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Ask Me Anything How Does Affiliate Marketing Work?

Discussion in 'Email Marketing' started by Wonderboy Ngidi, May 18, 2019.

  1. Wonderboy Ngidi

    Wonderboy Ngidi Affiliate affiliate

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    Because affiliate marketing works by spreading the responsibilities of product marketing and creation across parties, it manages to leverage the abilities of a variety of individuals for a more effective marketing strategy while providing contributors with a share of the profit. To make this work, three different parties must be involved:

    1. Seller and product creators.
    2. The affiliate or advertiser.
    3. The consumer.
    Let’s delve into the complex relationship these three parties share to ensure affiliate marketing is a success.

    1. Seller and product creators.
    The seller, whether a solo entrepreneur or large enterprise, is a vendor, merchant, product creator, or retailer with a product to market. The product can be a physical object, like household goods, or a service, like makeup tutorials. Also known as the brand, the seller does not need to be actively involved in the marketing, but they may also be the advertiser and profit from the revenue sharing associated with affiliate marketing.

    2. The affiliate or publisher.
    Also known as a publisher, the affiliate can be either an individual or a company that markets the seller’s product in an appealing way to potential consumers. In other words, the affiliate promotes the product to persuade consumers that it is valuable or beneficial to them and convince them to purchase the product. If the consumer does end up buying the product, the affiliate receives a portion of the revenue made.

    Affiliates often have a very specific audience to whom they market, generally adhering to that audience’s interests. This creates a defined niche or personal brand that helps the affiliate attract consumers who will be most likely to act on the promotion.

    3. The consumer.
    Whether the consumer knows it or not, they (and their purchases) are the drivers of affiliate marketing. Affiliates share these products with them on social media, blogs, and websites.

    When consumers buy the product, the seller and the affiliate share the profits. Sometimes the affiliate will choose to be upfront with the consumer by disclosing that they are receiving commission for the sales they make. Other times the consumer may be completely oblivious to the affiliate marketing infrastructure behind their purchase.

    Either way, they will rarely pay more for the product purchased through affiliate marketing; the affiliate’s share of the profit is included in the retail price. The consumer will complete the purchase process and receive the product as normal, unaffected by the affiliate marketing system in which they are a significant part.

    How Do Affiliate Marketers Get Paid?
    A quick and inexpensive method of making money without the hassle of actually selling a product, affiliate marketing has an undeniable draw for those looking to increase their income online. But how does an affiliate get paid after linking the seller to the consumer? The answer is complicated. The consumer doesn’t always need to buy the product for the affiliate to get a kickback. Depending on the program, the affiliate’s contribution to the seller’s sales will be measured differently. The affiliate may get paid in various ways:

    1. Pay per sale.
    This is the standard affiliate marketing structure. In this program, the merchant pays the affiliate a percentage of the sale price of the product after the consumer purchases the product as a result of the affiliate’s marketing strategies. In other words, the affiliate must actually get the investor to invest in the product before they are compensated.

    2. Pay per lead.
    A more complex system, this program compensates the affiliate based on the conversion of leads. The affiliate must persuade the consumer to visit the merchant’s website and complete the desired action — whether it’s filling out a contact form, signing up for a trial of a product, subscribing to a newsletter, or downloading software or files.

    3. Pay per click.
    This program focuses on incentivizing the affiliate to redirect consumers from their marketing platform to the merchant’s website. This means the affiliate must engage the consumer to the extent that they will move from the affiliate’s site to the merchant’s site. The affiliate is paid based on the increase in web traffic.
     
    Andre Houston likes this.
  2. CPA Evolution
  3. Don Sales

    Don Sales Affiliate affiliate

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    Nice summary, thanks for sharing the foundations of affiliate marketing.
    Which method you prefer or you are mainly interested in?
    I think CPA affiliate marketing (Pay Per Lead) is a good one as your referrals don't actually need to buy.
     
  4. Graybeard

    Graybeard Well-Known Member affiliate

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    Lot of words ...
    Affiliates to not get paid in kickbacks. Kickback is an illegal payment of bribery -- a crime
    Affiliates get paid a compensation for some CPA service rendered to a product's seller (or offer owner).
    Similar to a salesman's commission.
     
    azgold likes this.
  5. Certified
    CPAHub

    CPAHub Active Member Certified Vendor Affiliate Manager affiliate

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    They kinda do have to buy though. Most PPL campaigns have strict KPI's.
     
  6. Don Sales

    Don Sales Affiliate affiliate

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    Yes, if the expected "Action" is to buy I agree, they need to buy. However, if the expected action is to install a mobile game for instance then no need to buy.
    Now I'm curious, the CPA you are involved with, all your leads need to buy or they can perform different actions in order to trigger commissions?
     
