Affiliate marketing guide, Part 1: Basics
In this article series, we will tell you all you need to know about affiliate marketing. In the first section, we focus on the basics: What do we mean by affiliate marketing? What kind of companies is it best-suited for? How is affiliate marketing priced? And how does an affiliate network operate?
What is affiliate marketing?
Affiliate marketing is the component of internet marketing that operates on performance-based pay. This means that the merchant only pays for an agreed reward on the designated completed transactions, i.e. a purchase, loan application, registration, or contact request.
Affiliate marketing involves four parties:
Merchant / Campaign
The merchant is an online service or company seeking new customers or users. This may refer to e.g. an online store, travel agency, media house or financing company.
Publisher / Affiliate
An affiliate is a more or less professional online marketing instance that owns and maintains one or more media. These media are used for advertising the merchants’ products or services. An affiliate can be a private person (perhaps some countries excluded) or a company. The media include websites and online services, blogs, newsletters and Facebook pages. The affiliate can also do paid advertising on Google AdWords and Facebook, for example.
Private persons are often hobbyists of a certain topic and/or bloggers. Companies are typically larger media, online services or so-called professional affiliates.
An affiliate network is an intermediary between merchant affiliate programs and publishers that offers mutual monitoring and handles the monetary transactions from the merchant to the publisher. There are loads of affiliate networks available in the international markets. Merchants may also have their own affiliate network.
User / customer
The user refers to the internet user, who moves from the media maintained by the publisher to the merchant’s site and performs the hoped procedure. This can be a purchase transaction, newsletter subscription, or a contact request.
Whom is affiliate marketing suited for?
Affiliate marketing is best suited for companies operating online. What is most important, though, is that the results can be tracked. The most common affiliate merchants include:
- online stores operating in different fields
- travel agencies, airlines and hotel booking sites
- financial products (payday loans, credit cards, insurance etc.
- different products with continuous orders, such as companies that offer weight control products and supplements
- casino, sports, betting, bingo, poker
- online services and competitions, mobile games and apps
Nowadays, fashion blogs are highly popular affiliate marketing channels, which has increased the amount of e.g. beauty and fashion online stores as merchants in affiliate networks. Especially professional affiliate publishers have long favoured loans, magazines and gambles.
What are affiliate marketing publishers like?
Publishers in affiliate marketing are often considered to be websites that have banners on their site. The genre includes much more than that, though. In reality, banners are rather inefficient and mostly decorations on affiliate sites.
Next, we will introduce the most common types of affiliate publishing.
Content pages often focus on a specific industry (niche site), such as travel or sports. They can also be blogs, review sites, hobby sites or forums.
Due to the weak conversion of banners, it is more profitable for publishers to use ads with CPM- or CPC- based pricing (explained later), through e.g. the Google AdSense service. This is why publishers often do not use affiliate campaigns’ banners, but instead embed text links on their site. For example, keywords amidst content can be used to form links to the merchant’s site. The end section of the content can also include links to merchants related to the topic.
Discount code and price comparison sites
Discount code sites publish merchants’ discount codes and offers. The code is often located next to a button or link to the merchant’s page. Sometimes the code is not showed until the users have clicked themselves on the merchant’s site.
The same category with discount codes includes cashback and reward sites, which offer their users points, free products, gift cards or money once they move on to complete a purchase through their service.
Price comparison sites utilize the product listings that have possibly been provided to the publishers by merchants. The most popular price comparison sites of affiliate publishers include loan comparisons and last minute travel deal search engines, but there are comparison services for many other products as well.
From the merchant’s perspective, the downside of discount code sites is that the user often starts to look for the discount code only when already about to make an order on the merchant’s site. Some merchants pay a lower commission to discount code sites than to other publishers.
Over the years, many long-term affiliate publishers have gathered an e-mail register with a marketing permit, consisting of newsletter subscribers and competition participants.
What makes e-mail marketing efficient is that the publisher can send a campaign message to hundreds, thousands, or even hundreds of thousands recipients. The publisher can also narrow down the target group based on region, gender, age or interests. The results of e-mail marketing are visible right after sending a message and a few days after.
Although affiliate networks supervise e-mail marketers, illegal mailing lists may appear. Sometimes a recipient of a legal mailing list can perceive a message to be spam, which can result in complaints against the merchant.
