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Affiliate Marketing
Affiliate marketing is a method of promoting web businesses (merchants/advertisers)
in which an affiliate (publisher) is rewarded for every visitor, subscriber, customer,
and/or sale provided through his/her efforts.
Affiliate marketing is also the name of the industry where a number of different
types of companies and individuals are performing this form of internet marketing,
including affiliate networks, affiliate management companies and in-house affiliate managers,
specialized 3rd party vendors and various types of affiliates/publishers who utilize a number
of different methods to advertise the products and services of their merchant/advertiser partners.
Predominant compensation methods
80% of affiliate programs today use revenue sharing or cost per sale (CPS) as compensation method,
19% use cost per action (CPA) and the remaining 1% are other methods, such as cost per click (CPC)
or cost per mille (CPM).
Diminished compensation methods
The use of pay per click (PPC/CPC) and pay per impression (CPM/CPT) in traditional
affiliate marketing is far less than 1% today and negligible.
Cost per mille (thousand) (CPM/CPT) requires the publisher only to load the advertising
on his website and show it to his visitors in order to get paid a commission, while PPC
requires one additional step in the conversion process to generate revenue for the publisher.
Visitors must not only made aware of the ad, but also pursue them to click on it and visit the advertiser's website.
Cost per click (CPC/PPC) used to be more common in the early days of affiliate marketing,
but diminished over time due to click fraud issues that are very similar to the click fraud
issues modern search engines are facing today. Contextual advertising, such as Google AdSense
are not considered in this statistic. It is not specified yet, if contextual advertising
can be considered affiliate marketing or not.
CPM/CPC versus CPA/CPS (performance marketing)
In the case of CPM or CPC, the publisher does not care if the visitor is the type
of audience that the advertiser tries to attract and is able to convert, because
the publisher already earned his commission at this point. This leaves the greater, and,
in case of CPM, the full risk and loss (if the visitor can not be converted) to the advertiser.
CPA and CPS require that referred visitors do more than visiting the advertiser's
website in order for the affiliate to get paid commission. The advertiser must convert
that visitor first. It is in the best interest for the affiliate to send the best
targeted traffic to the advertiser as possible to increase the chance of a conversion.
The risk and loss is shared between the affiliate and the advertiser.
For this reason affiliate marketing is also called "performance marketing", in reference
to how employees that work in sales are typically being compensated. Employees
in sales are usually getting paid sales commission for every sale they close and
sometimes a performance incentives for exceeding targeted baselines. Affiliates are
not employed by the advertiser whose products or services they promote, but the
compensation models applied to affiliate marketing are very similar to the ones used
for people in the advertisers' internal sales department.
The phrase, "Affiliates are an extended sales force for your business", which is
often used to explain affiliate marketing, is not 100% accurate. The main difference
between the two is that affiliate marketers cannot, or not much influence a possible
prospect in the conversion process, once the prospect was sent away to the advertiser's website.
The sales team of the advertiser on the other hand does have the control and influence, up to
the point where the prospect signs the contract or completes the purchase.
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