Compensation Methods for Affiliate Programs

Eighty percent (8%) of affiliate programs today use revenue sharing or pay per sale (PPS) as a compensation method, nineteen percent (19%) use cost per action (CPA), and the remaining programs use other methods such as cost per click (CPC) or cost per mille (CPM, cost per estimated 1000 views).

In this article I will be showing you some of the popular Compensation methods or Remuneration, Pricing models and business models used for the different types of internet marketing: including affiliate marketing, contextual advertising, search engine marketing and display advertising.

 Predominant Compensation Methods In Affiliate Marketing

The following models are also referred to as performance based pricing/compensation model, because they only pay if a visitor performs an action that is desired by the advertisers or completes a purchase. Advertisers and publishers therefore share the risk of a visitor that does not convert.

Pay-per-sale (PPS) - (revenue share)

Cost-Per-Sale (CPS) Advertiser pays the publisher or affiliates a percentage of the order amount (sale) that was created by a customer who was referred by the publisher. This form of compensation is also referred to as revenue sharing.

Pay-per-lead (PPL) / Pay-Per-Action (PPA)

Cost-Per-Action or cost-per-acquisition (CPA), Cost-Per-Lead (CPL) Advertiser pays publisher or affiliate a commission for every visitor referred by the publisher to the advertiser (website) and performs a desired action, such as filling out a form, creating an account or signing up for a newsletter. This compensation model is very popular with online services from internet service providers, cell phone providers, banks (loans, mortgages, and credit cards), Forex and Binary Options Trading Platforms and subscription services.

 Diminished Compensation Methods

Within more mature markets, less than one percent of traditional affiliate marketing programs today use cost per click and cost per mille. However, these compensation methods are used heavily in display advertising and paid search.

Cost per mille requires only that the publisher make the advertising available on his website and display it to his visitors in order to receive a commission. Pay per click requires one additional step in the conversion process to generate revenue for the publisher: A visitor must not only be made aware of the advertisement, but must also click on the advertisement to visit the advertiser's website.

Cost per click was more common in the early days of affiliate marketing, but has diminished in use over time due to click fraud issues very similar to the click fraud issues modern search engines are facing today. Contextual advertising programs are not considered in the statistic pertaining to diminished use of cost per click, as it is uncertain if contextual advertising can be considered affiliate marketing.

While these models have diminished in mature e-commerce and online advertising markets they are still prevalent in some more budding industries. China is one example where Affiliate Marketing does not overtly resemble the same model in the West. With many affiliates being paid a flat "Cost Per Day" with some networks offering Cost Per Click or CPM.

Special CPA Compensation Models

Pay-per-call

Similar to pay per click, pay per call is a business model for ad listings in search engines and directories that allows publishers to charge local advertisers on a per-call basis for each lead (call) they generate (CPA). Advertiser pays publisher (affiliate) a commission for phone calls received from potential prospects as response to a specific publisher ad.

The term "pay per call" is sometimes confused with click-to-call, the technology that enables the “pay-per-call” business model. Call-tracking technology allows to create a bridge between online and offline advertising. Click-to-call is a service which lets users click a button or link and immediately speak with a customer service representative. The call can either be carried over VoIP, or the customer may request an immediate call back by entering their phone number. One significant benefit to click-to-call providers is that it allows companies to monitor when online visitors change from the website to a phone sales channel.

Pay-per-call is not just restricted to local advertisers. Many of the pay-per-call search engines allow advertisers with a national presence to create ads with local telephone numbers. Pay-per-call advertising is still new and in its infancy, but according to the Kelsey Group, the pay-per-phone-call market was expected to reach US$3.7 billion by 2010.

Pay-per-install (PPI)

Advertiser pays publisher a commission for every install by a user of usually free applications bundled with adware applications. Users are prompted first if they really want to download and install this software. Pay per install is included in the definition for pay per action (like cost-per-acquisition), but its relationship to how adware is distributed made the use of this term versus pay per action more popular to distinguish it from other CPA offers that pay for software downloads. The term pay per install is being used beyond the download of adware.