How Does an Affiliate Earn Money?

There are four basic actions in which affiliates are paid when they send their visitors to a merchant’s website.

The visitor buys something from the advertiser (Pay per Sale).

The visitor completes a lead form (Pay per Lead).

The visitor downloads, installs, or uses some product or service (Pay per Action).

The visitor clicks on a link and visits the merchant’s website (Pay per Click).

Below are detailed explanations of each action:
Pay Per Sale:
Pay per Sale is the most common type of affiliate program on the web. With Pay per Sale you refer visitors to a merchant
that sells products or services. You earn a commission when that visitor buys something from the merchant. In most
cases you earn a percentage of the sale, but in some instances you may be given a flat dollar amount.
Most merchants that sell products online pay their affiliates a percentage of sales. Merchants that fall into this category
include, Home Depot, REI, Dell Computers, and most big e-tailers on the Internet.
Most of the merchants that pay their affiliates a flat dollar amount sell services. Merchants who sell web hosting, online
dating, and other online services tend to compensate their affiliates with a flat dollar amount, rather than a percentage
of the sale.
Advantages of Earning a Percentage of Sales
You can earn a ton of cash on big ticket items.
(Example: You refer a customer who buys a $2,500 computer).
You can earn a ton of cash when your visitors buys multiple items at once.
(Example: You refer a customer who buys a pair of shoes, matching purse and jacket).
Some merchants will pay their affiliates commissions on repeat purchases.
Disadvantages of Earning a Percentage of Sales
Your visitor may by a small ticket item.
(Example: The customer you referred buys a pair of socks, and never returns to purchase anything else).
Your visitor may return the merchandise, which could result in your commission being reversed.
(Example: The shirt your visitor bought last week just doesn’t fit right. They return it, and your commission
is reversed).

Pay Per Lead.
Pay Per Lead merchants are some of the most desirable merchants to promote. With Pay Per Lead you are compensated
when your visitor completes an online lead form. Popular Pay Per Lead programs include merchants in the insurancemortgage, and service businesses.
Merchants will only pay affiliates for qualified and legitimate leads. For example, if you send a California insurance
company a lead from New York where the company cannot provide insurance, that is an unqualified lead, and chances
are you will not be compensated for it. Another no-brainer is that merchants won’t pay their affiliates for leads with fake
or incomplete data. A lead without a phone number or e-mail address is no good to a merchant.
Conversion rates on Pay Per Lead programs tend to be higher than Pay Per Sale programs because the visitor isn’t
buying anything, they’re simply completing an online form. It’s much easier to get visitors to fill out a form than to buy
something online. However, the payout for a lead may be less than the payout for a good Pay per Sale program.
Advantages of Pay Per Lead Programs
The conversion rate for Pay Per Lead programs can be better than Pay Per Sale.
You can earn big commissions in industries like mortgage loans and insurance.
Disadvantages of Pay Per Lead Programs
The commissions can be less than Pay Per Sale programs.
Some of the leads you send from your website may not be qualified.
Pay Per Action:
Pay Per Action programs pay their affiliates when their visitors download, install, or use some product or service. Many
of the merchants in this space are software companies or web service companies that want customers to try their
products or services.
A good example of a Pay Per Action affiliate program is Yahoo!. They compensate their affiliates when their visitors
download and install their Instant Messenger application, Search toolbar, or Music Jukebox software.
Advantages of Pay Per Action Programs
Your visitors don’t have to buy anything. In most cases they just have to try some software or web service.
Disadvantages of Pay Per Action Programs
A visitor you refer may not meet the minimum software or hardware requirements to install the software.

Pay Per Click:
Pay Per Click affiliate programs are almost non-existent now. Once a good idea, too many affiliates defrauded merchants
by clicking on their own affiliate links, or by creating “click-bots” (software applications) that would automatically click on
their links. The cost and time involved with monitoring the fraud had become cost-prohibitive for many merchants.

Advantages of Pay Per Click Programs
• Good conversion rates - The user simply clicks a link and visits the merchant’s website.
• If you have a lot of traffic, you could make a lot of money.
Disadvantages of Pay Per Click Programs
• Merchants that offer this type of affiliate program are few and far between.
• The payout per click can be very small.
An Important Note About Pay Per Click Programs
While many advertisers with affiliate programs are moving away from this payout model, there are some popular
contextual advertising networks such as Google AdSense, and the Yahoo Publisher Network that are thriving under the
Pay Per Click model. Contextual Ad networks are outside the scope of this book, and will not be covered in detail.