What Factors Do Publishers (Affiliates) Consider When Selecting Advertisers (Merchants)?

By , November 3, 2007
  • Primary Factors Considered by Affiliates: When a prospective affiliate is considering which merchants’ programs to join and promote, the affiliate may consider a wide range of factors. Many affiliates rely only on one or a few of these factors in making decisions; none consider all factors.
    1. Commission Rate: This is probably the first number that most affiliates consider.
      • Most affiliates recognize that a lower-commission merchant may generate more affiliate profits than a high-commission merchant with a poorer conversion rate.
      • But when faced with dozens of competing merchant programs, few affiliates will take time to examine more than a few. I believe that it is critical to offer a “competitive” commission rate, but not necessarily the “highest” commission rate.
    2. Conversion Rate: Most affiliates want to know the merchant’s conversion rate, but few will rely on a merchant’s claims about its conversion rate as a major factor, because every source of traffic usually has a different conversion rate.
    3. Average Transaction Size: An affiliate’s income depends on both the conversion rate and the transaction size; a merchant with a larger “average transaction size” will be more appealing. Some merchants are very successful at “up-selling,” or persuading customers to spend more at the site. For example, a consumer who wants a $15 item may see an offer of “free shipping on orders of $25 or more” and choose to add a second item to their order.
    4. Price and Service Levels: Most serious affiliates will only promote merchants who offer “competitive” pricing and service levels.
    5. EPC: Commission Junction pioneered the use of this metric, which is “relevant but easily manipulated.” EPC is a computation of the average affiliate earnings per 100 clicks (Earnings Per Hundred Clicks, not“earnings per click”). Several other affiliate networks have adopted the same measure, and publish this figure as one factor for affiliates to consider when choosing and evaluating merchants.
      • EPC is a Bad Metric:
        • EPC is easily manipulated, most frequently by merchants who purge affiliates with lower conversion rates, and sometimes by merchants who initiate non-affiliate transactions using affiliate links.
        • Some merchants have high EPC because they have a single successful affiliate whose success can’t be replicated by other affiliates.
        • A single high-traffic affiliate with a low conversion rate can cause the EPC to plummet, distorting the figures which other affiliates see. Some merchants terminate “low-EPC” affiliates (thus sacrificing the customers those affiliates might send) in order to keep EPC high; I consider this to be a misguided and counter-productive strategy.
        • In addition, some merchants delay “reversals” of fraudulent or cancelled orders to have a deceptively high EPC; they post reversals on the last possible day.
      • EPC is “relevant but not very important”to most affiliates.
        • A “zero” EPC will deter many prospective affiliates, probably including your “best prospects.”
        • A “low” EPC will deter some affiliates, but probably not your “best prospects.”
        • A high EPC may attract a large number of inexperienced affiliates.
    6. Leaks: A “leak” is any feature on a merchant’s web site that may generate revenue for which an affiliate is not compensated. Affiliates feel cheatedby “leaks.”
      • Third-Party Advertising: A merchant’s display of affiliate links to other merchants, Google AdSense, or other “outside advertising” raises two issues:
        1. Advertising generates revenue from affiliate traffic which isn’t shared with affiliates;
        2. The merchant isn’t professional or serious (isn’t focused on selling products).
      • Non-Commissionable Transactions: Some merchants expressly exclude certain transactions from generating affiliate commissions, and other merchants “secretly” exclude some transactions. Most frequently, these are “wholesale orders” or “salesperson-assisted” orders.
      • Phone, Live-Chat, and Live-Help Orders: Some merchants encourage consumers to either “call a toll-free number” or initiate a “live chat” with a sales agent. The presence of a “pop-up” window encouraging chat amplifies this concern. Affiliates worry that sales agents may “poach” affiliate commissions (if the internal sales staff are encouraged to take orders which may not be credited to affiliates; at some firms, a commission is paid only to one or the other, never both). In most cases, this “leak” can be “plugged” by setting up a phone-order tracking system that credits phone orders to affiliates (and to other marketing sources), but this may require staff retraining, site design changes, and perhaps a change in employee compensation structures.
      • Products Not Available Online: Some merchants offer products which cannot be ordered online, but only by telephone or a store visit. Some affiliates won’t refer any business to such merchants, even if the “offline-only” products represent an insignificant share of total sales.
