Internet Business Basics – Affiliate Marketing
Affiliate marketing is a business model wherein a product or service that is developed by one entity is sold by another active seller for a share on the profit. The model basically uses a website to drive traffic to another. Most of the affiliate marketing models available today comes from e-commerce businesses with affiliate programs.
This business model has four core players; the merchant or retailer, the publisher or affiliate, the network and the customer. The concept of affiliate marketing can be explained in three steps:
Step 1: A customer visits the website of an affiliate.
Step 2: The affiliate, using links, directs the prospective customer to its partner, the merchant, which offers a product or service.
Step 3: Depending on the terms of their agreement, the merchant compensates the affiliate. The affiliate is rewarded with a share for each visitor or buyer as a result of its marketing efforts.
Of all types of online marketing, advertisers often overlook affiliate marketing because it has a low profile as compared to search engines or e-mail marketing, although it is always a part of the portfolio of e-marketers.
1. If you intend to go into the business of affiliate marketing, you can locate affiliate programs online from directories such as Yahoo! Directory. Another affiliate program directory is associateprograms.com. In here, you can promote your affiliate program or find pages of affiliate programs you can join.
2. You need to evaluate your prospective affiliate channels. It can be anything from an enewsletter or a website but it all depends on the quality of your partner.
3. The average commission is from 15% to 20% but this amount depends on a number of factors. One factor is the demand of the product and its availability. If the product has a high volume, it will command a lower price and commission.
4. You will need a way to track sales, traffic and payments.
Business Model: If you intend to go into affiliate marketing, you must be aware of the compensation methods available.
Cost Per Sale (CPS)
About 80 percent of affiliate marketing programs today use revenue sharing. Revenue sharing is basically the commission for a referred business. It is also called Cost Per Sale or CPS. It is basically a low risk but high profit strategy of getting new customers and is an innovative way to drum up new business.
It is a cheap way to pursue brand awareness and knowledge as compared to other marketing avenues, such as print ads, television commercials and direct mail campaigns. Cost Per Sale maximizes dollars since it charges the business based only on the success of the marketing campaign of the affiliate.
Cost Per Action (CPA)
19 percent of affiliate marketing programs use Cost Per Action or CPA. It is also known as Pay Per Action (PPA). An action can be a purchase of a product, a submitted form and others that is linked to the advertisement. Pay Per Click or PPC is another form of PPA but has since become a scheme of its own.
Cost Per Click (CPC) and Cost Per Mile (CPM)
Less than one percent of affiliate marketing is CPC or CPM. This is best personified with the Pay Per Click advertising model that is used on websites. It is more of a pay per performance model. CPC is the cost that an advertiser pays to a search engine and other Internet publisher for a single click on their advertisement. Examples of CPCs are the Google Adwords, Microsoft AdCenter and Yahoo! Search Marketing. Google offered their AdWords in 2006, but was discontinued in October 2008 and was replaced by another Google-owned service called DoubleClick.
Affiliate Marketing Pitfalls
Aside from the vulnerability of affiliate programs to click fraud, there have been other cases of schemes that can potentially harm your affiliate program business.
Affiliates tend to send e-mail advertisements to customers who have joined or submitted forms. These e-mails were oftentimes considered spam as they are unsolicited. Merchants need to have control over this; else, this can led to brand damage. As a result, merchants have refined their Terms and Conditions and added clauses to prohibit affiliates from spamming.
Search Engine Spam
Another form of spam is the search engine spam, which basically alters relevancy rankings in search engines with the use of automatically generated webpages showing data feeds of products from the merchants. This skews search engine rankings and affects the Search Engine Optimization business.
The market for this business model has grown considerably over the years that it now requires another layer of players. These include affiliate management agencies and special third-party vendors.
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