Have you ever recommended a spa to your friend and your friend goes there? If yes, then the spa’s revenue has increased because of you. And they say this is the most important form of marketing “word of mouth” marketing or affiliate marketing. But what’s in it for you? Nothing.
Now imagine that the spa offers 10% of the bill to you for every friend you referred. Their new customers which they got from you may reward you a finder’s fee. Some businesses do this offline. For example, insurance brokers do this. However, referrals are not always trackable. Online businesses can leverage this type of marketing because they are easy to track. Affiliate marketing is the term for this reward system, where you are paid based on referral. It refers to this kind of marketing online.
Affiliate marketing allows a third party to advertise services and products for a merchant. They do this in exchange for a commission every time a lead or sale is made. That is why affiliates are often seen as a force for extended sales on a website.
Foundations of Affiliate Marketing
These are the processes that makeup affiliate marketing:
- First, the affiliate recommends a merchant’s site or their destinations to a potential customer. The offsite destination, for example, can be a Facebook tab.
- Some interested customers perform the action desired.
- For every desired action due to referral, the merchant rewards the affiliate.
Take note that there are other ways an affiliate may refer to products or services. Other actions may also be rewarded by the merchant. Last but not least, tracking progress is necessary.
Action and Reward
Affiliate marketing can help promote different kinds of websites. There should be an agreement about the commission here. Also, Different types of merchants will have different demands regarding the actions, including the following.
- Cost-Per-Action (CPA)
The action required here could be anything. This can be downloading a file, software, or signing up for a newsletter
- Cost-Per-Lead (CPL)
This kind of commission is for those who need to make a conversion from lead to offline sales. A transaction, then, can be complex. Sometimes, it even has to be completed over the phone with the customer. Insurance companies offer this type, as well as banking institutions.
Why are merchants committed to paying for a lead? Won’t this ruin their budget? Affiliates like this model type since they cannot monitor or control offline conversion. The completed transaction is still the merchant’s job here. Conversion targets are made since some are cautious of low-quality leads. The generated leads need to do as required.
- Cost-Per-Click (CPC)
Here, a fixed amount for every clickthrough is given. Most of the time, this has the lowest amount of commission and is a small part of the affiliate mix.
To track affiliate campaigns, specialized affiliate trafficking software can be utilized. The affiliate network is usually the one that provides and supports the affiliate. The merchant and affiliate may also use their own software to ensure that everything is accurate.
Links or URLs are used by affiliates to give traffic to the destination. The software generates unique URLs for each affiliate to make them more trackable. Such URLs leave a cookie on the user’s device, then allow the tool to monitor the sale.
The cookie lets the tracking software collect information to give commission. This happens when the customer completes the action that is required on the site of the merchant. For example, they use an affiliate link from the affiliate’s blog post to purchase a gift from Amazon. Once this happens, information will be gathered. This may involve the time and date of sale, complete sale amount, and the unique order number.
Role of Affiliate Networks in Affiliate Marketing
Usually, there is a necessary third-party network in affiliate marketing. Aside from the affiliate and the merchant, the affiliate network is also necessary.
Some merchants use an affiliate network for technical solutions to affiliate program demands. But some programs are already large enough to be run by the merchant on their own. A primary example of this is Amazon Associates.
For example, a hotel booking site offers a 5.5% commission for every sale. They also pay out $85 for every 120 clicks. This then means that the affiliate has to compute what 120 clicks will cost them. They have to properly discern if it’s worth it or profitable to start an affiliate campaign with the hotel booking site.
On the other hand, the affiliate network provides information on this program. They also provide creative assets for the affiliate to use. These may include images, banners, texts, and more. It’s important that the affiliate gets to pick which image will work best for them.
Affiliate Marketing Networks
Affiliate networks do not only work with a single merchant and affiliates under it. They have many merchants and affiliates signed up for them. Thus, they are a reliable source for inviting affiliates to join, especially if you are a merchant.
On the other hand, if you are an affiliate, they are also great for looking for merchants to work with. A one-payment solution is the main benefit of affiliate networks to merchants. They will be invoiced for the commissions owed. Then, the network disperses the payment to the affiliates.
Affiliates do not have to pay in order to join affiliate networks. A merchant setup fee may be charged. But it only covers the guarantee that tracking is successful. Sometimes, they give a management fee.
It really depends on the support that the network offers to the merchant. For the merchant, they have to pay a certain amount from the commission which they will give to the affiliate. They call this the commission override. This is the incentive given to the network if they are performing well. Typically, this consists of 30% of the commission given to the affiliate.
© Image credits to Tuesday Temptation
Posted in Affiliate Marketing
