Everything you need to know about affiliate marketing

Also called Performance-based marketing, affiliate marketing simply involves a merchant offering to pay a commission to a person, group or organization for generating sales leads. In the digital landscape, this would mean digital publishers (blogs or websites) that host the advertisers’ content. 

Before we start, let us tell you what is affiliate marketing in very simple terms. Affiliate marketing refers to the process where you refer a product to someone online and are paid only when the person buys that product. Thus, marketers are paid only if visitors get converted to customers, and not before.

In a typical digital marketing sense, affiliate marketing involves the following players and process:

Key players involved in affiliate marketing

Merchant: Merchant is the seller of a product or service and is sometimes referred as brand or marketer, too.

Advertiser: Advertiser essentially plans and implements branding efforts. There can be two scenarios; one, where the marketer is the advertiser and interacts directly with the affiliate network to drive the marketing campaign; and second, where a merchant appoints an advertiser to perform the aforementioned activities.

Network: Network refers to a pool of publishers where advertisers can place their content.

Publisher: A publisher can be a website or blog or forum or any online content platform frequently visited by users. These individual publishers host the advertisers’ content (advertisement) and hence are the actual billboards for users.

Users: The last and the most important piece of the puzzle, users are regular people who visit numerous websites and buy products and services online.

How affiliate marketing works?

Although affiliate marketing models keep evolving to include additional intermediaries and complexity levels, any affiliate marketing campaign works on the following basic principle:

§ A merchant or advertiser tasks an affiliate network to run a promotional campaign

§ Merchant / advertiser shares the creative (say, an image of a product with a link) with the affiliate network

§ The network hosts this ad on various publishers’ pages

§ User discovers merchant’s ad on a publisher’s page

§ User clicks at the link and is taken to the merchant’s page

§ Depending on the agreement, the merchant may pay the network for the referral or sales lead or only after registering the sale.

What are the various affiliate compensation models?

The terms of payment between the network and advertiser / merchant may differ in every case; however, the following methods of charging are practiced across the globe:

·   PPS (Pay per Sale): Almost 80% of merchants prefer this revenue sharing mode of compensation to affiliate networks as the liability to pay arises only after clocking sales.

·   CPA (Cost Per Action): Second to PPS, almost 19% of merchants prefer to pay affiliates for only after a specified action is performed on the publishers’ page; this could be a click on a link, filling up of a form or clicking the ‘Buy’ button. CPA is also called PPA (Pay Per Acquisition) or CPC (Cost Per Conversion).

·   CPC (Cost Per Click): Although very popular during the sunrise days of ecommerce, CPC has lost prominence over the years owing to the method’s susceptibility to various scams and frauds. Having said that, CPC is still a preferred mode of compensation in display advertising (image, text and video or audio clips) and inorganic search campaigns. And with the rise in social media oriented marketing (read Facebook and Twitter), CPC and CPI (Cost Per Impression) are gaining prominence again.

·   CPI (Cost Per Impression): In this method, merchant / advertiser pays for each time their ad is displayed to a user. CPM (Cost Per Thousand Impressions) is a version of CPI where the affiliate charges a fixed amount for every 1,000 views of the ad. The word ‘M’ in the acronym denotes the Latin ‘mille’ for thousand.

With increased internet penetration around the world, affiliate marketing is the way forward for all digital marketers. Equipped with a better understanding of affiliate marketing, you may now articulate a winning digital marketing strategy and take the first step towards ensuring a global reach for your brand.