What Are Affiliate Programs?

Simply put, affiliate programs, also called associate programs, are arrangements in which an online merchant Web site pays affiliate Web sites a commission to send them traffic. These affiliate Web sites post links to the merchant site and are paid according to a particular agreement. This agreement is usually based on the number of people the affiliate sends to the merchant's site, or the number of people they send who buy something or perform some other action. Some arrangements pay according to the number of people who visit the page containing their merchant site's banner advertisement. Basically, if a link on an affiliate site brings the merchant site traffic or money, the merchant site pays the affiliate site according to their agreement. Recruiting affiliates is an excellent way to sell products online, but it can also be a cheap and effective marketing strategy; it's a good way to get the word out about your site.

There are at least three parties in an affiliate program transaction:
The customer
The affiliate site
The merchant site
In 1996, Jeff Bezos, CEO and founder of Amazon.com, popularized this idea as an Internet marketing strategy. Amazon.com attracts affiliates to post links to individual books for sale on Amazon.com, or for Amazon.com in general, by promising them a percentage of the profits if someone clicks on the link and then purchases books or other items. The affiliate helps make the sale, but Amazon.com does everything else: They take the order, collect the money and ship the book to the customer. With over 500,000 affiliate Web sites now participating, Amazon.com's program is a resounding success.

Over the past few years, affiliate programs have grown enormously in popularity, taking many interesting forms. For many Web sites that don't deal much in e-commerce (selling products or services online) themselves, functioning as an affiliate is a good way to participate in e-commerce.

Affiliate Program Payment Arrangements
There are three basic types of affiliate program payment arrangements:

Pay-per-sale (also called cost-per-sale): Amazon.com's affiliate program is an example of a pay-per-sale arrangement. In this arrangement, the merchant site pays an affiliate when the affiliate sends them a customer who purchases something. Some merchant Web sites, like Amazon.com, pay the affiliate a percentage of the sale and others pay a fixed amount per sale.

Pay-per-click (cost-per-click): In these programs, the merchant site pays the affiliate based on the number of visitors who click on the link to come to the merchant's site. They don't have to buy anything, and it doesn't matter to the affiliate what a visitor does once he gets to the merchant's site.Example Adsense

Pay-per-lead (cost-per-lead): Companies with these programs pay their affiliates based on the number of visitors they refer who sign up as leads. This simply means the visitor fills out some requested information at the merchant site, which the merchant site may use as a sales lead or sell to another company as a sales lead.
There are a number of other arrangements as well. Basically, a company could set up an affiliate program based on any action that would benefit them, and then pay their affiliates based on the number of customers the affiliates send them who perform that action.

There are a couple of very popular variations on these basic payment plans:


Two-tier programs:These affiliate programs have a structure similar to multilevel marketing organizations (also known as "network marketing") such as Amway or Avon, which profit through commission sales and sales recruitment. In addition to receiving commissions based on sales, clicks or leads stemming from their own site, affiliates in these programs also receive a commission based on the activity of affiliate sites they refer to the merchant site.

Residual Programs: Affiliates in these programs can keep making money off a visitor they send to the site if the visitor continues to purchase goods or services from the merchant site. Many online merchants who receive regular payments from their customers (such as monthly service fees) run this sort of affiliate program.
Additionally, there are a few pay-per-impression affiliate programs. Companies running these programs, also called pay-per-view programs, pay affiliates based only on the number of visitors who see their banner ad. Usually, this sort of arrangement is not structured as an affiliate program, but simply as a traditional advertising program. The advantage affiliate programs have over traditional advertising is that in an affiliate program, an online merchant only pays its affiliates when it gets a desired result. Traditional advertising, such as the ads you see on TV and a lot of the banner ads on the Internet, is relatively risky for the advertiser. They spend money on advertising based on a guess of its effectiveness. When an ad brings the company more money than it spent on that ad, the ad is a success. If the company makes less money than it spent, it has to swallow that loss. With an affiliate program, an online merchant only pays its affiliates when things are working. Because there's much less risk to the merchant, it's a lot easier for Web sites to join affiliate programs than it is for them to attract advertisers.