Let’s not lead each other around by the nose and honestly admit that we love and appreciate affiliate and digital marketing primarily for their profitability. We’ve already told you many times about the different ways to make money in this field, from the classic ones like Snapchat or Facebook, to insights from performance marketing and non-trivial boosting profits through Postback URLs and Backlinks. However, whichever method of earning you choose, it’s always important to understand the model by which you’ll receive your payouts. The topic of commission models is also relevant for advertisers — to understand under which model it will be most convenient to evaluate the effectiveness and profitability of marketing campaigns.
Take your seats in the audience, because in this article we will watch a real runway show, but instead of fashion models, we will review the main compensation models in affiliate and digital marketing. Be financially savvy so you can keep your finger on the pulse of your earnings!
Commission models in affiliate and digital marketing context
It is a good idea to start with an introduction for those who are out of the loop.
- Affiliate marketing is a performance-based marketing strategy centered around the relationships between businesses and affiliates. The first wants to promote their products and pay commission as a reward for it. The second drives traffic, leads, or sales through their promotional efforts to earn this commission. This is a broad and perspective industry, according to the statistics, the global affiliate marketing industry is projected to reach $17 billion, with an expected growth to $27.78 billion by 2027.
- Digital marketing, on the other hand, encompasses a broader range of online marketing tactics including search engine optimization (SEO), content marketing, and social media marketing.
In both contexts, the term has many variations: commission, or compensation, or payment, or payout, or pricing model. Despite the many variations of the term, the essence is the same — a framework that outlines how payments are calculated and shared among participants. For instance, in affiliate marketing, the most popular compensation models are Pay-Per-Sale (PPS) with the commission for each sale made through affiliate referral and Pay-Per-Click (PPC) with the payment influenced by the number of clicks generated. In digital marketing, models such as Cost-Per-Impression (CPI) and Cost-Per-Engagement (CPE) are used to measure and pay for user interactions with ads.
Trendwatching
Current trends in affiliate and digital marketing are significantly shaping the landscape of commission models. The growing reliance on mobile devices has led to an increase in mobile-optimized campaigns, with more than half of affiliate referral traffic now coming from mobile devices.
Additionally, the rise of AI-driven content creation and micro-influencer partnerships is transforming how marketers engage with their audiences. The most up-to-date numbers prove that 81% of advertisers and 84% of publishers now incorporate affiliate marketing into their strategies, demonstrating its critical role in today’s digital marketing mix.
The place of commission models in the industry
Commission models are crucial in affiliate and digital marketing because they directly impact the efficiency and profitability of marketing campaigns. They provide a structured approach to budget allocation, enabling businesses to predict costs and measure ROI accurately. For affiliates, compensation models determine the potential earnings and influence their strategy in promoting products or services. Effective compensation models also promote trust and transparency between advertisers and affiliates, ensuring that both parties benefit from the partnership. As the digital marketing ecosystem evolves, selecting the right payment model becomes even more critical for maximizing returns and staying competitive in a dynamic market.
7 affiliate and digital marketing commission models you need to know
Now that we understand the importance of properly organizing financial commitment in the affiliate and digital marketing space, let’s look at the key commission models by learning about their nature, positives, and potential challenges.
CPM — Cost Per Mille
The Cost Per Mille (CPM) model is a frequently used commission structure in affiliate marketing, where advertisers pay a fixed amount for every thousand impressions their ad receives. An impression is counted each time the ad is displayed, regardless of whether the viewer interacts with it. This model is effective for goals like increasing brand awareness, as it guarantees that numerous people will see the advertisement.
CPM advantages:
- The CPM model is simple and predictable. Advertisers can easily budget their campaigns and know exactly how much they will spend based on the number of impressions they purchase.
- This model also great for extensive reach, especially for brand-building campaigns and new product launches.
- Additionally, it provides a straightforward metric for measuring the effectiveness of ad placements across different platforms.
CPM drawbacks
- The key issue is in the lack of user engagement or conversions; advertisers pay for visibility, not action. This is a problem because leads to inefficiencies if the ads are not targeted effectively, as impressions alone do not guarantee sales or leads.
- CPM rates can become quite costly in a highly competitive context, which may potentially reduce the overall return on investment.
