I am sitting here thinking back to the early days of the internet, and in particular, online marketing. Do you remember when you first learned of what an affiliate network was, and what it was for? Me neither. However, what I now know, is that an affiliate network is a website which acts as a facilitator for advertisers who have products or services which need to be marketed, and internet marketers known as “affiliates”, who are eager to market the products and services of others in exchange for a commission. The set up is what is referred to as affiliate marketing.
Affiliate marketing presents the individual entrepreneur who owns no product or service of their own, with the capacity to generate a profit from the sale of hundreds, if not thousands of offers from advertisers (ie. merchants) in need of promotion. The vast majority of these advertisers take advantage of a third party affiliate network to process payments, and track compensation which is due to affiliates. However, how the affiliate is compensated depends upon the method of affiliate marketing which is being offered by the advertiser and the affiliate network.
The following cover the four most common compensation methods which are utilized by affiliate marketing:
1. Cost Per Sale or CPS: This is an agreement by which an affiliate drives traffic to a unique link which is provided to them by the advertiser or affiliate network. Essentially, when a customer purchase on item from an affiliate’s unique link, the affiliate earns a percentage of the commission of the sale. The term “Cost Per Sale” refers to what it cost the advertiser for each sale which is made by an affiliate. Therefore, if an affiliate were to sell an item which generated $ 50 per sale, and their agreed upon commission was $ 30 per sale, the “Cost Per Sale” would be $ 30.
2. Cost Per Action or CPA: Cost Per Action is a little bit more flexible in that the actual “action” which is compensated is determined by the advertiser. Essentially, all three of the other forms of affiliate compensation can fit within this definition. For example, if the “action” to be completed is a sale, then this would fit the definition of “Cost Per Sale”. Thus, CPA gives the advertiser and affiliate the flexibility to determine and agree upon what constitutes an action.
3. Cost Per Mille or CPM: I see a lot of larger companies signing up with affiliate networks to take advantage of this form of affiliate marketing. Basically, affiliates are compensated a predetermined amount for every 1000 visitors they send to an company’s website or online promotion. The problem which I have with this method of advertising, is that there is no real way to target your visitors succinctly.
4. Pay Per Click or PPC: I am almost certain that you have heard of this before due to its popularity. However, probably not from the perspective of an affiliate network. This mode of marketing is used by advertisers who wish to pay less for PPC costs than what is being offered by the search engines. Essentially, an affiliate will place the link or banner of an advertiser on their website, and will be credited a predetermined compensation each time the link or banner is clicked.
There you have it. The four most common affiliate network structures. Nonetheless, I must inform you that while affiliate programs can be very lucrative, you have to approach them in the right manner. Do not simply throw traffic at your unique link and hope for sales. The truth is that very few buyers make a sale on their first contact with your website. Thus, it is important to provide your visitors with an incentive to provide you with their email address, and build your customer list. Thereafter, you can market to your growing customer list for years to come.