What are the costs of affiliate marketing?

No win, no fee

 

In affiliate marketing, you usually have three parties (consumers excluded): the publisher, the advertiser and the affiliate network. The publisher is often a website,comparison site or a blog, that promotes a product or service of the advertiser.

 

The affiliate network is in between the two parties to assist both publishers as advertisers and approves the made sale transactions or registrations, does the tracking of the orders, the promotion of the advertisers' program and the pay out of the publishers. For its service the affiliate network will charge a fee to the advertiser. We will elaborate on this below. Through an affiliate network an advertiser can offer his products to hundreds of thousands of similar publishers. For a publisher it's definitely worth it to join an affiliate network, because it gives security and insurance that his business is being monitored and done in a fair manner. On top of this, for both publisher and advertiser cost management asks for time and money, it's very doubtful if you want to be occupied with this when you can also invest this time and money in your actual core business.

 

Affiliate network fees

 

For a publisher it's basically free to join an affiliate network. That is, if we're not taking any additional costs for e.g. permits in consideration. For an advertiser on the other hand, an affiliate network charges several kinds of fees. Note that the height or percentages of these fees are strongly dependent on the network or the segment/industry the advertiser is active in. In general a network uses three fees:

  • Network fee

Usually around the 30% on top of the publisher fee (commission). The network fee differs per network and the segment.

  • Set up fee

A fixed sum. The set up fee differs per network and could be dependent on the size of the program.

  • License fee

A fixed sum, but is strongly dependent on the potential of the program. For instance, a program from a well known advertiser with a huge amount of monthly visitors and revenue gives more assurance in performing well than a smaller advertiser that has never done affiliate marketing before. A second factor is exclusivity. Exclusivity with one network usually results in a lower license fee from the network since all affiliate activity is run within that network.

 

Publisher fee (i.e. commission)

 

In order for a program to be successful it's important to have a competitive publisher-compensation. Publishers are commercial minded and want their website, email database or Facebook page to generate as much money as possible. But equally important are the deals and the conversion of the advertisers' website compared to its competitors.

 

Example A telecom comparison website has two offers for an iPhone 6 subscription on his website:

Advertiser 1 is offering a free iPhone 6 with a subscription of 40 euros per month. Advertiser 2 is offering a free iPhone 6 with a subscription of 45 euros per month.

 

Advertiser 1 provides an publisher fee of 30 euros. Advertiser 2 provides an publisher fee of 50 euros.

The publisher fee is in favor of Advertiser 2, but the consumer offer is in favor of Advertiser 1. In the above example the conversion decides which advertiser will be promoted. If the advertiser with the best offer based on click-throughs generates twice as much conversion as the advertiser with the higher publisher fee, then Advertiser 1 will win.

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