Performance Partnerships® are the way forward for the affiliate marketing industry. It's a powerful framework that includes everything that companies want from their affiliate relationships and excludes everything undesirable, especially the unfavorable aspects that were present in the early days of the industry.
Those who understand the true potential of this medium are among the world's best and most progressive marketers. But in order to get to that level, it's essential to first understand the fundamentals that make up a true performance partnership.
For this post, we're focusing on the CPA element which, in the world of affiliate marketing, stands for Cost Per Action.
You see, in a true performance partnership, brands only pay for marketing that generates a desired action. And those actions are generated by their affiliate partners (aka, publishers, performance partners).
This means that the partner brings a desired action to the table and, once that action is delivered and tracked, payment is then sent to the partner via an affiliate technology platform (more on that in Performance Partnerships 101: Technology).
In affiliate marketing, there are a multitude of conversion activities that affiliate partners drive for the brand's affiliate programs. And, when they do, brands pay them on a CPA basis.
A few notable conversion actions are: Sales, New Customers and High-Value Leads.
When an affiliate helps drive a sale for a company via their marketing efforts, the company compensates the affiliate with a percentage of the revenue from that sale—and sometimes even a flat fee per sale.
Example: Brand X wants to drive sales of their product. They create compelling creative, messaging and perhaps even a promo code around this product. The affiliate partners within their program use the creative, messaging and promotional resources that Brand X has provided to market their product. The affiliate partner is then paid a commission (e.g. 8%) when a sale is made that can be tied to their activity.
Affiliate partners are also exceptional at bringing new, high-value customers to businesses.
Example: Brand Y wants to drive new customers. Affiliate partners who align with the brand's goals and objectives are recruited into the brand's affiliate program and strategic commission structures are established to pay these affiliate partners only when a new customer is brought on.
For example, a company might pay their affiliate partner a 5% commission on qualified new customer purchases and a 2% commission on qualified returning customer purchases. Or, if the commission is a flat fee, the affiliate might receive something like $15 for every new customer sale.
Paying affiliate partners who have the wherewithal to generate high-value leads on a CPA basis has proven to be one of the lowest cost, highest performing methods of lead generation for businesses of any size in any industry. As long as there's a need for high-quality leads, paying partners who generate them via the affiliate model is significantly more transparent, scalable and trackable than "traditional" methods.
Example 1: A B2B business wants to drive signups for their free trial service as well as for their full-priced products. In this scenario, the B2B business provider might compensate their affiliate partners $15 when they drive a prospective client to the B2B provider's site and they sign up for their free service. Then, if that free trial customer purchases the full service, the affiliate partner might receive additional compensation (e.g. $10).
Example 2: A company wants to drive new, unique subscribers to their newsletter at a low cost per lead. The company may feel that content affiliates would be the most aligned with their brand and this marketing effort, so they direct their account management team to recruit content-focused affiliates and optimize the ones currently in their program. Then, when the affiliate partner helps drive a new, unique newsletter subscriber, they are compensated for that lead (e.g. $2).
In lead generation campaigns within an affiliate program, some companies want to pay different commission ranges to different types of affiliates. Whereas others decide to pay all their affiliate partners on the same cost per lead and then, based on their initial performance, provide additional incentives from there. No one way is better than the other. It all depends on what the company's goals and objectives are.
The Way to Pay on CPA
In each of these CPA scenarios, the affiliate's marketing activity is tracked via their unique affiliate link for a specified duration. This is to ensure the results of their activity can be measured and so they can be adequately compensated with a commission or flat fee when an agreed-upon conversion has been realized.
New technology has made it possible for brands to be very specific about the conditions and rates they pay to their affiliate partners for the incremental sales, new customers and high-value leads they are driving.
Downloading the abridged version of Performance Partnerships to get more insight into what opportunities this model will offer companies in the coming years.
Questions about cost per action in partner marketing? Contact us!
Lenox Powell is Associate Director, Global Content Strategy at Acceleration Partners