- What is affiliate marketing?
- How do affiliate marketing programmes operate?
- Examples of affiliate marketing programmes
- Benefits of affiliate marketing programmes
- Tracking and reporting
- Affiliate networks
- Legal requirements
- Starting an affiliate marketing programme
- Recruiting affiliates
- How are affiliates paid?
- Hints and tips
- Further information
An affiliate marketing programme is a method of encouraging website owners and other online publishers to promote another business’s products or services in return for a fee, normally a commission. Many successful online traders use this performance-based marketing method, but it is often overlooked by small business owners despite it being cost effective.
This factsheet explains how affiliate marketing works and looks at some practical examples. It describes how to set up an affiliate marketing programme and summarises key legislation that affiliate marketing programmes must comply with.
What is affiliate marketing?
Affiliate marketing is a way for merchants to reward other businesses for referring customers or website visitors to them. A ‘merchant’ is any business with an online presence, such as a retailer, service provider or advertiser. An ‘affiliate’ can be any business that publishes via online channels.
The merchant provides the affiliate with the necessary information and tools for the affiliate to promote the merchant’s products or services via their website, social media accounts, blog or e-newsletter. The merchant makes a payment to the affiliate for every customer or visitor referred from the affiliate’s online channels who completes a predetermined action, for example making a purchase or signing up for a newsletter. Affiliate marketing is a cost-effective option for merchants because affiliates get paid only when they deliver results.
How do affiliate marketing programmes operate?
Affiliate marketing programmes work by tracking referrals from affiliates to merchants and converting the tracking results into rewards that are paid to the affiliates. Referrals can take the form of click-throughs, registrations or sales, and are usually tracked using unique links that identify the affiliate as the source of the referral. The reward or compensation method varies, with the most common being:
- Cost per sale (CPS), or pay per sale (PPS). This is a revenue-sharing model where merchants pay affiliates a commission for every sale made from a referral.
- Cost per action (CPA), or pay per action (PPA). This is a compensation method where merchants pay affiliates a reward every time a referred visitor completes a specific action, such as signing up for a newsletter.
- Cost per lead (CPL), or pay per lead (PPL). This is a compensation method where merchants pay affiliates a reward every time a referred visitor signs up to indicate their interest in offers made by the merchant.
- Cost per click (CPC), or pay per click (PPC). This is a method where merchants pay affiliates a fee every time a user is driven to click on a promotional link or banner that links them to the merchant’s website.
- Cost per mille (CPM), or cost per thousand. This method pays affiliates for every thousand visitors driven to the merchant’s website.
Some merchants run their own in-house affiliate programmes, which require them to manage affiliates, track referrals and administer reward payments themselves. However, many merchants use affiliate networks that connect merchants to affiliates and make the administration of affiliate programmes a lot easier.
Examples of affiliate marketing programmes
Many successful online services operate some form of affiliate marketing programme. For example, mobile phone networks, bookmakers, credit card providers, insurance companies, broadband providers, travel agents, utility companies, and retailers of clothes, food and entertainment products have all benefited from such programmes as part of their marketing activities.
Amazon has one of the best-known affiliate marketing programmes, Amazon Associates. Affiliates can link to any product or page on the Amazon website and receive a commission on any products sold. Go to https://affiliate-program.amazon.co.uk for further details.
ClickBank (www.clickbank.com) is an online retailer and affiliate marketing network with around 100,000 affiliates. Affiliates sign up for a free account and then choose the products they wish to promote. Whenever someone clicks on one of these links and purchases a product, ClickBank pays the affiliate a commission of up to 75% of the sale.
Other major operators of affiliate programmes include Argos, ASDA, Expedia, John Lewis, and Sky.
Benefits of affiliate marketing programmes
Affiliate marketing programmes offer benefits to both the merchant and the affiliate:
- For merchants, affiliate programmes bring new customers and visitors to their website. The benefit of this is that they pay only on results, and the affiliate has an incentive to promote the product or service in order to earn revenue.
- Affiliates can earn commission or fees by promoting merchants’ products or services without having to become a merchant themselves.
Tracking and reporting
For an affiliate marketing programme to work effectively, it is essential that all referrals (clicks and sales) are accurately tracked so that merchants can reward each affiliate appropriately. Affiliates must be able to trust their merchants and be confident that all referrals are tracked and correct payments made. Transparent reporting is required and most programmes have systems that allow affiliates to log in to check up-to-date referral and payment reports.
Affiliate marketing software is available that enables merchants to track, analyse and manage their affiliate marketing programmes. Examples include:
- ClickInc (www.clickinc.com).
- AffiliateRoyale (https://affiliateroyale.com).
- PostAfiliatePro (www.postaffiliatepro.com).
Affiliate networks are third parties that act as a link between merchants and affiliates, making it easier for merchants to find suitable affiliates and vice versa. Affiliate networks typically provide tools for tracking, analysing and managing the affiliate marketing that merchants carry out via the network. Some of the major affiliate networks include:
- Affiliate Future (www.affiliatefuture.co.uk).
- AWIN (www.awin.com/gb).
- CJ Affiliate (www.cj.com/en-gb).
- Monetise (www.monetise.co.uk).
- Webgains (www.webgains.com).
