If you are a digital marketer and planning to use affiliate marketing as one of the digital marketing channels to drive traffic / leads / sales on your website, then this article is just for you.
Affiliate Marketing is word-of-mouth marketing in the digital world. It is a method whereby a merchant, such as you, promotes or advertise your products and/or services to your target audience through third party sources.
You can have multiple types of campaigns as part of your affiliate marketing and it is important to understand and select the right type of campaign before you start your affiliate marketing campaign.
The type of campaign largely depends upon the objectives you have set for your affiliate marketing program, and I am listing below a few types which will certainly help you in formulating your affiliate marketing strategy.
Cost per Acquisition (CPA): Also known as cost per action, is the sum of money paid by an advertiser or merchant, such as you, to gain specific outcomes or acquisitions. As I mentioned earlier, conversions refer to signups, registrations, purchases, etc. It also includes receiving clicks and views to your banners and web pages respectively.
Generally speaking, the CPA involves the consumer paying for your product or service online. For example, if an affiliate spent $200 in marketing your product or service and you receive 100 customers, the CPA would be $2 (200/100). The CPA is also called Pay per Sale or PPS in affiliate marketing.
Cost per Click (CPC): One of the most commonly used advertising model, it is the amount of money paid by an advertiser like you to the owner of a website in order to receive traffic or visitors to your website. In affiliate marketing, an affiliate places your ads and banners on their website; hence, you have to pay them for using their advertisement space.
The cost per click is calculated in the following manner. Let’s say your affiliate spent an amount of $100 on an advertisement campaign and they acquired 200 clicks for you on a particular banner, your CPC would be $0.50 (100/200). Hence, you will have to pay your affiliate 50 cents per click generated. The cost per click is also called Pay per Click (PPC).
Cost per Impressions (CPM): A pricing model used in online marketing that refers to the cost paid for an advertisement shown or displayed for 1,000 times. The abbreviated term is CPM, where M is the Roman numeral for 1,000 impressions or views.
For example, if a website owner offers $5 CPM, it means that you would have to pay $5 to get your ad displayed for a thousand times. Suppose an affiliate displays your banner for a total of 5,000 times on their website, you will be required to pay them $25 (5/1,000 multiplied by 5,000).
Cost per Email (CPE): It refers to the price paid by an advertiser to a website owner for sending individual emails on their behalf. In layman terms, it is the cost of sending a single email. It is a term often used in email marketing.
For example, if the cost per email is $0.020 and you need to send 10,000 emails per month, you would have to pay your affiliate $200 (10,000 multiplied by 0.02).
Cost per Open (CPO): A term used in email marketing, it refers to the pricing model in which advertisers are charged according to the number of opens they receive. The number of opens means the number of emails actually viewed by potential leads.
The open rate is calculated by dividing the number of emails opened or viewed by the total number of emails sent. For example, if 10,000 emails are sent in a month and 4,000 are opened, the open rate would be 0.4 (4,000/10,000). If you had agreed to pay a cost per open as $0.40 then you will have to pay $1,600 in this case (0.4 multiplied by 4,000).
Keep in mind though, that an email is counted as opened when it is viewed for the first time and not the second or third time. It is an effective analytic to determine the efficacy of your email marketing campaign.
Cost per Visit (CPV): This pricing model is utilized by advertisers to determine the number of visitors they acquire after setting up an advertisement campaign. It is calculated by dividing the total cost of setting up the campaign by the number of visitors they receive.
For example, if the total cost of setting up an ad campaign is $100 and you get 60 visitors to your website, the CPV or cost per visit would be $1.67. Or let’s say if previously you were getting 60 visitors and after the ad campaign, you receive 200 visitors, the CPV in this case would be $0.71 (100/140). Over here, the increment in the number of visitors is used which is deduced by subtracting 60 from 200.
This analytic is basically used to find out the effectiveness of your ad campaign.
Please note that a visit is different from a click. So, if 100 users click on an Ad, you cannot assume that all of them will be landing on to your website. Many times, a user will dropout after clicking on the ad because of various reasons like page not loading, internet speed, etc.
Thus, it is important to know the difference between click and visit, and you may choose to get into an agreement on a CPC or CPV with your affiliate partner.
Cost per Lead (CPL): One of the most commonly used online pricing models by advertisers; it refers to the amount paid to an affiliate or publisher based on the number of leads generated. A lead is an individual who shows interest in an advertiser’s products or services by leaving their contact information. It is also known as pay per lead or PPL. It is a metric used to test the efficacy of a digital ad campaign.
The CPL is calculated by dividing the total cost of the ad campaign by the number of leads acquired. For example, if your affiliate spends $200 on Facebook ads promoting your product or service and they acquire 20 leads for you, the CPL would be $10. Therefore, you will have to pay your affiliate or publisher $10 for every lead they generate. The CPL is also called Pay per Lead in affiliate marketing programs.
The major difference between CPA and CPL is that CPA is concerned with acquiring paying customers, whereas CPL deals with obtaining only leads that may or may not be interested in purchasing your products or services for the time being.
Though CPL is a great way to generate leads who might become prospective customers interested in your products and/or service; many times, affiliates send you fake leads as part of your campaign, since they are being paid on every lead they provide.
In order to overcome this, many experienced marketers have started taking sales conversion commitments from affiliates, so that affiliates provide only genuine leads. For example, you may get into an agreement with your affiliate to pay $10 for every lead provided, if at least 10 percent of the leads turn into paying customers. You may choose to penalize your affiliates if the leads to sales ratio are below the agreed percentage.
The above are just a few examples of the type of campaigns you can select for your affiliate marketing program and you can also devise new types of campaigns as per your business objectives.
Affiliate Marketing is a strategic and important marketing channel for any online business today and you can read more about mastering it from my eBook Making Affiliate Marketing a Success.
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