Almost all big e-commerce companies have an affiliate or partnership program. In an affiliate program advertisers give website owners the possibility to sell their product in exchange for a commission on each closed sale or lead.

What are the costs of an affiliate-program for the advertiser? What costs should you keep in mind if you manage an affiliate program? I tried to find one of the most complete summaries possible. To conclude we also answer the question what you should look for when searching an affiliate network.

1 Networking costs

Down below I go through the different costs of an affiliate-network.

Affiliate network

You start an affiliate program (with some exceptions) at an affiliate network. The biggest affiliate networks of 2015 were Rakuten Linkshare, CJ Affiliate and Amazon Affiliate Program. These networks take care of collecting orders, promoting the program and recruiting and paying the affiliates. Once every month the advertiser gets an invoice of the network. But what is on that invoice actually?

Affiliate network costs

An affiliate network works mostly ‘performance based’. This means that a margin is calculated on the affiliate payout. It works like this: an affiliate recieves a commission on a delivered sale or lead (for example: 10% of the ordered price). For an ordered price of $100 this is $10. 10 Dollars is the ammount that the affiliate recieves for a delivered sale. On this sum $10 the network calculates their own commission. At a commission of 1.25 the total costs of this sale is $12.50. The network commission differs for each network, advertiser and niche.

Besides commisions on each order the network also calculates start-up costs, licence costs and traffic fees. These are single or monthly costs for the use and maintenance of their interface and the hours they spend starting up and promoting the program. These costs differ for each network.

Why are there differences in network commissions?

Because at an affiliate network the payments occur from individual registered orders, it’s in the network’s interest to have a succesful affiliate program. If thanks to your affiliate program 100 orders get registered each day and the affiliate recieves a commission of 1.25, the network earns $25 a day. At only 10 orders this is $2.50. A lower commission is more affordable for affiliate programs with a lot of potential.

The potential of an affiliate program depends on its niche, competition, conversion of the site, number of qualitative affiliates, program requirements, affiliate fee and other influences.

2 Separating orders

If you work with multiple networks, there’s a chance that one order is registered with multiple networks. Avoid paying twice for the same order by separating the orders. At the monthly checks of the orders, place the network lists together and check which orders are registered at both networks. Accept the sale with the most recent click (‘last cookie counts’).

3 Affiliate commission

For a succesful program it’s important to have a competitive affiliate commission. Affiliates are commercial and want their website or facebook page to make as much money as possible. What’s equally important are the offers and the conversion of the website of the advertiser compared to the competition.

Example

A mobile provider has 2 offers for an iPhone 6 contract on his site:

Advertiser 1 has an offer of a free iPhone 6 with a contract of $40/month and an affiliate commission of $30.

Advertiser 2 has an offer of a free iPhone 6 with a contract of $45/month and an affiliate commission of $50.

Looking at the affiliate commission it’s better to work for advertiser 2, but the offer of advertiser 1 is more attractive to consumers. In this case the conversion determines which advertiser will get promoted the most. If advertisement 1 gets a lot more clicks and buys than advertisement 2, it will make more money to the affiliate despite its lower commission.

If your offers are always sharper than those of the competition, the affiliate commission can be lowered without this resulting in less sales. Affiliates look at what a click brings them as well as the total volume of clicks they can collect. By knowing what your place is in the market, you can decide the ideal commission. The goal is to have both affiliate and advertiser happy with their income.

4 Choice of affiliate network

What should you look for in a network as an advertiser?

There are many different networks all with their own specialized niche. If you see that a lot of phone companies are connected to a certain network, you can be sure the best phone advertisers are found at that company. Besides, most account managers there will have decent knowledge of the phone business. This could be a reason to choose for that network.

Compare competition

A big ammount of phone companies connecting to that company can also be a reason NOT to choose for them. Your affiliate program may get lost in the sea of phone advertisement opportunities. The network also has bigger players on the market than you, making you also less valuable to the network itself.

A network that is willing to run for you and has less programs of direct competitors of yours could be a more succesful choice. It’s important to keep this thoughts in mind when choosing an affiliate network. Besides that the costs and most importantly the network commission are also deciding influences in choosing the right network.

This article is translated from frankwatching.com. Feel free to comment on his article and let him know how your experiences and cooperations were.