Affiliate Marketing Compensation Methods

Compensation methods Predominant compensation methods Eighty percent of affiliate programs today use revenue sharing or pay per sale (PPS) as a compensation method, nineteen percent use cost per action (CPA), and the remaining programs use other methods such as cost per click (CPC) or cost per mille (CPM, cost per estimated 1000 views).[citation needed] Diminished compensation methods Within more mature markets, less than one percent of traditional affiliate marketing programs today use cost per click and cost per mille. However, these compensation methods are used heavily in display advertisingand paid search.Cost per mille requires only that the publisher make the advertising available on his website and display it to his visitors in order to receive a commission. Pay per click requires one additional step in the conversionprocess to generate revenue for the publisher: A visitor must not only be made aware of the advertisement, but must also click on the advertisement to visit the advertiser's website.Cost per click was more common in the early days of affiliate marketing, but has diminished in use over time due to click fraud issues very similar to the click fraud issues modern search engines are facing today. Contextual advertising programs are not considered in the statistic pertaining to diminished use of cost per click, as it is uncertain if contextual advertising can be considered affiliate marketing.While these models have diminished in mature e-commerce and online advertising markets they are still prevalent in some more nascent industries. China is one example where Affiliate Marketing does not overtly resemble the same model in the West. With many affiliates being paid a flat "Cost Per Day" with some networks offering Cost Per Click or CPM. Performance/Affiliate marketing In the case of cost per mille/click, the publisher is not concerned about a visitor being a member of the audience that the advertiser tries to attract and is able to convert, because at this point the publisher has already earned his commission. This leaves the greater, and, in case of cost per mille, the full risk and loss (if the visitor can not be converted) to the advertiser.Cost per action/sale methods require that referred visitors do more than visit the advertiser's website before the affiliate receives commission. The advertiser must convert that visitor first. It is in the best interest for the affiliate to send the most closely 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.Affiliate marketing is also called "performance marketing", in reference to how sales employees are typically being compensated. Such employees are typically paid a commission for each sale they close, and sometimes are paid performance incentives for exceeding objectives. 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 completely accurate. The primary difference between the two is that affiliate marketers provide little if any influence on a possible prospect in the conversion process once that prospect is directed to the advertiser's website. The sales team of the advertiser, however, does have the control and influence up to the point where the prospect signs the contract or completes the purchase. Multi-tier programs Some advertisers offer multi-tier programs that distribute commission into a hierarchical referral network of sign-ups and sub-partners. In practical terms, publisher "A" signs up to the program with an advertiser and gets rewarded for the agreed activity conducted by a referred visitor. If publisher "A" attracts publishers "B" and "C" to sign up for the same program using his sign-up code, all future activities performed by publishers "B" and "C" will result in additional commission (at a lower rate) for publisher "A".Two-tier programs exist in the minority of affiliate programs; most are simply one-tier. Referral programs beyond two-tier resemble multi-level marketing (MLM) or network marketing but are different: Multi-level marketing (MLM) or network marketing associations tend to have more complex commission requirements/qualifications than standard affiliate programs.