Affiliate Marketing Advice ~
Paying For Performance

As you may have discovered, most internet advertising methods incur advertising costs irrespective of whether a sale is made. This means a merchant can spend a significant amount of money on advertising without the guarantee of generating any sales.

In last month’s article ‘Measuring Your Success’ you will have seen that it is important to ensure that you choose internet advertising methods that allow you to gain a return on your advertising investment. This is where performance based marketing will help.

Performance based internet marketing has grown dramatically over the last two years.

Unlike traditional internet advertising, this method does not involve upfront advertising costs and rather the merchant only incurs advertising costs when a sale occurs.

Performance based marketing is not confined to the internet as the concept has been around for quite some time. The internet however is the perfect vehicle to deliver performance based marketing, as it allows you to track and measure all of your marketing efforts with great accuracy.

One method of performance based marketing that you can try is affiliate marketing.

There have been many advances in the affiliate marketing arena and it is now more cost effective and easier to participate in.

This example will help you to understand how internet affiliate marketing can work:
• Joe Jones (the merchant) has an internet store that sells gifts. Joe wants to sell more products through his web site so he joins an affiliate network as a merchant.
• Sue Smith (the affiliate) has her own web site and is a member of an affiliate network program.
• Sue features one of Joe Jone’s products on her website together with a link to Joe’s website.
• Bruce Kennedy (the customer) visits Sue’s web site, sees Joe’s product on Sue’s web site and clicks through to purchase the product.
• When Bruce clicks through he is sent to Joe’s site (as it is Joe’s product) and then makes the purchase.
• As Sue referred Bruce to Joe’s site and Bruce then made a purchase, Sue will be paid an affiliate commission on that sale (cost per sale).
• If Bruce had not purchased the product, Sue would not have made any commission.

Let’s now look at the affiliate marketing terminology used in that example-

Merchant: A merchant is any web site that wants to take advantage of performance based marketing. The merchant decides how much they are willing to pay for each sale/action that results from a visitor sent from an affiliate.

Affiliate network: An affiliate network acts as a 3rd party between the merchant and the affiliate. They provide the technology to deliver the merchants’ campaigns, collect commission monies from the merchant and pay the affiliates. There are several affiliate networks in Australia.

Affiliate: An affiliate is a web site that promotes one or more merchants. When a visitor from an affiliate web site is sent to a merchant and the visitor makes a sale or performs a specified action, the affiliate is paid by the affiliate network.

CPS: Cost-per-Sale. After a visitor makes a purchase from a Merchant web site, the Merchant will pay the affiliate that sent that visitor a fixed amount (eg $5.00) or a percentage of the transaction amount (eg 5%). E-commerce web sites that sell products or services generally use the CPS model.

CPA: Cost-per-Action (aka Cost-per-Acquisition). After a visitor performs a specific action on a Merchant’s web site the Merchant will pay the affiliate that sent that visitor a fixed amount (eg $5.00). The action that the visitor performs is specified by the merchant. For example, a sign-up for the merchant’s newsletter, filling in a contact form, a request for further information about the merchant’s product etc.

CPC: Cost-per-Click. Each time a visitor is delivered to your site from one of your affiliates links you pay a set amount.

When considering affiliate marketing the merchant must decide which type of performance based marketing campaign (CPS, CPA or CPC) best suits its needs. The merchant can then create an offer through one or more affiliate networks. The affiliate network will subsequently promote the offer to its hundreds or thousands of affiliates who may then signup to promote the merchant’s web site.

The benefits of using this affiliate method include that a merchant will only incur advertising costs when the specified action occurs (that is, a sale (CPS), action (CPA) or click (CPC)). Another significant benefit of affiliate marketing is that the merchant can set the maximum commission payable to an affiliate. Such capping of the advertising cost allows the merchant to know exactly how much it will cost to acquire a customer.

Lets illustrate this with an example. A merchant has decided to pay to an affiliate 5% of the value of any sale that is generated from that affiliate (CPS). A sale that has been made is for a $100 product.

• Merchant sells product for $100.
• Affiliate is paid $5 for the sale (5% commission as set by the merchant)
• The merchant also pays an amount to the affiliate network when a sale is made.
• Affiliate network is paid $1.25 (25% on the $5 that has been paid to the affiliate)

So in this example, the sale of a $100 product cost $6.25 in affiliate advertising cost. The payment of $6.25 is made to the affiliate network who then pays the affiliate.

Affiliate networking is often a valuable part of any internet marketing portfolio and is certainly worth a try.

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Sharon Wild
Strategy & Marketing Director of e-JAZ, Sharon has been involved in the e-commerce community for several years. She successfully manages Australia's largest online jewellery store, Gillett's Jewellers.

Sharon can be contacted via email on sharon@e-jaz.com.au