Monday, January 12, 2009

Affiliate Terms and Their Definitions

Here are terms used when describing affiliate programs and the most common definitions:

Affiliate
An independent party that promotes the products or services of a merchant in exchange for a commission. Also sometimes termed an associate, partner, reseller, or referral partner.

Affiliate Program
Used in a broad sense, an affiliate program is 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. In a narrow sense, affiliate programs are commonly considered those programs that use a pay-per-sale model. Also termed associate, partner, referral, reseller, or sponsor programs.

Merchant
A company that has set up an affiliate program and has agreed to share a commission with affiliates that promote their site, products or services. Also termed an advertiser or simply referred to as an 'affiliate program'

Commission

An amount of income you receive for referring a sale, lead or click to a merchant's site.

Pay-per-sale
A program where you receive a commission for each sale of a product or service that you refer to a merchant's web site. Pay-per-sale generally offers the highest commissions and the lowest conversion ratio. Also referred to as Cost-per-Action (CPA for short) and generically as an Affiliate Program.

Pay-per-lead

A program where you receive a commission for each sales lead for a product or service that you refer to a merchant's web site. Pay-per-lead generally offers mid-range commissions and mid-range to high conversion rations (since visitor purchases are not required). Like pay-per-sale, also referred to as a Cost-per-Action or CPA for short.

Pay-per-click
A program where you receive a commission for each valid click (visitor) you refer to a merchant's web site. Pay-per-click generally offers low commissions (range of $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.

Pay-per-impression

A program where you receive a commission each time a merchant's ad or link is displayed on your site. Pay-per-impression generally offers the lowest commissions, but a nearly 100% conversion ratio since a visitor merely has to view the ad to earn you a commission, often resulting in the highest earnings potential. Pay-per-impression programs are generally measured in CPMs (see below) and form the standard of banner advertising for larger sites.

Conversion ratio

The ratio of visitors from your site that are 'converted' to a sale, lead or click, and go on to earn the you a commission. A conversion ratio of 5% would mean that for every 100 visitors to your site, 5 would click-through, make a purchase and earn you a commission. Many factors will influence the conversion ratio including: how targeted the affiliate program's products are to your visitor's interests, the price and value of the products or services being promoted, the merchant's ability to successfully track all referred sales, and the professionalism and comfort-level the merchant's site provides to potential customers.

Click-Through Ratio

The percentage of visitors who click-through on a link to visit the merchant's web site. Higher click-through's are preferable although not always a measure of success. Pay-per-click program earnings are highly dependent on click-through rations. Click-through ratios can be improved through a variety of means including: making links more visible to visitors, adding personal comments or testimonials about the benefits of a product, or even reducing the number of possible links that a visitor can follow.

CPM

The practice of calculating a cost per thousand ad displays. It is used with programs that pay on a impression basis, with the CPM rate being the amount you earn for every 1000 times an advertisement is displayed. For example a $5 CPM means you earn $5 every time 1000 ads are displayed on your site.

CPM can also be calculated for pay-per-sale, pay-per-lead and pay-per-click programs by using the following formula: Amount Earned from Program/# of Ad Impressions/1000

Calculating the CPM of affiliate programs can be an effective way to means of comparing results over time from various programs, allowing you to put more emphasis on the strong programs, and dropping the poorly performing programs.

Two-Tier Commission
Two-tier, or multi-tier, refers to the practice of an affiliate merchant paying commissions to both the affiliate that referred a sale, lead or click, but also to the affiliate that referred that affiliate to the program. A descendent of multi-level marketing, two-tier programs are generally quite legitimate and offer the merchant an effective means to promote their program quickly. However, be wary of any programs which try to charge start-up or membership fees to join.

Residual Commission

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 generally programs that offer some type of service for which the customer is charged a monthly subscription fee. Examples include web hosting, telecommunications, and e-commerce solutions. They offer an effective benefit to affiliates since the affiliate can earn income for an extended period, perhaps even years, from one initial sale.

Tracking method

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 which is processed by the merchant's software. Some programs also use cookies to track sales.

Banner Networks

Many networks have arisen to better facilitate the pay-per-click program concept. Most pay-per-click programs are part of a network where the network acts as middleman between the actual advertisers and the affiliates which run the ads. For this, the network takes a cut of the revenues.




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12 comments:

  1. Very handy glossary, perfect for beginners. I'll be stumbling it.

    ReplyDelete
  2. Hi,
    Excellent post here. Shows the amount of time you put in researching your post topics. Just like every other post here.
    Will be seeing more of me on this blog
    Keep up with this great job.

    -----------------------------------
    Income Secrets

    ReplyDelete
  3. Hi Bhing, I have been on Affiliate ads for about 4 months now, but I only see minimal monetary value as writing review... but better than nothing huh! additional colors to your page though.. :)

    Do you write paid posts?

    Good luck in blogging...

    ReplyDelete
  4. Hi Bhing. This is very educational.

    ReplyDelete
  5. Thanks my friend. Very informative. I would like to find a good affliate program to earn more money. :D

    ReplyDelete
  6. I like this post. ;) thanks for sharing. anyway, you can place your link here http://mortiferbarba.blogspot.com/2007/09/link-exchange.html

    ReplyDelete
  7. Useful. Akthough a lot of people seem very humpty dumpty about these terms--using them different ways.

    ReplyDelete
  8. A must vocabulary words for everyone who does anything online, thank you! :)

    ReplyDelete
  9. I was looking for something like this...great work and like to see updates...

    Sjay

    ReplyDelete
  10. Hi Bhing.You know? Your posts are very important and Excellent.Thanks my friend.Have a great day!

    ReplyDelete



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