Compensation Models in Affiliate Marketing

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According to Fiore, in affiliate marketing particularly, advertisers can choose from three above described compensation models in order to pay commissions to the content providers:

■ Pay per sale (PPS) - commission is paid for each sale made by a visitor from the affiliate website.

■ Pay per lead (PPL) - the affiliate is paid after a website visitor carries out a specified action - subscribes to a newsletter, fills in a questionnaire etc. Note: Pay per lead is also known as Pay per action (PPA)

Pay per click (PPC) - content providers receive commission for every click at the link to advertiser's website. (Fiore, 2001:125)

According to the AffStat 2007 report cited by Wikipedia, Pay per sale accounts to 80% of affiliate programs, pay per action to 19% and all other models (PPC, PPI) account to only 1%. (Wikipedia, 2007)

The above mentioned three basic plans can be combined with other types. The most used combinations are two-tier and residual programs. Two-tier programs operate at the same basis as multilevel marketing, when affiliates are paid also for the activities of newly recruited affiliate. In residual programs, affiliates get commissions for all purchases carried out by previously referred visitors for a specific time period. (Harris, 2007; Wikipedia, 2007)

The commission, which merchants pay to affiliates, can be either set as a flat fee - the affiliate will get the same amount of money for each sale, or as a percentage of the sale value (Hoffman & Novak, 2000).

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