Affiliate marketing

What is affiliate marketing?

Affiliate marketing is a performance-based marketing strategy where businesses reward affiliates for driving traffic or sales to their website using the affiliate's marketing efforts. While the goal of an affiliate marketing programme is often to generate new sales or website traffic, an affiliate may also be rewarded for delivering free-trial users or for driving downloads of an app. 

Affiliates are typically paid for successful customer acquisitions or transactions generated through their promotional activities (more on this below). It is a cost-effective and collaborative approach that leverages the efforts of external partners to promote and sell products or services, creating a win-win situation for both parties involved.

What is an affiliate?

An affiliate is an individual or business that partners with a business to promote its products or services. Anyone with an online presence and a platform for promoting products or services can potentially become an affiliate. Affiliates use various channels to generate sales for the business, such as through websites, blogs, social media or other promotional methods (eg newsletters). Affiliates play a key role in expanding a business's reach and customer base while earning income based on the results of their promotional activities.

Examples of affiliates include:

• bloggers - who write product/service reviews or create content related to a niche

• social media influencers and content creators - for example, YouTubers, podcasters or social media influencers (on platforms like Instagram, Facebook or TikTok) who can showcase products or services

• website owners - especially those with niche websites or forums that attract specific audiences

• coupon or deal sites - platforms that share discounts or deals with their audience

• industry experts - professionals in a specific field who can recommend relevant products or services

• review sites - platforms dedicated to reviewing and comparing products or services

What is an affiliate programme and how does it work?

Affiliate programmes are arrangements between online merchants and affiliates. 

Usually, there is a link on an affiliate site (ie an ‘affiliate link’) and, when users click through, they are transferred to the merchant's website. The merchant will usually have a tracking mechanism to track how many leads or referrals are being directed through the affiliate link and can pay the affiliate a fee or commission accordingly. 

What are affiliate agreements?

An Affiliate agreement is a legal contract between a business and an affiliate, outlining the terms and conditions of their partnership in an affiliate marketing programme. It specifies the commission structure, payment terms, responsibilities of both parties, and any restrictions or guidelines for promotional activities. The agreement serves as a legally binding document that governs the affiliate relationship, ensuring clarity and mutual understanding of expectations.

What are the types of affiliate marketing?

There are 3 main types of affiliate marketing businesses should be aware of:

Unattached affiliate marketing

This refers to situations where an affiliate promotes products or services without directly tying the promotional efforts to a specific brand or business. Instead of focusing on a single business’ products, unattached affiliates create content or promote products from various businesses within a specific niche. 

In other words, there is no link or connection between the affiliate and the product/service they are promoting. Similarly, the affiliate does not need to have skills or expertise related to the product/service and does not serve as an authority on or make claims about its use.

Unattached affiliate marketing is the most uninvolved form of affiliate marketing. It allows affiliates to maintain a more neutral and diverse promotional strategy, offering flexibility to explore and promote a wide range of products or services without being exclusively affiliated with one particular brand or business.

Related affiliate marketing

This refers to situations where an affiliate promotes products or services that relate to their niche, but which they don’t personally use. For example, a fashion influencer may promote a clothing brand which they haven’t used before.

This form of affiliate marketing benefits from the affiliate's ability to drive traffic; however, there's a potential downside as they might recommend a product or service they haven't personally experienced, risking the trust of their audience.

Involved affiliate marketing

This refers to situations where an affiliate promotes products or services where there is a connection between the affiliate and the products or services they are promoting. The affiliate only recommends products/services that they are currently using or have previously used and which they truly believe in. The affiliate’s experience serves as the advertisement, and they act as trusted sources of information. In other words, involved affiliate marketing relies on an affiliate’s personal experiences, reputation and credibility. If there is an issue with the products or services the affiliate is promoting, their reputation is at stake.

How should affiliates be paid?