Consumer and business protection
Consumer and business protection legislation, including the Consumer Protection from Unfair Trading Regulations 2008, prohibit merchants and affiliates from using misleading or otherwise unfair commercial practices. To ensure that affiliate marketing is not misleading, it is essential to comply with the CAP Code (the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing).
The CAP Code is administered and upheld by the Advertising Standards Authority (ASA). In general, the CAP Code requires adverts to be legal, decent, honest and truthful. It also requires that affiliate marketing must be ‘obviously identifiable as such’.
Both the merchant and the affiliate are responsible for complying with the CAP Code, even if advertising content has been created solely by the affiliate.
The ASA provides guidance about the requirements of the CAP Code as they relate to affiliate marketing at www.asa.org.uk/advice-online/affiliate-marketing.html. The guidance includes recommendations about how to make affiliate marketing clearly identifiable in blogs, vlogs, social media posts and on voucher sites (ie sites that provide discount codes and other promotional offers).
The ASA can require non-compliant marketing to be withdrawn and apply a range of other sanctions, such as adverse publicity and mandatory pre-vetting of marketing material. In serious cases they can refer non-complying marketers to National Trading Standards for prosecution.
Privacy and data protection
Merchants who use affiliate marketing to encourage referred visitors to sign up to receive marketing communications must also comply with provisions of PECR that prohibit them from sending marketing e-mails, text messages or faxes, or making marketing phone calls, without the recipients’ consent. Consent is not valid unless it is knowingly and freely given on the basis of clear and specific information, so that people have genuine control over the electronic marketing communications that they receive.
Go to https://ico.org.uk/for-organisations/guide-to-pecr/cookies-and-similar-technologies/ and see BIF410 A Guide to the Privacy and Electronic Communications Regulations 2003 (PECR) for further information.
Merchants and affiliates must also ensure that their collection and processing of personal data complies with the General Data Protection Regulation (GDPR).
Personal data includes, for example:
- The names and contact details of affiliates.
- The names and contact details of website visitors who sign up to receive marketing from a merchant after being referred by an affiliate marketing programme.
- Internet tracking information obtained by storing cookies on a website visitor’s computer or other device.
For more information about the GDPR, go to https://ico.org.uk/for-organisations/guide-to-the-general-data-protection-regulation-gdpr/. See also BIF536 A Guide to the General Data Protection Regulation (GDPR).
Starting an affiliate marketing programme
The first step in starting an affiliate marketing programme is to decide whether it will be set up and operated in-house or via an affiliate network. Merchants running an in-house programme will require appropriate software to handle tracking, reporting and payment administration.
The next step is to create links and banners for affiliates to use. Most merchants provide banners in a range of sizes and formats and text links that can be easily incorporated into affiliates’ websites. The links and banners should be updated regularly to feature new products and developments. Dynamic links can also be created: these will update automatically without the affiliate having to change them manually. It is also important to create specific landing pages on the merchant’s website or ensure that links point to appropriate pages. For example, a link for a newsletter sign up should point to a specific newsletter sign-up page rather than the merchant’s homepage.
Deciding on a suitable payment method and schedule is crucial to attracting affiliates and ensuring that the programme produces a healthy return on investment. If the payment offered is too low, few affiliates will be interested. If it is too high, the programme could damage the merchant’s profit margin. Affiliate programme operators usually list the payments offered to affiliates on their own websites where they can be researched and compared.
One of the advantages of joining an affiliate network is that the merchant’s programme becomes visible and available to the network’s existing membership of affiliates. Many networks include details of new programmes in newsletters and on their home page. The programme will also be available to new affiliates joining the network.
Merchants operating an in-house programme will need to recruit affiliates themselves. A good starting point is to contact existing customers and suppliers, for example by sending out an e-mail newsletter. A dedicated web page or site providing information for potential affiliates can be linked to from the newsletter and the merchant’s main website.
It is also possible to find affiliates on social media and in affiliate communities and forums. Examples of these communities are AffiliateFix (www.affiliatefix.com) and Affilorama (www.affilorama.com/forum).
How are affiliates paid?
It is common for merchants to pay affiliates electronically via an online payment system such as PayPal or FirstChoice Pay. Many merchants use specialist affiliate marketing online payment systems, such as ePayments or Paxum. Payments are made at regular intervals – monthly or quarterly, for example – usually only if the commission due for that period is above a certain threshold. For example, some merchants will only pay when the amount due for the period exceeds £50, in order to reduce the potentially costly administration of very small payments. Although affiliates will expect to be paid promptly, accurate reporting can take time to process and payments are typically made one or two months in arrears.
Hints and tips
- In general, affiliate marketing is more suitable for products than services.
- Effective affiliate marketing programmes can increase a merchant’s sales or website visits. They also increase awareness of the merchant’s name and presence across the web.
- Joining an affiliate network can make it easier to administer an affiliate programme and attract new affiliates.
- Accurate tracking and reporting will keep the programme running effectively and will maintain affiliate confidence.
- Banners and links should be kept fresh and up to date to encourage affiliates to use them and consumers to click on them.
- Affiliate applications should be checked or approved to ensure the programme is promoted by suitable websites.
- Building relationships with affiliates and keeping them updated about new developments will encourage their loyalty.