Affiliate Program Terms & Definitions

Affiliate programs have grown to become one of the Internet's premier business models. To evaluate affiliate programs you need to understand a few commercial terms and definitions.

Affiliate

An independent party that promotes the products or services of a merchant in exchange for a commission. Also called an associate, partner, reseller, or referral partner.

Merchant

A company that has set up an affiliate program and has agreed to share a commission with affiliates who promote their web site, products and/or services. Also termed an advertiser, vendor, or simply referred to as an "affiliate program."

Commission

The income an Affiliate receives for generating a sale, lead or click-through to a merchant's web site. Sometimes called a referral fee.

Affiliate Program

Any type of revenue sharing program where an affiliate web site receives a portion of income for delivering sales, leads, or traffic to a merchant web site.

Affiliate Networks

A program that represents many merchants, allowing an Affiliate to join each merchants Affiliate Program using a single online ID. Marketplaces provide online tools such as reporting, payment and product feeds.

Pay-Per-Sale

A program where an Affiliate receives a commission for each sale of a product or service that you refer to a merchant's web site. Pay-per-sale programs usually offer the highest commissions and the lowest conversion ratio. Also referred to as Cost-per- Action [CPA] Program.

Pay-Per-Lead

A program where an Affiliate receives a commission for each sales lead that you generate for a merchant web site. Examples would include completed surveys, contest or sweepstakes entries, downloaded software demos, or free trials. Pay-per-lead generally offers midrange commissions and midrange to high conversion ratios (since visitor purchases are not required for you to be able to earn a commission). Like pay-per-sale, pay-per-lead is also referred to as a Cost-per-Action or CPA for short.

Pay-Per-Click

A program where an Affiliate receives a commission for each click (visitor) you refer to a merchant's web site. Pay-per-click programs generally offer some of the lowest commissions [$0.01 to $0.25 per click], and a very high conversion ratio since visitors need only click on a link to earn you a commission.

Pay-Per-Impression

A program where an Affiliate receives a commission each time that a merchant's ad or link is displayed on your site. Pay- per-impression generally offers the lowest commissions, but a 100% conversion ratio – so can provide high earning potential. Pay-per-impression programs are generally measured in CPM and are the standard used for banner advertising on larger web sites.

Conversion Ratio

The ratio of visitors from your site that are "converted" into a sale, lead or click, and earn a commission. A conversion ratio of 5% would mean that for every 100 visitors to your site, 5 would click-through, complete an action and earn you a commission.

Conversion ratio is affected by: how targeted the affiliate program's products are to your visitor's interests, the price and value of the products being promoted, the merchant's ability to track all sales, and the overall effectiveness of the merchant's web site.

Click-Through Ratio

The percentage of visitors who click-through on a link to visit the merchant's web site. Higher click-through is preferable, although not always a total measure of success.

Pay-per-click earnings are highly dependent on the click-through ratios. Click-through ratios can often be improved through a variety of means: making links more visible to visitors, adding personal comments or testimonial about the product, or even reducing the number of links a visitor can follow.

CPM

Cost per Thousand used in ad display programs that pay on an impression basis.

The CPM rate is the amount you earn for every 1000 times an advertisement is displayed. CPM can also be calculated for pay-per-sale, pay-per-lead and pay-per-click programs. CPM is an effective means of comparing results over time from various programs.

Two-tier Commission

Two-tier, or multi-tier, refers to a payment hierarchy where a merchant pays commission to both the affiliate that referred a sale, lead or click, [[Level 1], and the affiliate that referred that affiliate to the program [Level 2]. Avoid any programs that charge start-up or membership fees to join. These programs are illegal pyramid schemes in disguise.

Residual Commission

Residual commissions refer to programs that provide affiliates the ability to earn an income, month after month, for referring a sale to a merchant. They are usually those that offer some type of service for which the customer is charged an ongoing subscription fee. Examples include web hosting, tele- communications, and ecommerce solutions. They offer an effective benefit to affiliates since the affiliate can earn income for an extended period, perhaps even years, from a single sale.

Tracking Method

Tracking refers to the way that a program tracks referred sales, leads or clicks. The most common are by using a unique web address (URL) for each affiliate, or by embedding an affiliate ID number into the link that is processed by the merchant's software. Some programs also use cookies for tracking.

Cookies

Cookies are small files stored on the visitor's computer which record information that is of interest to the merchant site. Cookies are not dangerous and do not steal private data such as names, email addresses, phone or credit card numbers. Affiliate program cookies are used to keep track of what a customer purchases, and to track which affiliate was responsible for generating the sale [due commission].

Note – customers can delete cookies and they most often expire after a certain date. Most Affiliate Programs use either unique URLs or affiliate ID numbers in conjunction with cookies to track properly.

Banner Networks

Banners are a pay-per-click program, and generally part of a banner network that acts as middle-man between the advertisers and the affiliates who run the ads. The network takes a percentage of the overall revenues.

Next: Top 20 Affiliate Programs

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