      • Trick Pricing: Some merchants offer extremely attractive product pricing, but charge high “shipping and handling” charges, which are excluded from affiliate commissions. Few affiliates expect to earn commissions on reasonable shipping fees, but won’t promote merchants who earn more profit from shipping & handling fees than from product sales. A few merchants even offer “free samples” (such as a 30-day supply of vitamins “free” with a $9.95 shipping & handling fee), which result in no affiliate commission.
    7. Reversal Rates: Within certain industries (most famously “web hosting”), merchants frequently “reverse” transactions and commissions, claiming that the transaction was fraudulent or that the customer cancelled their order. Some merchants have been accused of reversing commissions for legitimate transactions that were not cancelled (in most cases, these are orders placed by the affiliate or a friend or family member). Some merchants deliberately delay posting reversals until the last day of a reporting period, so that their statistics look more favorable.
    8. Affiliate Technology Solution: A merchant’s choice of “technology solution” (for tracking and reporting commissions, and possibly for handling commission payments) is a critical component in many affiliates’ decision to participate.
      • Some affiliates work only with one or a few “affiliate networks,” and will not consider other merchants.
      • Some affiliates refuse to work with specific networks, due to experience or reputation.
      • Some affiliates work with “networks only,” refusing to work with merchants who have “in-house” affiliate solutions.
        1. This often reflects “trust issues,” in which the affiliate worries that without an intermediary, the merchant may not properly track and report sales, or may not actually pay the affiliate amounts owed.
        2. An affiliate’s “network-only” decision can also reflects the extra work to join dozens or hundreds of independent programs, and to deal with payments from many different sources.
        3. Many affiliates feel more comfortable with networks which provide “consolidated payment,” so that there is no individual merchant “payment threshold” which might delay or prevent actual payment for referred sales.
    9. Other Factors Affecting Affiliate Participation:
      1. Payment Terms:
        • Payment Frequency: Most affiliates prefer to be paid as often as possible, as this improves cash flow and reduces the risk of a merchant default. Most affiliate programs use a “monthly” payment schedule; some use a “quarterly” or “bi-weekly” schedule.
        • Payment Timing: Most affiliate programs pay within 30 days after the end of each payment period. For example, both Commission Junction and ShareASale make direct deposits to affiliates on about the 21st of each month, for commissions earned during the previous calendar month. Some merchants have longer delays, and some also “extend” transactions (deferring payment to a later period) using the CJ and LinkShare systems.
        • Minimum Payments: Nobody likes tiny checks. Merchants who pay by check generally prefer to defer payments until a reasonable payment threshold is met (often $50). Some merchants provide that affiliates who don’t meet this amount will never receive checks; others send checks at least annually.
        • Non-US Affiliates: Non-US affiliates may pay fees to deposit checks drawn on US banks, or to receive direct-deposits in US dollars. In some cases, these fees exceed the amount of small affiliate payments. Therefore, many non-US affiliates prefer to receive payment less frequently, and to set higher minimum-payment threshholds.
      2. Two-Tier Commissions: Many “prospective affiliates” (especially those whose sites audience is “web publishers” or “affiliates”) will consider the possibility of earning “second-tier” commissions for the affiliates they refer to the program. (When I operated the adbility.com web site in 1997-1999, a significant part of my affiliate earnings came from “second-tier” commissions. However, “two-tier” programs are less effective today.) I generally do not recommend two-tier affiliate programs, but it may be prudent to contact a sampling of prospective affiliates (especially your “best prospects”) before launch to evaluate their attitude toward two-tier affiliate programs.
      3. Special Problem: Differential Margins Some merchants have diverse product and service offerings with widely varying margins. If you include some low-margin items because of fierce competition or as “loss leaders,” you may seek to offer a lower commission on those products. Be aware, however, that most affiliates will view any “differential commission” as a potential “trick” and will often assume that only the lowest rate will ever be earned. Thus, a merchant who offers a 13% commission on most products, but only a 4% commission on low-margin DVD sales, may be viewed as offering “only 4%” even if very few DVDs are sold. In general, I recommend a “flat” commission structure.
      4. One-Time vs. Recurring Commissions:
        • Most traditional “retail merchant” affiliate programs pay a one-time commission based on a single transaction, usually involving a shipment of tangible goods.
        • However, many online businesses earn little or no profit on an initial order, but only from recurring orders; some service businesses (such as “web hosting” merchants) may only earn a profit from customers who continue a service for several months.
        • Some of these merchants offer a very high one-time payment (40% to 100% or more of the first transaction). The main drawbacks to “one-time” payments is the short-term cash flow cost and the perception of affiliates that they’re not getting the “true long-term value” of a customer who may continue a relationship for many years.
        • The drawbacks of recurring commissions include the need to issue many small payments over a long time period, and the likelihood that cynical affiliates will “discount” the future value of such earnings.
        • Choice: Over the past 10 years, I’ve worked with several merchants who have offered affiliates an “option” to choose either of two compensation plans, usually a “one-time payment” or a recurring commission. I was initially surprised and later amused when a majority of affiliates chose the “wrong” option. That is, affiliates who sent more persistent customers chose the one-time payment, while affiliates who sent short-duration customers usually chose the recurring commission. If you have the technical ability to handle two or three different options, then offering this choice is likely to create additional affiliate satisfaction – and additional profit even if the options don’t bring more sales!
      5. Contingent Commissions: All merchants will reverse commissions on transactions that are fraudulent, and most will reverse commissions if an order is cancelled or refunded. But some merchants (such as “web hosting”) explicitly state that commissions will only be payable for customers who “renew” at least once, usually after 30 or 60 days. With the exception of merchants who require large up-front payments (for multiple months of service), I assume that many other merchants impose this as an “implied” or hidden condition for commissions. This can result in a high “reversal rate,” if the merchant provides real-time or next-day reporting (as all affiliate networks do). Reversals are a common source of disputes; affiliates claim that the merchant improperly reversed commissionable transactions. One common argument by affiliates against “contingent commissions” is that the affiliate should be paid for “bringing the customer,” and that if the customer signs up but later cancels, this represents a failure of the merchant, not the affiliate. Unfortunately, some affiliates bring low-quality customers to merchants, and there are also affiliates who intentionally generate fraudulent transactions, hoping to be paid before the transactions are reversed. In some industries, a “contingent commission” is a “necessary evil.”
      6. Importance of “Endorsements”: Every merchant recognizes that there are a range of potential “referrals” they might receive. For referrals of well-known merchants selling commodities, an endorsement adds little value beyond a mere referral. But an endorsement adds tremendous value over a “mere referral” if it involves an unfamiliar merchant and a non-commodity transaction.
        • The lowest positive referral is, “Company X sells the kind of products you are looking for.”
        • A better referral would be, “I’ve heard good things about Company X.”
        • The best referral (in most industries) is, “I’m a customer of Company X, and I’m very happy with their products and service.”
        • In certain “service” industries, the best endorsement is probably, “I’m a customer of Company X, and I had some problems, but the support staff at Company X did a great job to help me figure things out.” (In most industries, any references to “problems” are perceived as negative; but in some industries, problems are so often encountered [without fault by the provider] that there is often a huge benefit in knowing that such problems are handled “right.”)

  1. Issues That Might Lead a Merchant to NOT Offer a Public Affiliate Program (Negatives)
  2. Public vs. Private Affiliate Programs
  3. What Factors Do Publishers (Affiliates) Consider When Selecting Advertisers (Merchants)?
  4. Affiliate Technology & Network Choice
  5. My Usual Recommendations (for Merchants planning an affiliate program)
  6. Affiliate Recruitment Strategies and Practices
  7. Captive and Stealth Affiliates
  8. Affiliate Program Policies
  9. Outsourced Program Management (OPM) for Affiliate Programs
  10. Selling the Affiliate Program
  11. Types of Affiliates (Web Publishers)

One Response to “What Factors Do Publishers (Affiliates) Consider When Selecting Advertisers (Merchants)?”

  1. Brent Coker says:

    Wow, thank you for putting this great advice together. I’m learning as much as I can about affiliate selling before we make our SAS account active. It seems the real customers are the affiliates. If you have a solid product, and happy affiliates, everything else will fall into place.

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