Fashion, lifestyle, travel and fitness blogs
Blogs have become increasingly popular recently, and the share of bloggers as affiliate publishers has also increased.
Bloggers can be divided into independent bloggers and traditional media and blog network bloggers.
Blog networks operate as one large media family, where the ad sales are handled by the blog network’s advertising sales team. This can make it more difficult for a single blogger to act as an affiliate publisher.
Cooperation with bloggers normally refers to a blog post concerning a certain product or service of the merchant. Cooperation may involve giving away the product or service for free to the blogger. Blogs also include banner spots, and with good luck, the blogger can also link to an affiliate campaign.
Search engine marketing publishers
Publishers that do search engine marketing (SEM) buy traffic directly to the merchant’s site from search engines, for example through Google AdWords. They do not produce traffic to the merchant through their own media.
If the advertiser or digital marketing agency does search engine marketing on the merchant’s own site, SEM publishers can be prohibited from competing with their own ads. It should be kept in mind, though, that SEM publishers are typically very cost-efficient when it comes to generating sales: they bear the risk, as they pay for the purchased clicks on their own and are only rewarded for completed sales.
SEM publishers are often the elite of search engine marketing, and they also provide other search engine marketing services, besides affiliate marketing. And many of the very best work at Omni Partners, of course.
Social media publishers
A social media publisher is typically an administrator of a major Facebook page or a celebrity, who can also share an ad link as a status update. A social media publisher can reach a large number of users in one go and spark conversation.
Another group of social media publishers includes those, who purchase paid traffic from Facebook straight to the merchant’s tracking link.
How is the price of affiliate marketing determined?
Affiliate marketing is performance-based, which in practice means that the publisher only receives pay for completed sales or some other action set as a goal. In addition to commissions, some affiliate networks may charge set-up and monthly fees.
Four different pricing models will be introduced below. The first two of these are less performance-based, but also used in affiliate marketing.
CPM / CPT i.e. Cost Per Mille / Thousand
In CPM-based pricing, a commission is charged for each thousand ad views. CPM is rarely used in affiliate marketing.
CPC and CPC+ i.e. Cost per Click
CPC is a little-used pricing model in affiliate marketing that involves the merchant paying for each click that the publisher yields to the merchant’s site. CPC commission can also be used to boost other forms of pricing. Depending on the affiliate network’s technology, the CPC commission can also be limited to unique visitors (cost per 1 click / user / 24 h).
In CPC+ pricing, the first click on the site is free, but the fee is charged, if the user does not leave the page immediately, but continues onto the next page. This feature is rarely used, and it is not possible in all networks.
CPA / CPL i.e. Cost per Action / Lead
CPA pricing is typically used when the merchant wishes to pay for a transaction that does not involve a purchase. These types of events include for example registering in a contest or online service, subscribing to a newsletter, leaving in a loan application, contact request or a bid.
CPS / CPO i.e. Cost per Sales / Order
CPS is the most common pricing model in affiliate marketing. It involves the merchant either paying a fixed commission, a percentage of the value of a purchase, or a combination of these. The commission is paid for e.g. an online shop purchase, travel, flight or hotel booking, loan that has been taken out or a magazine subscription.
Product- and customer-based commissions
The technology of affiliate networks enables different commissions for different product groups, based on the merchant’s own margins. There are countless options, such as a fixed commission for a certain group of products, while another group can involve both a fixed commission and a percentage, a third can include a percentage, and the fourth a smaller or larger percentage than the third. The commission can also be based on whether a new or old customer is in question.
Using product- and customer-based commissions requires technical know-how from the merchant, and more work than a more traditional pricing model.
- A travel agency can pay different commissions for flights, hotels and travel bookings.
- A higher commission can be paid for a new customer than for an old one
- The creditor can pay a smaller fee for an instant loan than consumer credit
- An e-retailer can pay percentage-based commissions of varying amounts for electronics, cosmetics and clothes
How does an affiliate network operate?
In order to create a successful campaign, one must grasp the operating principles of affiliate marketing.
Bringing together merchants and publishers
- The publisher seeks campaigns and registers as a publisher of an affiliate merchant’s campaign in the affiliate network’s campaign catalogue.
- The merchant checks to see if the publisher meets the campaign’s terms and quality requirements. If so, the publisher’s application for the campaign is accepted. Automatic approvals can also be used to accept all publishers in the campaign.