Model’s usage
The CPM model is ideal for scenarios where visibility is the most important factor. For instance, it is common practice to display advertising on websites and social media platforms, where the goal is to reach a broad audience. It is also effective for brand awareness campaigns, new product introductions, or rebranding strategies, where the objective is to make as many people as possible aware of the brand’s place in the market.
eCPM — Effective Cost Per Mille
Effective Cost Per Mille (eCPM) is a metric that is chosen by marketers to evaluate the efficiency of an ad campaign by measuring the revenue generated per thousand impressions. Unlike the standard CPM model, eCPM takes into account the actual earnings from different advertising methods. It is calculated by dividing the total earnings by the number of impressions (in thousands) to highlight the most profitable campaigns.
eCPM advantages
- The ability of the model to offer a multifaceted assessment of ad performance across various formats and channels. The eCPM helps advertisers optimize their strategies through the identification of the most lucrative ad placements and formats.
- eCPM provides a more accurate measure of ROI, as it reflects actual revenue rather than just impressions. This makes it a valuable tool for maximizing ad spend efficiency.
eCPM drawbacks
- Calculating eCPM requires detailed data on earnings and impressions, which can be complex and time-consuming to gather.
- The model may not account for qualitative factors such as brand engagement or long-term customer value, shifting results towards short-term gains.
- Advertisers may also face challenges in comparing eCPM across different platforms due to varying pricing models and audience behaviours.
Model’s usage
eCPM is typically used in programmatic advertising and network-based campaigns with multiple ad formats and channels. The model is useful for publishers who need to compare the performance of direct ad sales versus network ads. With the eCPM implementation, advertisers can make informed decisions about budget allocation, ad placement, and creative strategies to enhance overall campaign effectiveness.
CPC — Cost Per Click
The Cost Per Click (CPC) model is a commission structure where advertisers pay a fee each time a user clicks on their ad placement. It is popular for both affiliate and digital marketing. This model focuses on driving traffic to the advertiser’s website, making it an effective way to attract potential customers who have shown interest by clicking on the ad.
CPC advantages
- It ensures that advertisers only pay for actual engagement, as costs are incurred only when users click on the ad. This can lead to more efficient use of the advertising budget compared to impression-based models.
- CPC campaigns can be easily tracked and optimized, allowing advertisers to adjust their strategies based on real-time performance data.
- This model is also highly flexible, suitable for various types of campaigns, from product launches to special promotions.
CPC drawbacks
- The risk of click fraud, where automated bots or unscrupulous competitors generate fake clicks to deplete the advertiser’s budget without delivering genuine traffic.
- Another concern is that there is no guarantee that all clicks result in conversions, meaning advertisers may pay for clicks that do not lead to sales or other targeted actions.
- High competition for popular keywords can boost up CPC rates, making it expensive for advertisers to achieve their desired reach.
Model’s usage
The CPC model is commonly used in scenarios where driving traffic and generating leads are primary goals. It is particularly effective in search engine marketing (SEM), where ads are displayed alongside search results, and in social media advertising, where targeted ads appear in users’ feeds. CPC campaigns are usually used to attract potential customers and increase website traffic for e-commerce websites, service providers, and content publishers.
CPA — Cost Per Acquisition
Cost Per Acquisition (CPA) is a commission model in affiliate and digital marketing that creates relationships in which advertisers pay a fee each time a specific action is completed by a user. Among the actions can be making a purchase, signing up for a newsletter, or downloading an app. This model is performance-based, meaning that advertisers only pay when their targeted outcome is achieved. It is a perfect match for conversion-driven campaigns.
CPA advantages
- The CPA model minimizes wasted ad spend by ensuring that payments are tied directly to successful conversions, which can significantly improve ROI.
- This model provides clear and measurable results, that help advertisers to track the effectiveness of their campaigns with accurate data.
- CPA also makes it easier for affiliates to focus on quality traffic that is more likely to convert, as their earnings depend on the successful completion of the desired actions.
CPA drawbacks
- With this model, it can be difficult to achieve high conversion rates, especially in highly competitive markets. This can result in higher costs per acquisition as advertisers strive to optimize their campaigns.
- There is also a risk of complexities in accurate tracking and attributing conversions. Solving this issue may require additional specialized tools and methods.
Model’s usage
The CPA model is suitable for a multitude of scenarios, especially ones where direct response marketing is a priority. E-commerce platforms often employ CPA campaigns to drive sales, while software companies use this model to encourage app downloads or software trials. Subscription-based services, such as streaming platforms and online courses, also leverage CPA to acquire new subscribers.
An important note here is not to confuse CPA (Cost Per Action) with CAC (Customer Acquisition Cost). In the CPA model, advertisers and businesses pay for specific actions completed by users, such as purchases, sign-ups, or downloads. The CAC, on the other hand, is a broader metric that determines the total cost of acquiring a new customer. It covers all marketing and sales expenses divided by the number of new customers gained over a specific period.
eCPA — Effective Cost Per Acquisition
Effective Cost Per Acquisition (eCPA) is a metric that measures the average cost of acquiring a conversion across various marketing channels. Unlike standard CPA, which focuses on the cost of individual actions, eCPA provides a comprehensive overview by incorporating the total marketing spend and the number of acquisitions. This metric helps advertisers understand the overall efficiency of their campaigns in converting leads into customers.
eCPA advantages
- The eCPA provides a holistic view of campaign performance, enabling marketers to identify which channels and strategies are the most cost-effective. By considering the entire marketing spend, eCPA allows for better budget allocation and optimization of marketing efforts.
