THE AFFILIATE MARKETING PRIMER

2 - THE ANATOMY OF AN AFFILIATE PROGRAM:

Here we look at all aspects of the commission structure, referral tracking, and types of links in affiliate programs...
 

THE COMMISSION STRUCTURE:

2) Pay on How Many Levels?  An affiliate program may pay only for referrals on one "tier" - i.e., only the referrals/sales coming from your own efforts (a "single-tier" program).  Or it may pay something as well for the referrals/sales that come from affiliates that you sign up under you ("two-tier"). ...And possibly even people who sign up under those affiliates in your team or "downline", to borrow a term from multi-level marketing ("multi-tier").  Some programs (rare now) may offer commissions on down through four or more tiers of affiliates, encouraging you to spread their advertising far and wide.

3) Pay How Often?  The offerings of an affiliate company may or may not lend themselves to residual earnings (and if they do, the company may or may not offer them!).  In other words, there is an obvious difference between one-time sales of a product or service (say, a book, or a vacation cruise) and residual earnings that come from a customer's periodic renewals of the purchases (say, monthly webhosting fees, or a yearly magazine subscription).

Let's discuss each of these features in turn...
 

--Pay per impression:  This means that every time a banner/link is displayed to someone coming to your site, you will be paid a certain amount (usually a very few cents).  Payment is usually calculated per 1000 impressions.  This is a standard type of setup for advertising on high-traffic websites.  It is also most akin to traditional advertising, which is also paid per viewing (as in a magazine, where the circulation is a known quantity, or on a billboard, where the amount of traffic that goes by can be estimated).

--Pay per click:  You will be paid every time someone clicks on (i.e., activates) a banner or link out of interest for what little s/he knows from the ad (plus your testimonial, if any).  This is far more valuable than that a person "saw" (that is, had a chance to see) a banner (impression) but didn't necessarily pay that much attention to it or wasn't intrigued enough by it to spend the time to follow it out of your site.

--Pay per lead, or per signup:  Once the prospective customer clicks on a banner/link, s/he has yet to be "captured" by the advertising content of the affiliate company's website.  Many companies offer an interim step or steps on a continuum that culminates in the sale...  Such as signing up for a free email newsletter, registering for a free contest, or simply filling out a form asking for more information on a product or service.  Something of that nature, where the prospective customer's name and contact information are gathered, would constitute the "lead" that the company would pay you for.

Per-lead and per-signup programs are often called "pay-per-action" or "cost-per-action" (CPA) programs.  The "action" refers to people clicking through to a page where they then do something else:  put their contact info into a form so as to have a salesperson contact them with more details, or to receive an ezine, or to agree to accept contacts in exchange for a freebie.

(Sometimes "lead" is interpreted more stringently though...  Some companies wish to call an actual sale a lead.  They can call it what they will - it's still a sale!  And a sale is worth more to the company... and ought to be compensated for as such.)

These payments are often in the vicinity of US$1.00-$5.00, depending on the price of what the company hopes to sell - though some leads are considerably more lucrative.  Not only have the people shown themselves to be interested enough to fill out a form, but your affiliate advertising has also garnered the company that highly-coveted name and address...  Which can be used by the company in further, or perhaps other, marketing efforts.

--Pay per sale:  The affiliate company may pay you either a percentage of the sale price in question or a flat rate per sale.  Either of these may be graded according to the price, or the mark-up, if the company has a range of offerings.

Of course, some sort of sale (or donation) is the company's highest goal - and depending on the product or service offered, the commission to you can be anywhere from very little to quite substantial.

You would naturally prefer it to be substantial!  However, for the most part, high-priced offerings are harder to sell...  They tend to either take more effort and/or more targeted marketing on your part (as well as on the part of the affiliate company).  Then too, the nature of your website (if you have one) may well decide whether you will focus on a cheaper or a more expensive offering...  Obviously, if your site touts bargains or "free stuff", the expensive will probably be far out of place.
 

--A single-tier affiliate program is the simplest for a company to offer.  However, it makes the company rely on perhaps a more limited number of affiliates to spread the word about its offerings.  It also means that you alone will have to do all the work to earn from the program. ...As the affiliate company will have to do all the work to attract affiliates to its program.  (Well, unless it uses an affiliate program clearinghouse to manage its program - more on this later!)

The "wiser" company will make up for this limitation to you by giving you a more generous commission.  After all, attracting and keeping good affiliates is in its best interests, and better commission rates attract and keep more of them...  Skimping on commissions won't benefit it in the long run.

The actual cost of its products or services, and the mark-up on them, will dictate how much a company can afford to pay you - it may be only a very little, or it may be a large amount.  (Of course, greed might come into the equation too! ...But businesses do have to look at their bottom line in determining both pricing and advertising expenses, both of which are involved here.)

