AFFILIATE MARKETING

Affiliate marketing is a method of promoting web businesses (merchants/advertisers) in which an affiliate (publisher) is rewarded for every visitor, subscriber, customer, and/or sale provided through his/her efforts. Affiliate marketing works through affiliate programs as individual or networks. An affiliate network acts as an intermediary between publishers (affiliates) and (merchant) affiliate programs. It allows publishers to find affiliate programs, which are suitable for their website and it helps websites offering affiliate programs reach its target audience. Once with the necessary training and resources, one can make a residual income from these affiliate programs

For merchants, services can include providing tracking technology, reporting tools, payment processing, and access to a large base of publishers. For affiliates, services can include providing one-click application to new merchants, reporting tools, and payment aggregation. The affilate's website acts as a doorway page to the landing page of the merchant without passing through the network.

The networks are free to join for affiliates. The merchant on the other hand has to pay a fee. Tritional affiliate networks might charge an initial setup fees and/or a recurring maintenance fees. This differs from network to network. It is common for affiliate networks to charge merchants a percentage of the commission paid to the affiliates as fee for their services.

Tritional affiliate networks allow the merchant to offer its publishers revenue share or cost per action as compensation method. The majority of merchant programs prefer revenue share over cost per action.

In addition to the tritional networks exist also le generation and CPA networks. Le generation networks are typically networks that next to performance based promotions (affiliate marketing) also offer CPM or CPC based display advertising. CPA networks on the other hand are often so-called "super affiliates" who are themselves affiliates of merchants via the tritional affiliate networks and recruit other affiliates to promote the merchant through them inste of directly via the merchants program at the tritional network.

CPA networks take vantage of the ability to get higher commission rates due to their high volume, which they pass in part down to their affiliates. Average affiliates get usually paid a lower commission if they promote the merchant directly, because they are rarely able to generate the required volume to reach the higher payout tiers.

Compensation methods-Where you get the money

This is the methods by which an affiliate  earns money in a particular program. 80% of affiliate programs today use revenue share (Cost per sale) as compensation method. The remaining 19% use Cost Per Action.

The use of pay per click and pay per impression (CPM) in traditional affiliate marketing is far less than 1% today and negligible. Still many affiliates are stressing on these compensation plans since it helps those with high traffic but less conversion rates. Affiliates have become too competitive that even those with high traffic does not get the conversion rates deserved, even in delivering target traffic. With these two methods, affiliates are likely to get what they deserve for their traffic. The cost per impression of thousand, pays an affiliate for his traffic delivered. This method is diminishing because, it does not always favor the advertisers.

CPM requires from the publisher only to load the advertising on his website and show it to his visitors in order to get paid commission, while PPC requires one additional step in the conversion process to generate revenue for the publisher. Visitors must not only made aware of the ad, but also pursue them to click on it and visit the advertiser's website.

CPC used to be more common in the early days of affiliate marketing, but diminished over time due to click fraud issues that are very similar to the click fraud issues modern search engines are facing today. Contextual advertising, such as Google AdSense are not considered in this statistic. It is not specified yet, if contextual advertising can be considered affiliate marketing or not.

Compensation methods for other online marketing channels

Pay per click is predominant as compensation model for pay per click search engines and their contextual advertising platforms, while pay per impression is the predominant compensation model for display advertising. CPM is used as compensation method by Google for their AdSense/AdWords feature "Advertise on this website", but an exception in search engine marketing.

Cost Per Sale/Action - CPA/CPS (performance marketing)

In the case of CPM or CPC, the publisher does not care if the visitor is the type of audience that the advertiser tries to attract and is able to convert, because the publisher already earned his commission at this point. This leaves the greater, and, in case of CPM, the full risk and loss (if the visitor can not be converted) to the advertiser.

CPA and CPS require that referred visitors do more than visiting the advertiser's website in order for the affiliate to get paid commission. The advertiser must convert that visitor first. It is in the best interest for the affiliate to send the best targeted traffic to the advertiser as possible to increase the chance of a conversion. The risk and loss is shared between the affiliate and the advertiser.

For this reason affiliate marketing is also called "performance marketing", in reference to how employees that work in sales are typically being compensated. Employees in sales are usually getting paid sales commission for every sale they close and sometimes a performance incentives for exceeding targeted baselines. Affiliates are not employed by the advertiser whose products or services they promote, but the compensation models applied to affiliate marketing are very similar to the ones used for people in the advertisers' internal sales department.

The phrase, "Affiliates are an extended sales force for your business", which is often used to explain affiliate marketing, is not 100% accurate. The main difference between the two is that affiliate marketers cannot, or not much influence a possible prospect in the conversion process, once the prospect was sent away to the advertiser's website. The sales team of the advertiser on the other hand does have the control and influence, up to the point where the prospect signs the contract or completes the purchase.

Multi tier programs

Some advertisers offer multi-tier programs that distribute commission into a hierarchical referral network of sign-ups and sub-partners. In practical terms: publisher "A" signs up to the program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A" attracts other publishers ("B", "C", etc.) to sign up for the same program using her sign-up code all future activities by the joining publishers "B" and "C" will result in additional, lower commission for publisher "A".

Snowballing, this system rewards a chain of hierarchical publishers who may or may not know of each others' existence, yet generate income for the higher level signup. This sort of structure has been successfully implemented by a company called Quixtar.com, a division of Alticor, the parent company of Amway. Quixtar has implemented a network marketing structure to implement its marketing program for major corporations such as Barnes & Noble, Office Depot, Sony Music and hundreds more.

This is not considered affiliate marketing. Two-tier programs exist in the minority of affiliate programs; most are simply one-tier. Programs beyond 2-tier are not considered affiliate programs, but rather multi-level marketing (MLM) or network marketing.

Even though Quixtar compensation plan is network marketing & wouldn't be considered 'affiliate marketing', the big company partners are considered and call themselves affiliates. Therefore, you may argue that the Quixtar company is the affiliate marketer for its partner corporation.

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