- In addition, it helps in pinpointing areas that require improvement to ensure that resources are directed toward the most profitable avenues.
eCPA drawbacks
- There is a need to collect and analyse the extensive datasets to calculate eCPA. This can be complex and resource-intensive.
- The metric averages costs across all channels, potentially masking the underperformance of specific campaigns. This can lead to inefficient budget allocation if individual channel performance is not monitored closely.
- Furthermore, eCPA may not fully account for the qualitative aspects of customer acquisition, such as brand loyalty and lifetime value.
Model’s usage
Email campaigns, social media advertising, and search engine marketing are a few multichannel marketing tactics that frequently leverage the eCPA model. It is especially helpful for companies looking to maximize their total marketing budget and improve the ROI on their customer acquisition campaigns. Marketers may enhance campaign efficacy and optimize their ROI by utilizing eCPA to make well-informed decisions.
CPI — Cost Per Install
Cost Per Lead (CPL) works simple in affiliate and digital marketing — advertisers pay for each attracted lead, a user who has shown interest in a product or service by providing their contact information (email, phone number, etc).
CPI advantages
- It ensures that advertisers pay only for tangible outcomes, specifically leads, rather than just clicks or impressions. This can lead to a more efficient use of marketing budgets.
- CPL campaigns often generate higher-quality leads since the user has actively engaged by sharing their information. This can result in a higher conversion rate from leads to paying customers.
- Finally, CPL enables continuous optimization by creating the opportunity for efficient tracking and measurement of campaign performance.
CPI drawbacks
- One major concern is that not all leads are equally valuable; some may not convert into paying customers, leading to potentially wasted marketing spend. The quality of leads can vary greatly depending on the source and method of acquisition.
- On top of that, CPL campaigns can be more expensive compared to other models, as advertisers are paying for direct user engagement.
Model’s usage
The great idea is to use the CPL model in scenarios where collecting user information is crucial for the sales process. It is particularly effective in B2B marketing, real estate, education, and financial services, where acquiring qualified leads is a critical step towards making a sale. By focusing on lead generation, CPL campaigns help businesses build a robust database of potential customers for future marketing and sales efforts.
RevShare — Revenue Share
The Revenue Share (RevShare) model is a commission structure in affiliate and digital marketing where affiliates earn a percentage of the revenue generated from the sales they refer. Instead of a fixed fee, affiliates’ earnings are directly tied to the sales performance, making this model particularly attractive for partnerships where ongoing revenue generation is expected. This model aligns the interests of both the advertiser and the affiliate towards maximizing sales and profitability.
RevShare advantages
- The RevShare model motivates affiliates to focus on high-quality traffic that is more likely to convert into sales, as their earnings are proportional to the revenue generated. This alignment of interests can lead to more effective marketing strategies and stronger partnerships.
- Plus, RevShare can provide a steady stream of income for affiliates, especially in subscription-based services where recurring revenue is involved.
- This model also reduces upfront costs for advertisers, as payments are made only when sales occur.
RevShare drawbacks
- The RevShare format can lead to unpredictable earnings for affiliates, as their income depends on the performance of the sales they generate.
- For advertisers, managing RevShare agreements can be complex, requiring robust tracking and reporting systems to ensure accurate revenue sharing.
- There is also the risk of potential disputes over revenue calculations, which can strain the affiliate relationship.
Model’s usage
The RevShare model can be met in industries with high customer lifetime value and recurring revenue streams, such as subscription services, SaaS products, and online gaming. It is particularly effective for businesses looking to build long-term partnerships with affiliates who can drive sustained revenue growth. By leveraging RevShare, companies can align incentives with their affiliates, fostering mutually beneficial relationships and optimizing overall marketing performance.
Final thoughts
We’re done with an extensive review of the main commission models in affiliate and digital marketing. Now advertisers can be confident in measuring the effectiveness of marketing campaigns, and affiliates will take control of their earnings. Hence, the following advice: advertisers better clearly indicate payment models in the description of offers, and affiliates should be persistent and find out all the financial details before starting cooperation on the promotion of a brand or product. For a more in-depth analysis, check out the other options like flat-rate model, CPE (Cost Per Engagement), hybrid model, etc.
