Affiliate marketing is a billion-dollar industry and one of the most long-lasting business models online, but with high affiliate fees and almost every company offering its own version, is it still worth following this business revenue model today?
Did you know that digital affiliate marketing has only been around since 1996? William J. Tobin, the founder of PC Flowers & Gifts, invented the concept, patented it, and set up the program around that time. Since then, many companies, just like the retail giant Amazon, have adapted some kind of affiliate program of their own. Moreover, you can find the best affiliate marketing course to fit your needs. Also, we compared affiliate vs partner models, too.
But in reality, the term "affiliate" has been used in traditional businesses for decades. Affiliate describes a company relationship between two entities wherein one company owns the products or services, which another company or individual (the affiliate) promotes and sells in order to earn a commission of affiliate fee with every sale.
What is An Affiliate Revenue Model?
Affiliate marketing predates the internet, which is why the affiliate profit model can be found in older industries such as advertising, media, and broadcasting industry.
How do TV Affiliates Work?
One of the best examples of how an affiliate revenue model works is seen in the billion-dollar TV industry. Media companies earn a huge chunk of their income from advertising and affiliate fees, which refers to the carriage fees that are paid monthly by a subscriber of distributors like DISH Network and Comcast.
Affiliates in Other Industries
The simplest form of an affiliate is the referral from one friend to another to try out a new restaurant, hair salon, or other kinds of service or product.
This "word-of-mouth" promotion turned into a full-blown marketing technique and many companies see the value of affiliates enough to reward the people who would send referrals or complete the desired action with a commission (or what we now know as the affiliate fee).
The affiliate fees vary between products, networks, or the type of action being rewarded.
Definition of Affiliate Fees
When an affiliate refers a potential customer to a merchant's business (website or store), the customer could perform a specific action (including downloading an ebook, read an article, signing up for a newsletter, watching video content, buying a particular product, subscribing to a service for a month, and other similar actions).
When this happens, the merchant pays the affiliate either money or credit every time the desired action is accomplished. This payment is called affiliate fees.
Because of the difference in the industry, product or service sold, and company (or merchant), "affiliate fees" can refer to the following:
- management fee
- commission price
- brokerage fee
- distribution rights fees
- development fee
- and so on.
Note that not all potential customers do the intended action, so it is possible that an affiliate doesn't earn anything from his/her referral.
Types of Affiliate Fees
As a business, how do you create your own affiliate model? How much affiliate fees can you afford as part of your company marketing cost every month? What type of affiliate fees should you go for?
If you are familiar with affiliate networks like ShareASale, Amazon Associates, CJ Affiliate, Rakuten Marketing, ClickBank, and other similar networks, you know that commission can be based on what actions are made. For example:
Pay-per-click (PPC)
PPC is the most popular model. The company or affiliate network pays every time a link gets clicked. It won't matter if the product or service is bought or not, as long as the link gets clicked.
Pay-Per-Impression (PPI)
The affiliates get paid when someone lands on the merchant’s site. No purchase is necessary.
Pay-Per-Sale (PPS)
Affiliate fees are paid to affiliates whenever they make a sale. In most cases, the commission is a percentage of the item's cost.
Pay-Per-Lead (PPL)
With this kind of model, affiliate fees are earned whenever links are clicked AND action is taken. As discussed above, the "action" depends on what the merchant/company wants to be achieved, so this would range from completing a form to joining a Rewards Club.
Flat Rates, Tiered, and Percentage Rates
Commission/fees could also be divided into a flat rate, percentage rate, and tiered rates.
Flat rate Affiliate Fees
This kind of commission fee is ideal for one-off promotions for affiliates. This is often used as a reward for getting new referrals to join a company. This fee can be higher than other commissions since you'd want to use this as something that may change the minds of interested affiliates.
Tiered Affiliate Fees
Like any kind of tiered pricing, these kinds of deals are great affiliate motivators, since the more new people they find to join, the higher commissions they receive. Or the longer subscriptions or services referrals affiliates may bring to the company or network, the better rewards, points, or money they earn. If your company plans to offer this kind of affiliate pricing, make sure that the data you have will use some leeway for growth, so your new marketing program won't fail if you find your company supporting a network of effective affiliates.
Percentage Affiliate Fees
Amazon Associates is one of the most popular networks that offer a percentage rate. In this kind of program, you allow affiliates to join your marketing network that promotes all kinds of Amazon products on a third-party space (can be a website, YouTube channel, social media page, and so on).
When one of these affiliates successfully brings potential customers to Amazon and any of these customers shop at the store, the affiliate gets a percentage of the customer's total order as his/her commission. In Amazon, products are grouped into categories, which have their specific percentage rates. Knowing which items are big-ticket ones means you can promote products according to the potential commission you can get.
Wrap Up: Understanding Affiliate Fees
Understanding affiliate fees is a HUGE help if you're interested in becoming an affiliate for a particular affiliate network or standalone company. Is promoting products from a specific market worth your effort day in, day out? Or would you rather find the next affiliate program with a better or well-established network?
If you own a business and your marketing team plans to create a new affiliate program, this marketing program may bring in a million or more in sales if done right. Will you be able to give your affiliates access to data, support, or other affiliate-related help necessary for reaching their goals?
Whether online or offline, becoming an affiliate or creating an affiliate network of your own can be a lucrative way to earn. Plus, according to Amazon's 2020 pandemic sales and how big names with affiliate networks didn't take a hit during stressful times, it looks like the positive outlook of this marketing technique from 2020 and onward is true.
Of course, choosing the right type of affiliate fees and pricing your commissions depend mainly on your niche. And if you've set up an affiliate network properly or chosen the best affiliate network related to your platform, you'll see its results affect your overall earnings.
