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An Introduction to Affiliate Programs
What is an affiliate program? The best way to think of affiliate programs for websites is to relate them to a sales force for any other type of business. Instituting an affiliate program for your own website or products can eventually provide you with a network of affiliates (salespeople) representing your products or services across the Internet.
Like a sales force, affiliates are paid on a commission type basis. Affiliate programs can be based on any number of website actions. These can include an affiliate driving a user to your website to make a purchase, or an affiliate driving a new lead to your website, or even simply providing clicks from users that you would never have been able to reach otherwise. Depending on the action that your affiliates provide, they are paid differently for each particular action.
It is extremely important to determine, prior to establishing your affiliate program, what you can afford to pay your affiliates, based on each different action they provide. For example, you cannot afford to pay your affiliates $15 per purchase they bring you if you are only selling a product that you make $14 profit from. In an affiliate program based on lead generation, determining your pay-outs can be a little more difficult. Let's look at an example:
If you are in, say, the mortgage industry, you have certain conversion rates that will dictate your payouts. Let's assume it takes 15 leads generated to produce one new loan. Let's also assume that you make an average profit of $1000 per loan you close. At what level do you pay-out and still remain highly profitable, yourself? In this example, you could afford to pay up to $25 per new lead to your affiliates, and still take home more than 60% of the profit.
We all want to find a business that requires as little commission or expense as possible, and in the previous example, it may be hard for that website owner to accept paying forty percent out for each new loan they receive. However, with a strong network of affiliates, you will be reaching more users than you ever could have on your own. Clearly you would be much better off collecting the 60% of all the new loans generated by your affiliates than you would be collecting 0% because you never reached the potential clients.
Affiliate programs can also be extremely useful for websites looking to have a residual form of income aside from their core business. Most web sites could see strong returns by simply posting a banner, or advertisement for any number of affiliate programs, and collect a revenue on the side that can eventually grow beyond the revenues of the core business. Some of the most popular affiliate programs today are run by CommissionJunction.com, LinkShare.com, and many other networks which offer affiliate programs ranging through several industries.
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