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Affiliate Marketing: What is this? How it works?

28 Nov 2016 0

When I discuss Digital Strategy with some partners or clients I always talk about affiliate marketing. It is one of the less-utilized online marketing avenues .

Some of them asked me: what is this? how it works?

So according to Wikipedia :“Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.”

How it works?

As an advertiser, you can offer an affiliate program to publishers/affiliates and you’ll pay your affiliates a commission fee for every click, lead or sale. What makes it unique from other approaches is that merchants only pay for advertising when a sale/action occurs. Affiliates run text or display ads with special links, which upon a click from a consumer, identifies the affiliate to be paid a commission.

There are different payment terms we can use such as:

  • Cost Per Sale (CPA)
    A visitor referred by the Affiliate purchases goods and services from the Merchant. This payment structure is referred to as cost per sale or cost per acquisition
  • Cost Per Lead (CPL)
    A visitor referred by the Affiliate completes a form on the Merchants web site. This payment structure is referred to as cost per lead
  • Cost Per Click (CPC)
    A visitor to the Affiliates web site clicks on a Merchant’s banner and visits the Merchant’s web site. This payment structure is referred to as cost per click

Advertisers and publishers work also with CPM (cost per view), early form of advertising that could be combined with the affiliate marketing model.

I work with advertisers and publishers and I can tell you that:

Advertisers love affiliate marketing because it involves minimal risk. Affiliate marketing is appealing to some publishers as well, because it can allow them to make considerably more money than they would under an alternative monetization strategy.

But I realized that many publishers (in Canada or other countries) prefer CPM model to get quickly paid. I discussed with some publishers and from their perspective working with CPA or CPL could be quite challenging. It’s possible that days could go by without a single conversion, even if you’re serving lots of ads and generating lots of clicks

How to choose a pricing model?

There’s no hard and fast rule about which pricing method is the best; it depends on the site, audience, target and campaign. I understand both sides (advertisers and publishers) and I always recommend them to run small tests and optimize for high performance from the beginning of the campaign. I also recommend to consider a combination of advertising and affiliate marketing to get the best results.

Do you need advice or have questions about affiliate marketing, let’s chat! I will be happy to help!

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