In the affiliate model, affiliate networks and Software as a Service (SaaS) platforms play an essential role in the process of compensating partners within a brand's affiliate program. Unfortunately, this existing model often has limited accountability and puts affiliates in a complicated position.
If these payment issues continue to go unchecked, I believe the entire affiliate model is at risk.
Table of Contents
- Historical Hindsight
- Shifting Structures
- Risky Rewards
- Long-Term Liabilities
- Model Rating System
- Protect and Serve
Ten, perhaps even 20 years ago, the most common partnership structure within affiliate marketing was between full service affiliate networks and brands. Affiliates then joined that relationship model via an affiliate program on a network. When those affiliates drove a conversion (sale, new customer, lead, etc.), the understanding was that the affiliate network was responsible for making the payment to them.
The affiliate network essentially acted as the intermediary between the brand and the affiliates within their program. Some networks required the brand to pre-fund an account within their network to ensure money was available; they'd then use those funds to pay the affiliates.
In other cases, if the brand paid the network before payment was due to the affiliates, the network would use their own funds to cover the cost of paying out the commissions. Either way, the significant fees that the affiliate networks charged to brands covered this risk and their ability to "float" the funds.
Although the various affiliate networks had different payment processes and policies, most paid the affiliates around the same day every month for commissions that were locked.
Over the past few years, however, prices have come down and fewer affiliate networks require brands to hold funds in an account on their platform. Without these readily available funds sitting in an account, most networks are no longer amendable to covering those payments to publishers until they've been paid by the brand first.
While understandable, especially given the recent economic events, this current payout process means that payments to affiliates are delayed or at risk, often without their knowledge.
The rise of SaaS technology within affiliate marketing has also changed the dynamics between brands and the affiliate partners who promote them.
Today, brands can license the SaaS platform's software to handle the technological aspects of their affiliate program, including tracking partner performance and paying the affiliates within their program after they've generated a conversion. In essence, the brand rents the software from the SaaS provider for their affiliate program and runs the program on their terms.
In this structure, affiliates are dealing more directly with the brand than they did when the primary relationship was between the brand and the affiliate network. What's more is that when SaaS technology is used within an affiliate program, there is not a universal payment policy across the platform. How and when affiliates are paid comes down to the terms or insertion order of each individual program, which often differs across programs.
In affiliate marketing, the work affiliate partners do to drive conversions for brands is done on speculation (spec). In other words, the partners do not get paid until they drive a conversion.
In "normal" times, this risk/reward partnership between a brand and the affiliates within their program didn't pose too many issues. The partner did the work to promote the brand's products or services and, within a reasonable amount of time, the affiliate was compensated.
At present, times are far from normal. The stress in the economy has exposed some underlying issues and questions related to how a brand pays their affiliate partners and where the accountability lies.
In the effort to conserve cash, brands have started to abruptly change how and when they pay affiliates the commissions owed to them. Some brands are lowering commissions or setting commissions to zero; others are extending payment windows (e.g. from 30 to 60 days, from 90 days to 120 days) or even regularly missing their contractual payment due dates.
Many brands are also continuing to receive traffic and sales from the efforts of their affiliate partners – even when they are at risk of non-payment.
This onset of changing and delaying payments to affiliates now raises new questions for the industry:
- When a brand doesn't pay their bills to the affiliate network on time, does the network have an obligation to shut them off at some point?
- Whose responsibility is it to let the publishers know that they are unlikely to get paid for the traffic they continue to send to the brand?
- For SaaS providers, what happens when the brand misses the contractual payment deadline? What is the recourse? Are they charged a late fee, etc.?
Not paying affiliates the commissions they have earned or not paying them in a timely manner infringes on the trust, accountability and transparency that is the foundation of the entire affiliate model.
Some affiliates are large businesses who bring in hundreds of thousands of dollars a day. Some are even publicly traded companies. However, the vast majority of affiliates are structured similarly to a small mom-and-pop business. They are bloggers, small teams of product reviewers and content creators who rely on the commissions from brands as their main source of revenue and income.
The main challenge most affiliates face is that there's considerable confusion and obscurity as to who is responsible for paying them and what recourse is available if payments that are owed to them are past due.
Some affiliates with more resources have brought legal action against the affiliate network or brand in these situations– and they've had the basis to do so because there's a contract involved. Smaller affiliates, however, often don't have the wherewithal or resources to take that kind of action.
Regardless of their size, affiliates shouldn't even be put in this position. Not only does it present an unfair disadvantage, it also puts the entire affiliate ecosystem at risk. If affiliates believe that there's a high risk of non-payment in pay-for-performance marketing, fewer and fewer are going to be inclined to participate in this model.
This lack of transparency also makes it quite difficult for affiliates to know who the brands and affiliate networks are that have good reputations for paying what's owed – and paying on time.
One affiliate network that's demonstrating what good transparency can look like is Awin.
Awin instituted a green/red credit rating system that allows affiliates to see important information about brands on their network, including whether the brand pays on time, if their program is well funded, if there'd be a risk of non-payment, etc.
For example, if a brand is a late payer, they are flagged red so that an affiliate can make a more informed decision about whether to take on the risk of working with them. It's a good solution that is fair to both parties and allows the network to remain neutral.
Awin's model is one that all affiliate networks and SaaS platforms can and should adopt in order to help protect affiliates, provide them with the transparency they deserve and preserve the integrity of the program, platform and industry.
There's only so much risk the affiliate industry can expect an affiliate to take on, especially when their commissions are being lowered, delayed and even stopped. If this behavior continues, more high-value affiliates are going to throw their hands up and move on.
If they have to chase payments for driving valuable business for brands, why would it be worth it to them?
The tools that are supposed to keep everyone honest, track performance and compensate affiliates fairly already exist. What's more is that there are a plethora of better options available to brands than setting commissions to zero or significantly delaying payments.
For example, if it's not possible to pay higher commissions, a good compromise some brands have arrived at with their affiliate partners is to lower their commissions but pay them out more quickly.
Better standards need to be put in place to ensure accountability for and transparency about when and how affiliates get paid. These standards should be straightforward and clearly understood by all parties, similar to how even the most complex mortgages have a simple one-page explanation about when payment is due and what the consequences are for late payments or default.
Publishers deserve better. More than at any other time in the history of the affiliate marketing industry, we need to protect the integrity of the affiliate model – and the cornerstone of this is protecting how and when affiliates are paid.
Questions about how to ensure you're being the best brand partner to the affiliates/publishers within your affiliate marketing program? Reach out to our team.