The reading level for this article is Novice
by Jerry West
Updated: June 11, 2003
Affiliate programs are a popular way of advertising your product on the internet. Affiliate Programs are also a powerful way to increase your revenue by receiving a sales commission by placing links on your site to web sites which sell other products, like Amazon.com. However, it is important that you choose the right affiliate program software and the right affiliate programs.
Not all affiliate programs will give you the results that you desire. The programs that you choose must coincide with the product that you are selling. Also, it must totally compliment what you are selling on your site.
Affiliate programs can help boost your sales by a great amount. For instance, if you are selling books, affiliate sites that would be helpful are bookstores, libraries, and gift shops. Having links on your site to these sites, is where the affiliation comes into play.
According to author Kevin Sinclair of, “Be Successful! Business and Personal Sucess Resources” says, “Most marketing experts say that the best way to sell products through an affiliate association is by personal recommendation. Once you have used the product, you are then able to write a review that tells your customers or visitors what you liked about it and how it helped you.
“A personal recommendation will sell more than any advertisement. To supplement your promotional activities, consider advertising that gets people to visit the details of the affiliate program on your site, or alternatively, send them directly to the affiliate site using your affiliates link.
“Paid advertisement in ezines is fairly cheap and can provide you with highly targeted prospects for your promoted product.”
If you choose to use good affiliations that your customers will be interested in, which are related to your site, they will bring you the most results for your site.
Affiliate Terms and Definitions
Affiliate: An independent party that promotes the products or services of a merchant in exchange for a commission. Also an associate, partner, reseller, or referral partner.
Affiliate Program: Used in a broad sense, an affiliate program is 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. In a narrow sense, affiliate programs are commonly considered those programs that use a pay- per-sale model like our own. Also termed associate, partner, referral, reseller, or sponsor programs.
Banner Networks: A whole bunch of networks have popped up to better facilitate the pay-per-click concept. Most pay-per-click programs are part of a network where the network acts as middle- man between the actual advertisers and the affiliates which run the ads. And for this service, the network takes a percentage of the overall revenues. Some larger networks include:
Click-Through Ratio: The percentage of visitors who click-through on a link to visit the merchant’s web site. Higher clickthroughs are preferable although not always a great 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: by making links more visible to visitors, adding personal comments or testimonials about the product, or even reducing the number of links a visitor can follow.
Commission: The income you receive for generating a sale, lead or click-through to a merchant’s web site. Sometimes called a referral fee, a finder’s fee or a bounty.
Conversion Ratio: The ratio of visitors from your site that are “converted” into a sale, lead or click, and go on to earn the you 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. Many factors will influence the conversion ratio, including 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.
CPM: The practice of calculating a cost per 1000 ad displays. It is used by programs that pay on an impression basis — with the CPM rate being the amount you earn for every 1000 times an advertisement is displayed. For example, a $5 CPM means you earn $5 every time 1000 ads are displayed on your site. CPM can also be calculated for pay-per-sale, pay-per-lead and pay-per-click programs by using this formula: Amount earned / (number of impressions/1000) Calculating the CPM of affiliate programs can be an effective means of comparing the results over time from various programs — allowing you to put more emphasis on the strong programs, and dropping the poorly performing programs.
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”.
Pay-Per-Click: A program where you receive 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 (from $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 you receive 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 nearly 100% conversion ratio since a visitor merely has to view the ad to earn you a commission — and this often results in the highest earnings potential. Pay-per-impression programs are generally measured in CPMs (see below) and form the standard of banner advertising for larger web sites.
Pay-Per-Lead: A program where you receive 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 mid-range commissions and mid-range 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-Sale: A program where you receive 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 for short) and generically as an Affiliate Program.
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.
Third-party Administrators: Similar to banner networks, an increasing number of companies have sprouted up to help merchants facilitate their affiliate programs. Most act as consultants and software providers to merchants, and thus allow them to cost- effectively outsource their affiliate program operations. For affiliates, the networks often offer simplified registration, standardized commission tracking and reporting, and even consolidated commission payments. Some leading third-party affiliate program administrators include:
Two-Tier Commission: Two-tier, or multi-tier, refers to the practice of a merchant paying commissions to both the affiliate that referred a sale, lead or click, and the affiliate that referred that affiliate to the program. A descendent of network marketing, two-tier programs are generally quite legitimate and offer the merchant an effective means to promote their affiliate program quickly. However, be wary of any programs that try to charge start-up or membership fees to join. These programs should be avoided, as there are hundreds of others that do not charge to become an affiliate. Some are simply pyramid schemes in disguise.