Affiliate marketing is also known as performance marketing; this definition is typical of how sales employees or the affiliates are being rewarded or compensated. These sales personnel are paid commission based on any sale they close; they are also given performance incentives for exceeding targets.
Affiliates are not employees of the advertiser whose products or services they make promotion of. However, the compensation model that is used in affiliate program is very similar to that which is used in the advertiser’s main sales department.
The various compensation methods include:
o The Diminished Method: this method uses more of CPC (Cost per Click) and CPM (Cost per Mille). This method is densely applied in display advertising and paid search. Only less than one percent of the conventional affiliate marketing uses this method
Cost per Mille (CPM) is diminished compensation method that requires the affiliate or publisher to advertise the product or service in his website for the viewing of his visitors; in order to earn commission. In the case of Pay per Click (PPC), an additional step to advertising the product on the site is needed to earn revenue; the visitor must click the advertisement to go to the advertiser’s website.
Cost per Click was very popular during the early periods of affiliate program. However, this method of compensation has waned in use as a result of click fraud issues. Google AdSense known as contextual advertising are not regarded in the statistics pertaining to diminished use of CPC (Cost per Click). This is because it is yet not determined if contextual advertising is part of affiliate marketing.
o The Predominant Method: This compensation method is used by 80 percent of the present day affiliate programs. This includes Cost per Sale (CPS) and Cost per Action (CPA). Using CPS method of compensation, the referred visitor must act beyond visiting the advertiser’s website before the affiliate can be compensated. It is therefore to the best interest of the affiliate to send a closely targeted traffic to the advertiser’s website.
There are other compensation approaches in affiliate marketing; you can learn more about these compensation methods.