--A two-tier program allows you, the affiliate, to sign up other affiliates under you - and earn a (usually smaller) commission on the referrals/sales that arise from their advertising efforts as well as your own.  The great virtue of this is that it costs you far less time (and perhaps money) for each sale if some of them aren't yours!  This is akin to being a contractor and skimming some profits off of the labor of those you are arranging to employ...  You in effect have your own sales force under you and pay a commission to your sub-affiliates.  (Except that the commission comes out of the affiliate company's profits, not yours... not directly, anyway.)

The affiliate company benefits by a possible exponential growth of its sales force (and for no more effort on its part - you're providing that).  As most people are fully aware, if a company can generate a vastly greater number of sales for little effort, it can afford to sell something for less money.  Therefore, even though it has to pay you and your sub-affiliates for the same referral, it will likely come out way ahead by the growth in its sales that your recruiting efforts bring it...  Especially because your sub-affiliates also may recruit sub-affiliates of their own (and so on).

And while the commission on your first level (for your own efforts) is usually quite a bit greater than that for your second tier, so that you'll want to continue your own marketing efforts on behalf of the company, your efforts in building a sales force of sub-affiliates could add significantly to your income.

The reality is that this works far better in niches that are marketing-related.  (If you're an affiliate who's marketing to, say, fly fishermen, you probably aren't tapping into a pool of internet marketing wannabes.)

--A multi-tier affiliate program builds on the concept of a two-tier program...

Not only can you earn from sub-affiliates, but you can also earn from their sub-affiliates, and perhaps their sub-affiliates, or even more.  With a two-tier program, you have the incentive to sign up sub-affiliates.  A multi-tier program gives you the incentive to help your sub-affiliates sign up others (a growth opportunity that may be overlooked entirely by many affiliates).

A possible problem with a multi-tier program is that it may saturate the market if too many affiliates are signed up...  Which would make it difficult to interest customers in it.

Too, commissions for the first tier may be artificially low so as to pay commissions for more and more tiers of sub-affiliates - then the tendency is for everyone to work harder at signing people up than at sales.  It's the sales that earn the commissions, though, so this over-blown scenario doesn't do anybody much good, probably including the affiliate company.

Experienced affiliates have seen that several multi-tier programs have recruited thousands of affiliates... and then shut down entirely.  Hmm - it makes one wonder whether that was the plan from the start... build interest in a company, then go on to other things.

(Not that other affiliate programs haven't also gone belly up, or sold out when their success has attracted the attention of a larger business - or simply stopped bothering with affiliates.  One never knows what goes on behind the scenes in a business...  Which is why it's good to run across a company that makes it clear that affiliates are its backbone and not its discardable costume jewelry!)
  

Certainly, if you can feasibly earn residual income from any business effort, it would be a very good thing.  As with the multiple-tiered affiliate programs, where money is earned from other people's efforts, money that is earned from one-time efforts more than once is "free money".  Both of these situations are goals (and reality) for the most successful businesspeople on earth.  Any program that lends itself to residual payments is well worth considering.
 

HOW DOES AN AFFILIATE COMPANY TRACK REFERRALS?

Often, the person who has set up the first link you activate which leads you to an affiliate company will get the credit for your referral, whether it be for a sale or signing up as an affiliate yourself...  Perhaps even if you don't purchase or sign up then but do so on another day after going directly to the company's site or clicking through from another  person's link.  This recompenses the person who originally did the work to attract you to the offering or the program.

It's up to the company, therefore, to set up a good way to keep track of who originally catches people's interest in them.  The better affiliate programs will offer the longest tracking time and the most flexible system of tracing back from the results of its affiliates' marketing efforts.

Even if the commission is given to the last affiliate, whose link leads directly to action, you'll want to consider whether a program gives nice long tracking times.  If, for example, you're an affiliate for a health supplements store, you'd like to know that you'd get a commission later on even if the buyer goes directly to the store's website the next time s/he shops for vitamins.  (And will the company give you a residual commission if the person signs up for their monthly automatic shipping club?; or buy a gift certificate? - not usually, unfortunately!)

Each affiliate banner or link that a visitor clicks on has some type of coding added to the URL - this differentiates it from other affiliates' links.  As the visitor to a website, you might never be aware of this, because a link can be made from any name or image - the actual URL isn't necessarily in view.  However, that extra coding in the URL is necessary...

And this brings up a point about "offline" (non-internet) advertising:  If a link is in print, it'll work for you; if it's not (on the radio, for instance), you can't be credited with the referral, because no one will remember to use your special coding.  So radio and TV are pretty much out for affiliate marketing...  Unless you send people to a website designed specifically to redirect people to the right link.  (So you would buy a unique domain name and redirect that URL to your coded affiliate URL.)

