The Advertiser pays the affiliate a flat $x.xx amount in commission if a referred visitor performs a specific action on the Advertiser's site. This could be an action like filling out a form, signing up for a newsletter or creating an account. The CPA model is very popular with online services like credit card providers, insurance services, DVD and video game rental services and loans and mortgages.
Due to the typically high flat commission amount, CPA is very attractive for PPC affiliates who do not have a permanent website or an established user base. Some affiliates have only a single landing page optimized for specific PPC campaigns with specific offers from individual Advertisers. These affiliates are, in effect, doing what an in-house search engine marketing team would do for the Advertiser.
Some Advertisers love PPC affiliates, while others hate them. It happens quite frequently that affiliate ads actually outrank the Advertiser's own ads for the same keywords or phrases! For an Advertiser, the positive thing about having and supporting PPC affiliates is that many keywords and phrases can be covered. Having numerous PPC affiliates who are working hard can be like having ten or more in-house teams of search engine marketers.
If you run a commercial site that sells products or services: before you consider the CPA model, make sure to have mechanisms in place to validate the quality of referred leads. Your program will be vulnerable to fraud - that is, affiliates who generate tons of "fake" leads - unless you have a system in place to verify the quality of the leads.
This model is used by most online retailers today.
Here are some basic tips for advertisers (merchants) who are considering starting an affiliate program with the CPS compensation model:
You should not pay commissions that result in your losing money on an order. You will gain new customers because of the affiliate program, but you will also pay commissions for returning customers. For example, let's say that you are a merchant who sells apples. Mary Smith bought 100 apples from your site a year ago. Now, she searches for "apples" on a search engine, and finds a site that lists all types of produce. Mary recognizes the name of your site (she's a return customer, after all), clicks on the link to your site, and buys another 100 apples from you. In this case, you will have to pay a commission to the affiliate that referred Mary back to your site.
Today's Internet shoppers are very bargain-conscious. Comparison shopping sites, coupon sites, cash-back shopping and charity sites make up a large percentage of successful affiliates, and are often visited by shoppers before they make a purchase. Because of this, it pays to look at your affiliate program as a customer retention tool. Customer loyalty is not as easy online as it is in "brick and mortar" stores, because your competition is not down the street or in another town, it is always just a click away. Let's go back to the example of Mary and the apples. If Mary goes to a page that lists 10 apple merchants, but you are not listed, then you are likely to lose her business as Mary clicks on one of the merchants listed right in front of her. If you are there, however, in the list, Mary is likely to return to your online business if she had a great previous experience with you (even if your prices are a little higher than your competitors' prices!).
(Note: Some comparison shopping sites use affiliate programs to generate revenue; the largest ones are usually charging inclusion fees or charging per click.)
If you are an online merchant, and you want to use an affiliate program for the purpose of customer acquisition, consider the CPA model and pay a flat commission for new customers referred by affiliates.
Do the math to come up with a flat commission that makes it worthwhile for affiliates to promote you. Affiliates are not waiting for you; your competitor who is looking for affiliates is only one click away.
The model you use and the commission you pay are up to you. You can also mix compensation models. The best thing to do is check what your competitors are doing and use their compensation model as reference.
Pay-Per-Sale is by far the most common compensation model. Two-thirds to three-quarters of all affiliate programs today are pay-per-sale programs. The operating site pays "commission" only to their affiliates for actual results (a sale, sign-up, etc.) and not just for promises (click-throughs or banner impressions).
Networks also work as a recruiting platform to find websites willing to promote your products or services. The integration of their services usually takes just a few days or sometimes just a few hours.
Some affiliate networks also help you to keep overhead low (such as dispensing payment to affiliates).
Networks usually charge a fee of 20%-30% of the commission you pay to affiliates. For example, if an affiliate refers a customer who makes a $100 purchase and you pay the affiliate a commission of 10% (or $10), then you would pay an additional fee to the network: 20%-30% of the $10 commission, or $2-$3 to the network. Therefore, your total cost for the referral is $12 - $13.
You can, of course, develop all the necessary tools and technology yourself, but that may not be very cost effective and believe me, it is not as easy as it seems.
Numerous affiliate tracking solution providers have already developed the technology and software to manage affiliate programs. The technology is typically easy to plug into your existing merchant site. Be careful, though, with too-small or too-new solution and software providers.
Check the background of the company before you buy. Do your diligence!
Here is a list of Affiliate Networks and In-House Affiliate Program Solution Providers.
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Successful Affiliate Marketing for Merchants by Shawn Collins Book or eBook  |
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How to Select & Compensate the Best Ad Agency for Your Needs |
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©2006 Carsten Cumbrowski
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