Affiliate Marketing Basics

Affiliate marketing can be a great way of accessing a new audience and unlocking additional sales revenue. Alternatively, it can create a new competitor for your own digital marketing if managed the wrong way. Here we look at the parties in an affiliate relationship, the responsibilities each has and how it works.

Affiliate Marketing

Stakeholders in the Affiliate Relationship

Let’s begin by looking at the three stakeholders in the affiliate relationship – the merchant, affiliate and network.

  • Merchant – is the product/service owner looking to get additional customers from the affiliate. They pay commission to affiliates for generating attributable sales. Most merchants will operate ecommerce websites, although some are lead generators
  • Affiliate – is the owner of a digital property such as a website or blog that has an audience of users. The affiliate will promote the merchant’s website in the hope that their users visit and buy the product/services of the merchant. In return they will get paid a commission for each sale
  • Network – where the affiliate or merchant aren’t aware of each other directly, the affiliate network acts as a middle-agent. They will manage the relationship between merchant and affiliate. The network provides tracking links and pays affiliate commissions in return for payment itself

Responsibilities of the Merchant

The merchant has a number of responsibilities to the affiliate as they do to Google for example with a PPC campaign. Provision of quality promotional content and prompt payment being the common theme. Let’s look at some of the specific responsibilities that the merchant has.

  • Paying Affiliates – the top responsibility of the merchant is payment of commission and bonuses to the affiliate. Failure to do this will see your affiliates abandoning you quickly for other programmes. The network takes the hassle out of this by tracking orders and paying the affiliates with the merchant paying the network. If you have direct affiliates ensure their commissions are paid on the agreed dates
  • Commissions & Bonuses – offer an attractive package of financial incentives to the affiliate. You will be competing with other merchants for the affiliate’s display opportunities/links to promote your programme. This could be in the form of a fixed per-sale commission or more likely a percentage of sale value commission. In addition to per-sale commissions, you could also incentivise hitting unit sale or revenue targets with bonuses or higher commissions
  • Business Information – the affiliate will need to know some information about your business such as average order size. This will help them calculate potential commission payments (e.g. £180 average order and an 8% commission will earn them £14.40). Other information like the shipping cost and speed to despatch to customers or the likelihood of returns will help them. Do you have a product feed is another common question
  • Promotional Content – it is your responsibility to provide content for the affiliate to use to promote your programme. Having a portfolio of assets such as attractive display ads in a range of formats will help the affiliate. If you have seasonal promotions or end-of-season sales can you provide assets for this with suitable lead times? Could you develop custom sizes/content for specific affiliates on request?
  • Communication – is vital to keep your affiliates aware of new products and services, offers or deals. This could help them to better promote your programme and the chance to earn more commission on additional sales. This could be in the form of a periodic email update, communication through the network or a chat service for interactive Q&A

Responsibilities of the Affiliate

The merchant isn’t the only one with responsibilities, the affiliate also has responsibilities as well.

  • Generate Traffic – the affiliate needs to get and maintain a targeted audience that are suitable prospective customers for the merchant. The affiliate will either have an organic user base or can attract users through cost-effective digital marketing. This is the primary USP for the merchant, having the headache of audience generation removed
  • Suitability to Merchant – the merchant will ultimately have the right of refusal to accept a prospective affiliate onto their programme (although some programmes auto accept affiliates). The affiliate will need to demonstrate that they are a good fit for the merchant. This could include the quality of their website/blog, their ability to generate traffic and how their content aligns to the merchant’s brand
  • Drive Leads – through prominent positioning of the merchants display ads, text links or advertorial content. The affiliate may be a member of a number of merchant programmes – not just one. With a limited amount of promotional capacity, they will need to showcase the merchant most likely to drive a sale and earn them commission. If the merchant has a special offer or a new product this could make them more attractive to the affiliate at that point

Responsibilities of the Network

  • Pay & Get Paid – as with a direct affiliate marketing relationship, the network also needs to ensure prompt and accurate payment to the affiliates. The merchant will need to provide payment to the network who in turn make payments to each affiliate based on the tracked sales
  • Attract Users – the network needs to attract both merchants with affiliate programmes to offer as well as affiliates to promote those programmes. The network could be a specialist within one vertical market or across many markets
  • Generate Links – in order to track and monitor the sales generated by the affiliates. The network will provide unique tracking IDs for all assets and links to be used by the affiliate. This helps all parties see the volume and value of sales and what commission is due from merchant to affiliate. Tracking creative popularity and effectiveness also helps the merchant develop better assets for the affiliates
  • Arbitrate Disputes – where there is disagreement between a merchant and affiliate due to a factor within the remit and contract of the network. For example if a merchant is claiming that multiple sales are being recorded by the network but only a single sale is made. Or an affiliate has an issue regarding an asset or payment

Remuneration Models

Whilst there are several models for affiliate payment, the most popular model by far is PPS or Pay Per Sale. The vast majority of these are percentages of order value rather than a fixed amount per sale.

Commission percentages can and do vary significantly depending on the sector and merchant’s brand. Review a network site and you will see between 2 – 15% being offered. The higher percentage levels are often reserved for hitting sales targets, for example 10% for 1-20 sales then 13% for 20+ sales per month etc.

Cookie Duration

Another metric that varies according to individual merchants is the duration of the cookie for the attribution of the sale to an affiliate. Customers might not complete the purchase journey in a single session, but return several days later. By setting a cookie on the user’s device, the attribution of sale to affiliate can be recorded for a period of time set by the affiliate. 30-days is a common figure, but we have seen 7-days and 60-days as well.

PPC Restrictions

At the beginning we mentioned a potential downside being the creation of a new competitor, PPC can be a contentious area for this.

Many affiliates will state in their programme information that affiliates cannot bid on the merchant’s brand terms and domain name. Brand terms trademarked to the merchant should be relatively inexpensive for them to own on PPC platforms. However, if affiliates are attracting traffic on those brand terms to generate commission they can directly compete with the merchant for its own terms.

Carefully monitor your brand term PPC competitors to determine if any affiliates are violating your affiliate marketing programme agreement to not bid on your brand terms.

Affiliate Marketing Networks

Below is a small selection of affiliate networks:

Paid on Results
AWIN (Affiliate Window)
Trade Doubler
Commission Junction