Print, however (print that someone will keep around, anyway - probably not billboard print!) is in.  I've several times gone to a website after seeing the URL (with affiliate coding) listed in a newsletter ad.  However, to be sure the reader won't just shorten it up, it would still be best to use your own unique domain and refer it to your affiliate URL.

...Just keep these parameters in mind as you brainstorm on ways you might like to promote the affiliate programs you select.
 

Cookies are generated by all sorts of companies for the purposes of tracking visitors to their sites.  This is how Amazon.com can "remember" what your purchases were when you visit there again, for instance.  (They are not under these circumstances dangerous gateways to information about you, as is sometimes supposed, as they can't collect personal information unless you enter it.  All that could be traced of you through them is the existence of a computer at a given site.)  For an affiliate company, the cookie would record information on which affiliate referred the visitor to the company, and when.

Cookies can be blocked or deleted by savvy computer owners.  The cookie storage area can fill up so that others won't be stored.  Some system maintenance programs will delete them.  They'll no doubt be lost if a person switches computers.  And they eventually expire on their own after a certain length of time.  (So...  Obviously, for you as an affiliate, the longer the period of time between when a visitor clicks on your link and when they actually make a purchase, the better.  This might be expressed by the affiliate merchant as, for example, "a 60-day cookie"... and a one-year cookie would be six times better!)

Supposedly not more than 5% of cookies are lost in these ways...  But for all of the above reasons, it is most to be desired that an affiliate company arranges for referrals to be tracked by other means as well, for back-up.

It's clear, then, that the most "enlightened", affiliate-centered programs will use multiple means of tracking so as to offer their affiliates the greatest chance of gaining from their marketing efforts.  Other methods involve CGI-based scripts (related to the individual affiliate codes attached to the URL links) and database matching algorithms (using, for instance, email IP addresses).

For a good informational article on the mechanics of affiliate link tracking, see "How Does Affiliate Tracking Work: A 'Not-too-technical' Overview!", by Todd Farmer and Jeff Doak of Kowabunga! Technologies.
 
 

Each affiliate company is set up to accept links from one or more sources.  They might offer you an assortment of ready-made banners (long rectangular graphical ads) and/or buttons (smaller square-ish graphical ads) to choose from.

Most companies also allow text links, though some want you to use only their text link.  (Hopefully you like the "flavor" of what it says!  If you work it into a textual recommendation, you have more control over the sense that it gives your viewers.)

Most companies will also track links placed in ezines or other email messages.  Many will track links placed in e-books as well (though this is a new concept to a lot of folks).

Then there are links placed in pay-per-click ads.  In Google, this is called "AdWords" advertising.  The ads would be either the right-hand column of their search results pages, or text boxes placed in other people's webpages (called "AdSense", from the standpoint of the webmaster), as below:

Some companies, particularly those that sell many items, let you link to an ad for a specific product, like Amazon.com does for many individual books.

A catalog company might also offer a search box banner or button that allows your visitors to make a search of the company's website.

Whatever the link on your site, it takes your visitors to a variety of places...

The most common is to the home page of the affiliate company's website. This can be a problem if you're interested in sending your visitors only to a specific portion of that website... Though many companies will also allow you to link to specific pages and still get your affiliate commissions. (If their affiliate program information doesn't mention this possibility - it might be in their FAQ - be sure to ask rather than assume it can't be done... or assume it can!)

If your visitor uses a search box, s/he will likely end up at a search results page on the company's website... Which could lead to "entanglement" in the pages of the company's site and difficulty in getting back to your site.

Enlightened companies will alleviate this tangling problem for their affiliates. One way to do that is with a "co-branded" store... That is, they would set up a website (usually an e-store) for you with your company name clearly on it, and with a direct link back to your site from there. (Another advantage to a co-branded website is that you don't have to worry about changing the code on your site any time they change something on theirs.)

But more common than co-branded sites is the possibility of setting up your own "store"... One created from your own choice of individual selections from the company's catalog (or segments thereof).

If you are offered the whole gamut of options, you naturally have that much more flexibility in designing your affiliate marketing program.

That elasticity can be useful. But sometimes flexibility equates with complexity... seemingly too many choices! You don't have to avail yourself of the "fancy stuff" just because it's there. Nor do you necessarily need the elegant alternatives... There's usually a work-around way of providing what you want to give your clientele.

...But if the work-around is too clumsy, you might find yourself asking for the cool linking options!
 

Gordon Pioneering - Copyright 2-2000

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Sherry Gordon is the learn-it-and-pass-it-on creator of "The Affiliate Marketing Primer", at http://www.AffiliatePrimer.com/
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Many thanks for your interest! 

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