Affiliate Compensation Methods
Affiliate marketing is also known as “performance marketing”, which relates to how sales employees are usually compensated. These sales employees are typically paid a commission for each sale they close, and at times are paid “performance incentives” for exceeding targeted goals or baselines.
80% of affiliate programs on market today use revenue sharing or cost-per-sale (CPS) as a compensation method, whereas 19% use cost per action (CPA). The remaining affiliate programs use alternate methods such as cost per click (CPC) or cost per mille (CPM), also known as diminished compensation methods, usually employed within more mature markets that rely heavily on display advertising and paid search.
Know that affiliate marketing is not all the same everywhere. For example, in China, many affiliates are paid a flat “Cost Per Day” fee.
Cost Per Mille
In the cost per mille model, the only requirement is that the publisher make the advertising available on his website, displaying it to his visitors. For that, the publisher receives a commission. In these cases, the publisher isn’t concerned with whether the visitor fits into the advertiser’s preferred demographic and converts, since the publisher has already earned his commission. Relative to other affiliate compensation methods, this method puts the full risk and loss to the advertiser in the event that the visitor can’t be converted.
Pay Per Click
Pay-per-click needs one more all-important step to work (i.e., for the publisher to receive a commission): visitors must visit, or click through to, the advertiser’s website.
Cost Per Action
Taking things one step further than in pay-per-click, cost per action sale methods require that vistors do more than simply visit the advertiser’s site in order to receive a commission. The advertiser needs to convert the visitor first. Therefore, it’s in the affiliate’s best interest to send the most closely targeted traffic to the advertiser as possible, which will increase the likelihood of conversion. In this method, the risk and loss is shared between the advertiser and the affiliate.
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