Affiliate marketing refers to an incentive scheme set-up by online merchants to generate sales and grow their business. Basically, those who sign up as an ‘affiliate’ with the merchant receive revenue share, sales commission, or a fixed rate depending on the parameters that the merchant has set up. The most common schemes are the Cost-Per-Action (CPA) and Cost-Per-Sale (CPS), also referred to as (PPS) Pay-Per-Sale, schemes – meaning that an affiliate is remunerated from a referral to the merchant only if the customer/internet user buys or subscribes to the merchant’s website.
Some incentive schemes work on a Cost-Per-Click basis (CPC) which means that the affiliate earns when an advert is just clicked upon (or the user is redirected in some way from the affiliate’s website or email to the merchant.) This is also closely linked in with the Cost-per-mil (CPM) method, where the affiliate is paid for just displaying the adverts on their site. Although these two methods only account for 1% of affiliate marketing, due to many fraudsters taking advantage of it and therefore becoming too risky for the merchant. The more common CPA/CPS schemes mentioned above bare no risk at all to the merchant.
Affiliate marketing owes its roots to the revenue sharing idea that has been around long before the internet. However, affiliate marketing itself was birthed in late 1994, when companies like CDNOW and Amazon.com saw this low-cost opportunity to grow their online business. The success of those companies proves in many ways the success of the affiliate marketing system.
Affiliate marketing can sometimes be confused with Google’s AdSense scheme, which is not entirely the same. Google’s AdSense works with contextual advertising, and is not considered true Affiliate Marketing.