Whitepaper

Pay only for results - how affiliate marketing works

Affiliate marketing is performance based marketing. Publishers («affiliates») convey visitors to an Advertiser, and get paid when the visitor performs an agreed action on the Advertiser's website, such as a purchase.

This revenue model, often referred to as CPO («cost per order»), is the difference between affiliate marketing and other types of digital marketing, in which payment is being made per click («CPC») or per impression («CPM»).

CPO means that the payment is made only when a campaign has resulted in a confirmed sale, lowering the risk for the Advertiser. The cost of the campaign is therefore known on beforehand, which means it could be considered a product cost instead of an expense or an investment.

Affiliate marketing has four involved parties

  • Advertiser
    A business wanting to increase the sales of their products and services online
  • Publisher
    A business or an individual wanting to earn commission on advertising.
  • Affiliate network
    Gives the Advertiser access to Publishers. Takes care of support, tracking and payments.
  • Consumer
    An individual purchasing online.

The business logic can be explained as follows:

  1. The Consumer clicks on a link or an ad at the Publishers website and ends up at the Advertisers website.
  2. The Consumer performs a purchase on the Advertisers website, which is tracked by the Affiliate network.
  3. The Advertiser pays commission, through the Affiliate network, to the publisher that conveyed the purchase. The Advertiser receives an invoice from the Affiliate network which subsequently handles payment to the Publisher that conveyed Consumers to the Advertiser.
  1. Affiliate types

    Affiliate links to one of our advertisers.

  2. Arrow next

    Visitor clicks
    on the link.

  3. Advertiser shopping cart

    Visitor purchases
    from the advertiser.

  4. Arrow next

    Purchase is tracked
    by Adtraction.

  5. Recieves money

    Affiliate receives commission.

The Advertiser does affiliate marketing by starting an Affiliate program at the Affiliate network. An agreement is settled with the Affiliate network (which again have agreements with Publishers) and links and banner material is made available for Publishers that are approved by the Advertiser.

The Advertiser

Any business with a website at which users can make a transaction can function as an Advertiser. However, certain prerequisites should be accounted for:

  • An established business
    The adjustments that are often required for young businesses, can lead to unforeseen variations in conversion rates and compensation levels. As of this, Publishers are sometimes hesitant to promote younger businesses with untested business models.
  • An optimized website
    Because Publishers only are paid when they contribute to a conversion, the Advertisers website needs to be thoroughly tested and optimized towards online sales in order for affiliates to receive a return for the visitors the convey to the site.

The Publisher

Publishers er different types of businesses and individuals, that for commission promote the products and services of other businesses. Anyone with internet based content can serve as a Publisher. However, Publishers use different methods in their marketing, focusing on different phases in the customer's purchasing process. Some commonly known types of Publishers are:

  • Pay per click (PPC)
    Publishers that pay for their links to be visible in search engines, for a certain list of keywords.
  • Content sites
    Websites that publish content within a certain topic, for instance product reviews. Can also be blogs or forums.
  • Voucher sites
    Websites that collect and promote voucher codes from a large number of Advertisers.
  • Social media
    Users with a high number of followers on Facebook, Twitter, Instagram, etc.
  • Cashback and loyalty concepts
    Websites that give the visitor some sort of return when purchasing from an Advertiser. The Publisher receives commission from the Advertiser, which is subsequently shared with the users.
  • Email
    Publishers with a database of email contacts that frequently receive offers. Recipients are often segmented based on geography and interest.
  • Price comparison sites
    Helps a consumer identifying where a specific product can be bought for the best possible price.

The Affiliate network

The Affiliate network links Advertisers with Publishers. From a Publisher perspective, this eases the process of finding suitable Advertisers to promote. At the same time, it enables the Advertiser to reach out to a broader audience when given access to all the Publishers that are member of the network.

The most important functions of the Affiliate network are:

  • Access to Publishers
    As a single Advertiser, it can take years to find and build up a contact network with a relevant base of Publishers. Through an affiliate network, this access is given immediately to a broad and active base of Publishers. The Affiliate network arranges agreements with Publishers, and advices appropriate commission levels.
  • Tracking and reporting
    The CPA model requires that any click and conversion is correctly tracked at any time, any day, all year round. Both Advertisers and Publishers must be able to rely on traffic being tracked and reported correctly, fairly and preferably in real time.
  • Quality and reliability
    The Affiliate network ensures that Publishers included in the network are of a certain quality and that Publishers feel confident that they will be paid for the sales they provide. This leads Publishers to dare also to work with less known brands.
  • Support
    There are plenty of different Publishers, with different requirements of support. By managing this on a daily basis, the Affiliate network relieves the Advertiser from one of the most time-consuming aspects of affiliate marketing.
  • Industry expertise
    The Affiliate network has built up knowledge about how affiliate marketing works in different industries. By providing advice on this, the Affiliate network helps the Advertiser achieve the best return on their marketing budget.
  • Tax and payment management
    A successful affiliate program can mean that several hundred Publishers must receive the correct payment on time, every month. The Affiliate network manages this and also handles VAT, employer fees and taxes.

Conclusion

Affiliate marketing is an efficient sales channel that can be used to reach customers during all parts of the buying process. The model allows you to pay only for confirmed sales, which means that the cost can be regarded as the cost of goods sold rather than an expense or investment.

If you want to know more about how your company can use affiliate marketing, please contact markus.bjernvall@adtraction.com.

About Adtraction

Adtraction was founded in 2008, and with offices in Stockholm, Oslo, Helsinki, Copenhagen and Warsaw it is one of the largest affiliate networks in the Nordic region. We work on a performance-based compensation structure, completely without fixed fees. Transparency and superior customer service are our main strengths.

Companies that advertise through us include Mekonomen, SEB, Apoteket, Interflora, ByggMAX, ICA Banken and Boxer1.

www.adtraction.com

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