Affiliate – How to Succeed – Part 4

Principal Methods of Compensation

In today’s affiliate programmes, it has been found that around eighty percent use revenue sharing or cost per sale (CPS) as the preferred compensation method, whereas nineteen percent use cost per action (CPA), and the remaining one percent of programs use other methods, such as cost per click (CPC) or cost per mille (CPM).

Cost-per-sale(CPS). This involves the advertiser paying the publisher an agreed percentage of the order (sale) value as a result of a customer being referred by the publisher by means of different advertising methods. This form of compensation has the alternative name of revenue sharing.

Cost-per-action(CPA). In this model, the advertiser pays the publisher a commission for every visitor, referred by the publisher to the advertiser’s website, who subsequently performs a specified task. This can be represented in many ways, such as filling out a form, or creating an account, or signing up for a newsletter. This particular form of compensation is very popular with online services.

Cost-per-click(CPC). This method involves the advertiser paying the publisher a pre-determined commission for each time a visitor clicks on the advertiser’s ad. In terms of the compensation, it is unimportant how often the ad is displayed. In the end, commission is only paid when the ad is actually clicked.

Cost per mille (CPM). This method is commonly used in online advertising and refers to the cost incurred in order to show an advertisement to one thousand viewers (CPM). It is used to evaluate the comparative cost of an advertising campaign or an ad message. Instead of being an actual cost, CPM determines the approximate cost per 1000 views of the ad.

Consider the following example.

Total cost for running the ad is $20,000.

The total audience is 3,000,000 people.

CPM is calculated as CPM = $20,000/(3,000,000/1000) = $6.67

Such methods may also be considered to be performance based compensation models since payment is only made if a visitor clicks on the appropriate part of the site or, alternatively, completes a purchase. In this way, both advertisers and publishers share the risk of a visitor who does not convert into a sale.

Other Compensation Methods

Although less than one percent of affiliate marketing programs currently use cost per click and cost per mille, these forms of compensation are used extensively in display advertising and paid search.

In respect of cost per mille, it is only necessary for the publisher to make the advertising available on his website and display it to his visitors in order to receive a commission.

On the other hand, pay per click requires an additional step in order to generate the payment for the publisher. The visitor must not only have seen the advertisement, but also to have clicked on the advertisement in order to be able to visit the advertiser’s website.

Cost per click was the more common method when affiliate marketing was in its infancy, but is now little used due to click fraud issues (when a person imitates a legitimate user of a web browser by clicking on an ad so as to generate a charge per click without having actual interest in the target of the ad’s link).

Affiliate – How To Succeed

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