Payment Models in Affiliate Marketing
Wednesday, Nov 14, 2007
When conducting affiliate marketing on the internet, you'll come across a number of payment models used to define the payments between merchants, publishers, advertisers, search engines and so on.
“"For an affiliate, this may sound like a dream come true, a never-ending stream of revenues. However, it's not given that the total income will be bigger than with a PPA model, on average..."”
How payments are generated
The models differ in the level of action that they require from a web visitor in order to generate a payment:
- Pay per impression (PPM)
A payment is due as soon as the ad is displayed, for example in a search engine. - Pay per click (PPC)
In this model it suffices that a visitor clicks on a link for a payment to be generated. - Pay per action (PPA)
No payment is generated until a referred visitor takes conscious action at the site, for example, makes a purchase.
Duality of costs and payments
The words "Cost" and "Pay" are used for the same thing but by different parties involved in a deal. An affiliate who tries to generate leads to a site gets paid per lead, while the site that receives the leads incurs a cost per lead.
One man's payment is another man's cost; it's as simple as that.
PPC / CPC
Pay per click / cost per click
The PPC payment model lies in between PPM (pay per impression) and PPA (pay per action). With PPC, a payment is generated as soon as a web visitor clicks on the link.
As a publisher, PPC is the payment you receive as soon as someone clicks on your link. For obvious reasons, the amount paid is usually very low, and it's only by driving massive amounts of traffic that you can receive any important sums this way. At the same time, your effort doesn't have to be very costly either.
Cost per click is the cost you pay each time a web visitor clicks on your PPC ad in a search engine such as Google. In Google Adwords, PPC ads are combined with a bidding system where advertisers bid for high placement of their ad by specifying their highest PPC for specific search terms.
PPA / CPA
Pay per action / cost per action (or acquisition)
Cost per action, Cost per Order and Cost per Sale compare the investment in a campaign to the number of sales or orders or other kind of specified actions that it generates (such as visitors signing up for a newsletter or providing personal financial information.)
CPA may also mean Cost per Acquisition, meaning that you get paid when a visitor that you referred qualifies as a customer with the merchant, for example by signing up and making a first purchase.
PPA payment agreements relieve the online advertiser of some uncertainty involved with PPC and may give the ad investment a better value. It gives the merchants perfect security in their exposure on a large number of affiliate sites.
As an affiliate, these solutions shift some of your control to the merchant, since you'll depend to a large extent on his or her ability to convert your leads into actual sales. On the other hand, you have no other engagement than launching an appropriate marketing campaign. A very popular model.
PPO / CPO
Pay per order / Cost per order
See PPA / CPA.
PPS / CPS
Pay per sale / Cost per sale
See PPA / CPA.
PPL / CPL
Pay per lead / Cost per lead
In this payment model, costs and payments are generated for each qualified lead that an affiliate sends to the merchant. For a lead to be qualified, it usually takes some sort of achievement from the visitor, such as providing an email address, filling out a form, completing a survey, and so on.
Some businesses, such as mortgage loan brokers, are known to pay very well for leads even though most of them don't lead to a purchase, since the average return per lead is so high.
Revenue share and lifetime value
Revenue share means that the affiliate doesn't receive payment for the lead as such, or when the visitor registers with the merchant, but gets a part of that customer's future spending on the merchant site.
If that deal persists without time limit, it's called lifetime value. You receive your provision on the client's purchases indefinitely. This is a common deal in some segments, such as online casino affiliate programs, where the affiliate receives continuing commissions for all wagers made by a referred player.
For an affiliate, this may sound like a dream come true, a never-ending stream of revenues. However, it's not given that the total income will be bigger than with a PPA model, on average. Plus, with this kind of revenue, your business analysis and planning will be made rather difficult.
