I was recently asked for definitions of some common affiliate marketing terms. Affiliate marketing definitely has a language all its own. Below is a collection of some of the frequently used affiliate marketing terms which we’ve included in previous AffStat reports through 2010.
If you think of other terms you’d like to include in this post, please leave a comment.
Affiliate: a Web site owner that earns a commission for referring clicks, leads, or sales to a merchant.
Affiliate Agreement: terms between a merchant and an affiliate that govern the relationship.
Affiliate Information Page: a page or pages on your Web site that explains clearly and concisely what your affiliate program is all about.
Affiliate Link: a piece of code residing in a graphic image or piece of text placed on an affiliate’s Web page that notifies the merchant that an affiliate should be credited for the customer or visitor sent to their Web site.
Affiliate Manager: the manager of an Affiliate Program who is responsible for creating a newsletter, establishing incentive programs, forecasting and budgeting, overseeing front-end marketing of the program, and monitoring the industry for news and trends.
Affiliate Program (also an Associate, Partner, Referral, or Revenue Sharing Program): a merchant pays a commission to an affiliate for generating clicks, leads, or sales from a graphic or text link located on the affiliate’s site.
Affiliate Program Directory: directory of affiliate programs, featuring information such as the commission rate, number of affiliates, and affiliate solution provider. Associate-It, AssociatePrograms.com and Refer-it are among the largest Affiliate Program Directories.
Affiliate Solution Provider: company that provides the network, software, and services needed to create and track an affiliate program.
Auto-Approve: affiliate application approval process where all applicants are automatically approved for an affiliate program.
Commission: income an affiliate receives for generating a sale, lead or click-through to a merchant’s Web site. Sometimes called a referral fee, a finder’s fee or a bounty.
Cookies: small files stored on the visitor’s computer, which record information that is of interest to the merchant site. With affiliate programs, cookies have two primary functions: to keep track of what a customer purchases, and to track which affiliate was responsible for generating the sale (and is due a commission).
Contextual Link: integration of affiliate links with related text.
Conversion Rate: percentage of clicks that result in a commissionable activity (sale or lead).
CPA (Cost Per Action): cost metric for each time a commissionable action takes place.
CPC (Cost Per Click): cost metric for each click of an advertising link.
CPM (Cost Per Thousand): cost metric for one thousand banner advertising impressions.
CPO (Cost Per Order): cost metric for each time an order is transacted.
eCPC: stands for ‘effective Cost Per Click’. Affiliates that earn on a CPA or CPO will back their numbers into an eCPC. It is calculated by dividing total earnings by their number of clicks. For example, if an affiliate earned $1500 from 3000 clicks, the CPC would equal $1500/3000, or $0.50.
eCPM: stands for ‘effective Cost Per Thousand impressions’. Affiliates that earn on a CPA or CPO will back their numbers into an eCPM. It is calculated by dividing total earnings by their number of impressions in thousands. For example, if an affiliate earned $1500 from 75,000 impressions, the CPM would equal $1500/75, or $20.00.
Hybrid Model: affiliate commission model that combines payment options (i.e. CPC & CPA).
In-house: alternative to using an affiliate solution provider; building affiliate program architecture within a company.
Lifetime Value of a Customer (LVC): the amount of sales in dollars that a customer in his lifetime will spend with a particular company.
Manual Approval: affiliate application approval process where all applicants are manually approved for an affiliate program.
Merchant: an online business that markets and sells goods or services. Merchants establish affiliate programs as a cost effective method to get consumers to purchase a product, register for a service, fill out a form, or visit a Web site.
Pay-Per-Sale: program where an affiliate receives a commission for each sale of a product or service that they refer to a merchant’s Web site. Pay-per-sale programs usually offer the highest commissions and the lowest conversion ratio.
Pay-Per-Lead: program where an affiliate receives a commission for each sales lead that they generate for a merchant Web site. Examples would include completed surveys, contest or sweepstakes entries, downloaded software demos, or free trials. Pay-per-lead generally offers midrange commissions and midrange to high conversion ratios.
Pay-Per-Click: program where an affiliate receives receive a commission for each click (visitor) they refer to a merchant’s Web site. Pay-per-click programs generally offer some of the lowest commissions (from $0.01 to $0.25 per click), and a very high conversion ratio since visitors need only click on a link to earn the affiliate a commission.
Predatory Advertising: method that creates or overlays links or banners on Web sites, spawns browser windows, or any method invented to overwrite or redirect affiliate links.
Residual Earnings: programs that pay affiliates not just for the first sale a shopper from their sites makes, but all additional sales made at the merchant’s site over the life of the customer.
ROAS: stands for ‘Return on Advertising Spending’. This is the amount of revenue generated for every dollar spent on advertising. For instance, a ROAS of $1 means you’re generating $1 in sales for every $1 in advertising spend, and a ROAS of $5 means you generate $5 in sales for every $1 in spending.
ROI: stands for ‘Return on Investment’. This is what all marketing managers want to see from the money they spend on their marketing and advertising campaigns. The higher the sales, the larger the number of shoppers and the greater the profit margin generated by sales – the better the ROI.
Super Affiliates: that small percentage of sites – the top 1% of affiliates, based on performance and earnings – that generate the lion’s share of the revenue for your program. They are born marketers and are very successful with the affiliate program they promote from their sites.
Two-tier: affiliate marketing model that allows affiliates to sign up additional affiliates below themselves, so that when the second tier affiliates earn a commission, the affiliate above them also receives a commission. Two-tier affiliate marketing is also known as MLM (Multilevel Marketing).