Affiliate marketing is essentially a Cost Per Action marketing. When there is performance/action — you pay your affiliates. Performance can be of several types, but the most frequently valued ones are sales and leads. Therefore, online businesses either pay a percentage (or a flat amount) of every sale an affiliate refers to them, or a flat amount per every lead the affiliate generates. These payment models are known as Pay Per Sale or PPS (aka Cost Per Sale / CPS), and Pay Per Lead (or Cost Per Lead / CPL) models respectively.
A merchant has emailed me the following question:
We are an e-tailer with a PPS affiliate program. We’ve reached out to a promising affiliate, but they told us that they work with advertisers solely on PPL basis. Is there any way we can make this work for us?
I believe there is. It’s just a matter of doing your calculation right. Since the Pay Per Lead model presupposes paying for potential customers (as opposed to the PPS model where you pay for actual buyers), you want to calculate the value of lead generation (aka lead-gen) for you, based on such factors as: demographic, average lead-to-sale conversion rate, average order value, etc. It is not uncommon for an affiliate program to pay affiliates both a flat amount for every lead sent in, and a commission of every sale referred.
Besides determining the comfortable per-lead payout amount, you will also need to clearly define what constitutes a valid lead for you. You and your affiliates need to be on the same page here. Are you paying for subscriptions to your newsletter, and is it sufficient for the end-user to simply submit a valid email address (“valid” can be (a) one that will not bounce the confirmation message off, or (b) one that double opts in to subscribe)? Or are you requiring for more detailed contact information (full name, address, telephone number) to be submitted? Are there any geographic (e.g. only U.S. leads, or only North American leads, etc) or other restrictions (for example, I’ve seen some merchants require that the telephone numbers submitted match the mailing addresses, while others remunerating affiliates for “leads” with incomes above a certain threshold)? Spell out everything that matters right from the outset. It’ll save both you, and your affiliates, a lot of headaches.