- The publisher embeds the merchant’s banners and/or links to their own media, from which the users will move on to the merchant’s site. Each link behind a banner or text link is a tracking link customized according to the publisher.
The user’s funnel from a click to a purchase
- The user clicks on a banner or link in the publisher’s media and moves on to the merchant’s site.
- The click places a cookie in the user’s server and registers all information concerning the click to the affiliate network system.
- The user makes a purchase or other procedure on the merchant’s site, and a tracking code for the affiliate network has been set on the thank you page that comes after, which will identify the cookie and send information on the purchase to the affiliate network.
- The affiliate network identifies the cookie and, on the basis of the click information, the publisher that has generated the sales, and registers the transaction.
- The transaction is left in the “to be reviewed” status in the affiliate network, until the merchant marks the sales transaction as approved or rejected, either manually or automatically.
- The affiliate network charges the merchant normally at the start of the next month for approved sales transactions, and pays commissions to the publishers for them.
Processing transactions: approving or rejecting
When processing transactions, it is important that the merchant is honest and handles the sales at least once a month, though preferably more often.
In small-volume campaigns, processing is easiest when done manually, but automated solutions should be used as volumes grow. The most common procedure is to send a CSV or excel chart on the identifiers and statuses of transactions before the end of the month.
The largest merchants have completely automated the processing of sales transactions. Automation is done by creating a system by using the affiliate network’s interface that will send information on changes in transaction statuses to the affiliate network.
One way of processing the transactions is to approve all of them, but this is not recommended. Reasons for rejecting a transaction can include a cancelled order, returned product, a form filled with wrong information, rejected loan application, or a test order.
Affiliate marketing tracking technique
Clicking a tracking link produces a cookie and registers a timestamp on the affiliate network, as well as the user’s browser and technical information on the computer. The tracking link can also be used to provide information to the merchant’s own analytics program on the campaign’s identifier, such as the source of the traffic and information on the ad material.
A tracking cookie acts as the sales transaction’s identifier, and a duration period can be set for it. If the cookie expires within 14 days of the click, for example, the sales transaction is registered with the publisher, if the user has clicked on the tracking link today and makes the purchase within 14 days, assuming that the cookie is still in the user’s browser.
The conversion pixel set up on the thank you page normally sends the network a timestamp, order number, or other order identifier, publisher or merchant identifier and the order’s value. In more advanced tracking techniques, also product group information can be sent.
When several affiliate networks are being used, the merchant should put a code on the thank you page that identifies which network the most recent click has derived from. Thus, no duplicate events are formed in different networks.
An affiliate network cannot possibly identify all sales transactions, and the sales that are left unnoticed by the tracking are profit for the merchant. The causes can include the following:
- A plugin within the user’s browser, such as AdBlock or Ghostery prevents identification
- The user has cleared the browser’s cache and erased the cookies
- The cookie has expired before the order has been placed
- The user moves on to the merchant’s site along a different advertising channel, when for example looking for a discount code
How to get started with affiliate marketing?
As a publisher
Becoming an affiliate publisher only requires your own site, blog, newsletter or Facebook page. A personal Facebook account is often not accepted as a publisher. One can easily register as a publisher by filling out the registration form on the affiliate network’s site.
Some examples of international affiliate networks include CJ.com, Clickbooth, W-Affiliate.com, Zanox, TradeDoubler and TradeTracker. Networks can be very different and focus on varying marketing areas.
As a merchant
Before embarking on an affiliate campaign, you should choose a network well. The most important criteria are:
- The network’s reputation and popularity among publisher circles
- The network’s nature or orientation and publisher profile
- The network’s reporting tools and possible other features and tools
- The network’s pricing
The easiest way to start an affiliate campaign is to contact us: [email protected]
With the help of Omni’s Affiliate management service, you can attain the maximum potential of your affiliate campaign:
- We create goals and a strategy for your campaign
- We help you choose the right networks and commissions, and draft agreements
- If necessary, we set up campaign tracking codes on your site
- We help you formulate the terms of your campaign, and thus help you avoid the most common rookie mistakes
- We supervise that the publisher sites abide by the rules and meet the quality and target group criteria
- We maintain and develop the campaign, as well as attract publishers to get involved advertising it
- We manage, if necessary, your contacts with the affiliate networks
Don’t hesitate to get in touch – together, we can create a cost-efficient and profitable affiliate campaign for you!