Synopsis Explaination of how commissions work with affiliate marketing.

Chapter Contents Affiliate Links Commissions

Commissions

Now that we know what affiliate marketing is, we can examine how it works. Merchants attract affiliates to participate in their programs by offering commissions. There are three different types of affiliate programs for merchants to choose from, each named after a method of payment.

Pay-per-click

With this program, the merchant pays the affiliate a set commission for each visitor the affiliate sends to the merchant's website. For example, John places a link to the Acme Widget Company on his website. Each time a visitor to John's website clicks on the link, John will receive a commission.

Pay-per-click commissions are relatively small, usually a few cents. Using this plan, it takes time and a lot of traffic to generate a substantial amount of money. Also, merchants have to worry about fraud when paying commissions based on clicks, because qualifying individual clicks is a very difficult task. Because of these reasons, pay-per-click programs are becoming less popular and will probably fade out completely in the near future.

Pay-per-lead

This program allows the merchant to pay an affiliate for generating "qualified leads." In most cases a qualified lead is defined as the demographic information (name, address, etc.) of a potential customer. That lead is generated when a visitor to the affiliates site clicks a link to the merchants website where they fill out a form.

For instance, John has a website dealing with insurance. John puts a link on his website that points to a form on the Acme Auto Insurance Company's website that visitors can fill out to receive free auto insurance quotes. Using this program, when a visitor to John's site clicks on the link and completes the form, John receives a commission.

Pay-per-lead is a popular type of program because of the benefits for both merchants and affiliates. For merchants, it can be used as a tool for gathering information about potential customers. Affiliates generally like pay-per-lead programs because there is no cost for visitors to their website to share their demographic information. This makes it more likely that visitors will complete a transaction, which results in more commissions for the affiliate.

Pay-per-sale

Pay-per-sale is the most popular type of affiliate program. With this type of program a merchant pays a commission when an affiliate generates a sale. Recall the example where Sally offered widgets on her website, and earned a commission when Harry purchased one through the link on her website.

Commission Structure

In addition to the different program types, merchants can also choose to offer different commission structures. Most of the time, merchants will offer a flat rate commission for clicks, leads, or sales. Some merchants may offer "tiered" commissions, where affiliates who perform better earn higher commissions.

Remember that affiliate programs are set up to meet a merchant's business objectives, so the program types and commission structures they choose will reflect those objectives. However, merchants must also offer competitive commissions as incentives to attract affiliates to promote their products. The result is a diversity of program types and commission structures.