Affiliate Program Terms & Definitions
Affiliate programs have grown to become one of the Internet's premier
business models. To evaluate affiliate programs you need to understand
a few commercial terms and definitions.
An independent party that promotes the products or services of
a merchant in exchange for a commission. Also called an associate,
partner, reseller, or referral partner.
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."
The income an Affiliate receives for generating a sale, lead or
click-through to a merchant's web site. Sometimes called a referral
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.
A program that represents many merchants, allowing an Affiliate
to join each merchants Affiliate Program using a single online ID.
Marketplaces provide online tools such as reporting, payment and
A program where an Affiliate receives 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
A program where an Affiliate receives 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 midrange commissions
and midrange 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.
A program where an Affiliate receives 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 [$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.
A program where an Affiliate receives 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 100% conversion ratio
– so can provide high earning potential. Pay-per-impression
programs are generally measured in CPM and are the standard used
for banner advertising on larger web sites.
The ratio of visitors from your site that are "converted"
into a sale, lead or click, and earn 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.
Conversion ratio is affected by: 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.
The percentage of visitors who click-through on a link to visit
the merchant's web site. Higher click-through is preferable, although
not always a total 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: making links more visible to visitors, adding personal
comments or testimonial about the product, or even reducing the
number of links a visitor can follow.
Cost per Thousand used in ad display programs that pay on an impression
The CPM rate is the amount you earn for every 1000 times an advertisement
is displayed. CPM can also be calculated for pay-per-sale, pay-per-lead
and pay-per-click programs. CPM is an effective means of comparing
results over time from various programs.
Two-tier, or multi-tier, refers to a payment hierarchy where a
merchant pays commission to both the affiliate that referred a sale,
lead or click, [[Level 1], and the affiliate that referred that
affiliate to the program [Level 2]. Avoid any programs that charge
start-up or membership fees to join. These programs are illegal
pyramid schemes in disguise.
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.
Tracking refers to the way that a program tracks referred sales,
leads or clicks. The most common are by using a unique web address
(URL) for each affiliate, or by embedding an affiliate ID number
into the link that is processed by the merchant's software. Some
Cookies are small files stored on the visitor's computer which
record information that is of interest to the merchant site. Cookies
are not dangerous and do not steal private data such as names, email
addresses, phone or credit card numbers. Affiliate program cookies
are used to keep track of what a customer purchases, and to track
which affiliate was responsible for generating the sale [due commission].
Note – customers can delete cookies and they most often
expire after a certain date. Most Affiliate Programs use either
unique URLs or affiliate ID numbers in conjunction with cookies
to track properly.
Banners are a pay-per-click program, and generally part of a banner
network that acts as middle-man between the advertisers and the
affiliates who run the ads. The network takes a percentage of the
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