used by merchants who offer sub­scrip­tions (e.g. dating sites). The affiliate is paid a com­mis­sion once the sub­scrip­tion is taken out and after every renewal.

Airtime com­mis­sion

The principle of airtime com­mis­sion is specific to the telecom­mu­ni­ca­tions field and is used by companies like mobile phone contract providers. Using this method, the affiliate receives a com­mis­sion for every minute of paid phone calls made by the referred customer (over a pre­de­ter­mined time period).

There’s one par­tic­u­lar advantage that makes affiliate marketing so appealing for merchants: it means no prior ad­ver­tis­ing costs. The results-based com­mis­sion means that the affiliate is only paid once clicks are delivered, sales are made, or sub­scrip­tions are placed. The bottom line is that affiliate marketing is usually (depending on the billing model) a very af­ford­able way of can­vass­ing to help increase overall awareness of a brand. Through research and precise analysis, merchants can locate suitable affiliate partners, or even affiliate networks, to help them target an exact market group and eliminate wasted ad­ver­tis­ing (e.g. a cosmetics merchant could use a beauty blog as an affiliate partner). Through tracking each in­di­vid­ual link and the use of cookies, it’s possible to measure and clearly see success, providing good op­por­tu­ni­ties for op­ti­miza­tion.

But if no suitable affiliate network can be found, then the lack of in­fra­struc­ture is a dis­ad­van­tage. This would mean a company would need to put time and money into de­vel­op­ment, incurring ad­di­tion­al marketing costs as a matter of course.

For the affiliate, e.g. a blogger, affiliate links and banners should be seen as an ad­di­tion­al source of income. Because the ad content is prepared and sent by the merchant, im­ple­ment­ing affiliate marketing on a blog or website is rel­a­tive­ly straight­for­ward. There’s also a wide selection of different partner programs, giving every publisher an op­por­tu­ni­ty to enter into affiliate marketing – whether they’re a small, niche website or a large discount and voucher portal. The downside of affiliate links is that it’s very difficult to make a cal­cu­lat­ed pre­dic­tion on revenue – meaning that financial fore­cast­ing is tough to achieve.

As an affiliate, you’re also always dependent on the merchant. The quality of the linked offer plays a very big role, par­tic­u­lar­ly in pay-per-sale deals: if the reader is dis­ap­point­ed by the content of the link or the banner ad, they may cease to visit the blog. Another drawback is the lack of trans­paren­cy in the com­mis­sion set­tle­ment. It’s almost im­pos­si­ble for af­fil­i­ates to inspect the merchant’s figures.