  7. Graybeard

    Graybeard Well-Known Member affiliate

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    In CPI, in fact, the consumer 'buys-in': to install an advertising and tracking machine that is part of the game they install to their mobile phone.
    There is just no direct payment ...
     
  8. eMonetize

    eMonetize Active Member affiliate

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    When he said PPL campaigns have KPI's they need to hit.

    What he means is that the lead buyer is going to expect a certain ROI from the leads. So while all a user has to do is fill out a form for the publisher to make a commission. At the same time. the leads from the publisher need to convert at a certain level so the lead buyer gets the ROI they are after. If they don't, the publisher could be dropped from promoting that specific campaign.
     
  9. Certified
    CPAHub

    CPAHub Active Member Certified Vendor Affiliate Manager affiliate

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    Correct :)

    For example:
    KPI: 2% purchase rate

    That means that atleast 2 of 100 leads need to purchase something inorder for you to get paid for those 100 leads.

    An advertiser is obviously not going to pay for your leads if it's not working out for them. (Fake details, LQ details, 0 user activity etc).
     
  10. eMonetize

    eMonetize Active Member affiliate

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    I have never in 18+ years ever had any PPL offer that specified that if you didn't have X conversions then you didn't get paid. Nor would I ever promote such.

    My leads are 100% legit and any that I generate, I fully expect to get paid for...end of story.

    Now if they ever had an issue, they could drop me. That has never happened before either.

    Now if a publisher was doing something fraudulent, sure don't pay them.
     
  11. Certified
    CPAHub

    CPAHub Active Member Certified Vendor Affiliate Manager affiliate

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    Then you are probably running offers with low payouts. Every CPL offer in our network with a decent payout.
    USA SOI $5.50 for example has a KPI. Some advertisers might not show this to the affiliates, in that case they just remove affiliates from the offer or reverse leads for LQ/fraud.

    If you have been in the CPL business for 18+ years you should know that this happens.
     
  12. eMonetize

    eMonetize Active Member affiliate

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    No, I don't run low payout offers

    I have never been told that ever. However, as I said, all my leads are 100% legit and no one has ever had anything bad to say about the quality. Never had a single lead reversed / been dropped from an offer. Which that I know is possible.
     
  13. Certified
    CPAHub

    CPAHub Active Member Certified Vendor Affiliate Manager affiliate

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    Well, aslong as your traffic is HQ and meets the KPI's of the advertiser you're obviously going to be fine! :)

    My previous message might've been a bit harsh, wasn't my intake. Should've worded it a bit differently, sorry about that.
     
  14. Graybeard

    Graybeard Well-Known Member affiliate

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    That is not how a business prices a payout at all ...
    1. Average customer acquisition gross profit value =$a
    2. Payout Percentage to selling "agent (read:affiliate) =$b (30% as an example)
      (($a*$b)/
    3. Divided by the conversion ratio [ex:] 1:20 /20 (or multiplied by the percentage CR 5% same thing)=$c
      (($a*$b)/$c=CPL payout

    All of these numbers will vary a lot so the percentage will differ depending on the real value of the item sold by the merchant.

    That is why many offers are GEO tiered -- different GEO's might return different values for $a and $c -- $b should remain static.

    ((140)/20)=7.00
    ((140)/50)=2.80
    ((140)/100)=1.40

    So if your average CR is 0.05% --You're Fired!
    ((140)/200)=.70
    The offer was $2.00
    If the average profit (customer acquisition value is $1,000)
    ((1000)/200)=5.00
    You deserve a raise.

    Say you are a broker (read:affiliate network); then $d comes into play; your commission split with the affiliate -- that $d could be static of tiered based on some production level or other criterion.

    If you can't stat these costs and profit margins you are either new in business or are just making guesses. The other possibility is some product offer that is new and too different from your experience that may be an 'educated' guess :D
     
  15. Don Sales

    Don Sales Affiliate affiliate

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    Enjoying the discussion here :).
    That's what this is all about. Sharing experiences and learning with each other.
    I do believe there are some programs that require a minimum KPI rate and some not.
    Thanks for sharing your experiences folks.
     
  16. Graybeard

    Graybeard Well-Known Member affiliate

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    There are other factors to be considered -- the remarketing value.
    That is hard to calculate without data history.
    For instance: a game install or some other app that generates revenue by serving ads (or push notifications).
    After sale revenue -- like the money an auto dealer might make on future parts and service <<< that idea.
     
    Don Sales likes this.
  17. Don Sales

    Don Sales Affiliate affiliate

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    Indeed.
    I think that's one of the main reasons some companies pay affiliates just to have people install their apps as they can use it as part of their advertising network etc. I do understand though that some companies may have strict rules in regards to retention rate, KPIs etc.
    It is understandable that an affiliate marketer can possibly be removed from a program if the performance is very low. It does make sense.
     
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