Affiliate Marketing Masterclass I – Terms Used to Describe the Different Payment Models

We are delighted to launch Azam Marketing’s Affiliate Marketing Masterclass series. This course is based on our unparalleled quarter of a century of expertise in affiliate marketing.

We have driven over $1.1 billion in online sales and won countless industry awards for the incredible results we have generated. We spill the beans on how you too can become successful as an affiliate.

The foundation to success in any field is to robustly understand the terminology and that is what this first lesson will delve into.

First things first: what is affiliate marketing? Affiliate marketing (also increasingly known as performance marketing) is a type of marketing in which a business rewards affiliates for each visitor or customer brought by the affiliate’s marketing endeavours.

The industry has four core players: the advertiser (also known as the ‘merchant’, ‘retailer’ or ‘brand’), the network (that contains offers for the affiliate to choose from and also takes care of the payments), the publisher (also known as ‘the affiliate’), and the customer.

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While these are the key components, the market has grown in complexity, resulting in the emergence of a secondary tier of players, including affiliate management agencies, super-affiliates and specialised third party vendors.

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When determining how much money you will earn by promoting a particular advertiser, always be sure to check the payment model they use. Knowing this will save you time and money in terms of (a) deciding whether the payment terms are sufficiently rewarding to make it worthwhile for you to partner with them and (b) if you do decide to work with them, determining which traffic acquisition strategy will enable you to yield a net profit.

Read on to learn more about the most popular payment models that you’re likely to encounter in affiliate marketing.

CPM (Cost Per Mille (Thousand)) – a CPM rate of $1.00 would mean the publisher receives a fee of $1.00 for showing 1,000 adverts for a particular merchant or retailer.

As affiliate marketing is primarily a performance based channel, CPM advertising is rarely seen in the field.

Banner ads on large websites are often paid for on a CPM basis and advertisers find them beneficial to build brand awareness.

CPM ads are usually more appealing than ads paid on a CPA or CPC basis as it costs the advertiser no more to receive twenty clicks on their banner than one. For this reason, advertisers who pay on a CPM basis often run highly-animated ‘trick’ ads that result in lots of clicks.

As advertising paid for on a CPM basis often doesn’t result in direct sales for advertisers, CPM rates have been in decline since Azam Marketing started in online marketing two decades ago.

CPC (Cost Per Click) – advertising sold on the basis money is only paid out when an advert is directly responded to via a click through to the advertiser’s website.

CPC ads are usually designed to provide the necessary information, such as the price of a product, upfront and not be overly-appealing as advertisers only want people to click on the ads if they are interested in purchasing the product being sold.

As with CPM, advertisers paying CPC are nowadays few and far between in affiliate marketing.

CPA (Cost per Action; also called CPL on some networks) – Using this model, money is only paid out when a certain action occurs because of the advert, for example if a customer signs up for a newsletter, enters a competition or completes a form to request more information.

CPS (Cost Per Sale) – the affiliate is paid a commission (either a percentage or a set amount) when the customer purchases a product or service from the advertiser. To successfully generate sales, a publisher/affiliate often has to target and pre-sell the product by putting together relevant content and/or researching the latest offers which will entice the customer. As such CPS is not really considered a form of advertising but a sales-based commission program.

eCPM (Effective CPM) – an effective CPM is the average rate a publisher receives for 1000 ads, usually banner ads, factoring in (a) the fact that much of the publisher’s inventory may be unsold and (b) hybrid payment models (see Hybrid Campaigns below). If a publisher sells half their banner inventory at $1 cpm and can’t sell the other half then his effective CPM would be $0.50.

eCPM is a term usually used to describe how well or poor a given advertising network’s rates are for a given publisher which factors in the unsold ads the ad network could not sell.

Hybrid Campaigns – an advertising campaign in which an advertiser agrees to pay for advertising using a combination of the above. For example, a hybrid campaign could pay both $0.50 CPM and 10% CPA. This may be beneficial in rewarding publishers for both the sales that they generate as well as the increased brand exposure they provide to merchants.

Another example of a hybrid campaign would be where the advertiser pays the affiliate a one-off lump sum to contribute towards advertising costs (for example, for placing their adverts in prominent locations on the affiliate’s website or email newsletter) together with a CPA commission for any products sold.

The following chart summarises the four key remuneration methodologies:

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Part II of our training course continues with 10 invaluable tips on choosing the ideal affiliate programs to promote.

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