Online Advertising: Affiliate Marketing

Posted by Bart on June 6, 2011

Internet Affiliate Marketing is a marketing practice where an Advertiser will promote its products or services through a network of Websites (Affiliates or Publishers) and pay them on a commission basis (revenue sharing).

Affiliate Marketing: How does it work?

The websites (affiliates) that the advertiser accepts to work with will receive the graphical elements (banners, HTML email templates, product sheets, etc.) that they will put on their websites to promote the advertiser’s offer. Affiliate websites will also get a dedicated tracking link, ie a URL that redirects to the advertiser’s page and contains a specific element that will allow the advertiser to know from what website each visitor is coming.

The advertiser’s offer promoted by websites is called an “Affiliate Program” if it is an ongoing offer, or an “Affiliate Campaign” if it is a limited-time only offer.

Affiliate Marketing: Compensation Methods

Affiliate Marketing usually uses the Cost Per Lead, Cost Per Action and Cost Per Sales models : the website owner gets paid a fixed amount or a percentage for each sale or action (subscription to a service, brochure request, newsletter registration, etc.) that his website generates.

However the Cost Per Click and Cost Per Impression (CPM) models are also sometimes used with Affiliate Marketing.

The commission is calculated on a monthly basis: at the end of each month, the number of generated sales or leads is multiplied by the Cost Per Sale or Cost Per Lead to calculate the monthly commission and the affiliate gets paid. If the commission amount is to small (for instance if a website only generates EUR 5.00 commission in a month), then it is reported to the next month and will be paid only when the affiliate’s commission reaches a certain amount.

What is the difference between Online Advertising (Display) and Affiliate Marketing?

Both are actually complementary: Display Advertising is usually used to buy advertising space on a Cost Per Impression basis, for branding purpose (ie: to promote a brand and established a brand name). Affiliate Marketing is sales oriented: The aim is to generate sales/leads. It uses Performance Marketing (CPL, CPS, CPA).

However, as mentioned earlier, some Affilate programs are also based on CPM or CPC models. Affiliate marketing overlaps with other Internet marketing methods to some degree.

But the big difference between Display Advertising and Affiliate Marketing is in the kind of websites they use: Affiliate Marketing is mainly targeting small and medium websites that do not have enough traffic and popularity to attract Display advertisers. Display advertising is mainly used with large and famous websites.

Note: Small and medium websites are the majority of the websites on the Internet. Large and famous websites are the exception, not the rule. That’s why Affiliate Marketing is an important and growing business. It concerns millions of websites across the world.

Affiliate Marketing: Pros and Cons

The biggest drawback with Affiliate Marketing is that a website gets only paid based on results, ie: sales or registrations. The advertiser does not take any risk. The problem is that the success of an advertising campaign does not only rely on the website that is promoting it:  If the advertiser’s offer is not clear, not competitive enough, not attractive, or if there is a lack of delivery information, customer service, etc. the campaign will fail, whatever the website organizes to promote it. Therefore, it is very important that websites select carefully the kind of offers they want to promote, that they test them, and that they quickly drop them if they are not making money.

The advantage of Affilate Marketing is that it is a system that allows small and medium publishers to work with advertisers who would never consider to buy advertising space on their website if they had to pay on a CPM basis. For instance a blog owner will be able to put eBay, Amazon or AOL banners on his website when none of these company would never consider to work with such a small publisher. In other words, Affiliate Marketing is the best way for advertisers to use advertising inventory (all available advertising spaces) of small and medium websites without taking any risk, while website owners are able to monetize their websites with advertiser who would never have paid on a CPM basis.

Technical Terms

All technical terms are listed in the Glossary.

Advertisers running an Affiliate Program are also called Merchants (although some or them are not really merchants) and Websites are called Affiliates or Publishers.

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