An affiliate’s fee structure is usually based on:

• the number of people they send to the merchant's site, or 

• the number of people they send who then purchase products or services or perform some other action. These are known as 'converted leads'

Common types of converted lead are:

• ‘pay per sale’ (or PPS) - the affiliate receives a percentage of the sale price of the product/service after the customer makes a purchase through the affiliate's marketing efforts (eg through their affiliate link)

• ‘pay per click’ (or PPC) - the affiliate receives a commission for each customer that clicks on their affiliate link and visits the merchant’s website (ie even if the customer doesn’t make a purchase or completes another action, the affiliate will receive a payment)

• ‘pay per lead’ (or PPL) - the affiliate receives a commission for each customer that visits the merchant’s website and completes the desired action (eg completing a contact form or signing up for a trial) 

• ‘pay per instal’ (or PPI) - the affiliate promotes a particular software or app by a customer and receives a commission for each successful installation by a customer

The payment structure should be clearly outlined in the Affiliate agreement. 

What are the benefits and risks of affiliate marketing?

Benefits

Some of the many benefits for merchants include:

• access to low-cost ad space with payment only for proven results

• access to diverse marketing channels (especially if working with multiple affiliates)

• the promotion of a product/service to a vast audience, giving their brands more exposure and recognition

• the promotion of products/services to  focused consumers 

Some of the benefits for affiliates include:

• earning passive income by promoting products/services and earning commissions on successful sales or leads

• increased goodwill from customers if the merchant is reputable

• not being responsible for customer support, handling product fulfilment, or dealing with returns - these aspects are left to the merchants 

Risks

Some of the risks for merchants include:

• the risk of fraudulent activities (eg fake leads or clicks), which can affect the accuracy of tracking and performance measurement

• success relies on the effectiveness and ethical practices of affiliates and negative actions by affiliates can impact the merchant’s brand

• limited control over how affiliates promote their products, potentially leading to inconsistent brand messaging

• the complexity of initially setting up and managing a network of affiliates and tracking their performance

Some of the risks for affiliates include:

• income uncertainty as earnings can be inconsistent, especially if the affiliate relies on a single product or niche that experiences fluctuations in demand

• affiliates can be affected by the actions of merchants (eg changes in affiliate programs or the discontinuation of products)

• market saturation making it challenging to stand out and attract customers

• risk to the affiliate’s reputation if the merchant's product/service is not what customers expected

What should merchants and affiliates be aware of when entering into an affiliate programme?

Both parties should be clear on the terms which they agree to be bound by when entering into any type of commercial arrangement.

Merchants should seek to protect their reputation from false advertising on the affiliate’s website by working with trusted affiliates only. To protect themselves, merchants should consider:

• requiring affiliates to keep the affiliate website up-to-date and in good working order, to ensure that the website design, content and functionality remain at an acceptable standard

• requiring affiliates to ensure that the marketing of the affiliate website is in accordance with applicable laws, any applicable codes of practice and good industry practices generally. This may include prohibiting affiliates from:

  • including any illegal, unlawful or otherwise prohibited content on the affiliate website

  • marketing using spam or unsolicited emails or other unsolicited communications

  • marketing using any form of spyware, parasiteware, adware, or similar software, or using any other antisocial or deceptive methods

  • increasing, or seeking to increase, the number of payment trigger events using any fraudulent or deceptive method

To protect themselves, affiliates should make sure:

• to work with reputable merchants with quality products or services and reliable affiliate programmes, as the success of affiliates is closely tied to the merchants they promote

• that they understand what actions will actually result in a commission (eg while a merchant could offer high commissions, if they misunderstand a fee structure an affiliate may get less than what was anticipated because if the customers do not, for example, actually make purchases) 

• that they adhere to the merchants' guidelines and policies regarding promotional activities, branding, and ethical marketing practices

• that they comply with all applicable laws, codes of practice and industry practices

In all circumstances, merchants and affiliates should enter into clear Affiliate agreements to have a formal written basis for their contractual relationship. 

Ask a lawyer if you have any questions or concerns about affiliate marketing.