Affiliate Program Pitfalls to Avoid

SUMMARY: Here's a short list of pitfalls you should be considering when you weigh up whether to join a particular affiliate program. Most of the answers will be buried somewhere in the "Affiliate Agreement" or "Terms and Conditions", the legal document that you have to sign when joining an affiliate program. Since it is usually written in language that only a lawyer could truly love, make a cup of coffee before you start reading, and keep an aspirin at the ready...

How is "revenue" defined

Most commission-based affiliate programs pay a certain percentage of the revenue generated by your site visitors. However, the meaning of "revenue" can vary wildly depending on which site's affiliate program you're looking at.

The majority of affiliate programs calculate commissions on the gross value of a sale, that is, the amount of money the site will receive in payment for the goods or services being ordered. This almost always excludes credit-card or other payment processing surcharges, and delivery, packing, gift-wrapping and handling charges.

A few affiliate programs apply a much narrower definition of "revenue". For example, some only calculate commissions on the "profit margin" in a sale. As many Hollywood players have found to their cost, it's very easy to massage the bottom line figures until "profits" melt away like snow in the sunshine. Unless there is an incredibly compelling reason to join, you're better off avoiding this kind of affiliate arrangement entirely

The issue of revenue definition is often buried deep in the Affiliate Program Agreement you will have to commit to when joining the program. Always read the Agreement very carefully, and be on the lookout for odd clauses that could trip you up later.

Returns and Chargebacks

Although understandable from a business perspective, you need to be aware of the fact that affiliate programs only pay for sales that have completed and where the customer has chosen to keep the goods. If a customer returns the product, your commission is likely to be cancelled, and you may even be billed for the outstanding commission if you do not have any earned affiliate credit on record with the company.

Returns occur when a customer returns the product to a company. Chargebacks occur when a customer disputes a credit card charge with their credit card provider, and has the money refunded to their account. You need to keep a close watch on what percentage of orders get charged back or refunded, and be on the lookout for suspicious patterns of behaviour. For instance, if the orders that get charged back are always the highest ticket orders, it's possible that the affiliate program manager is feeding you false chargeback statistics in order to minimize the commission payable to you.

Excessive chargebacks and returns can also be an indicator of other problems. For example, if most customers are choosing to cancel a service during an initial 30-day money-back guarantee period, it's likely that the service is being misrepresented or is otherwise of very poor quality, and is not what customers had been led to expect. Again, if the pattern you're seeing is an initially large number of commissionable orders, most of which are later reversed, there's clearly a problem somewhere along the line.

What is commissionable?

You need to be clear what you will earn commission on, and - more important yet - what products or services are excluded from an affiliate program. Some merchants only offer commission on "selected" products or services, so if a visitor from your site buys anything that's not included in this category, you're not going to get paid for it!

Some affiliate programs go as far as only paying you a commission on the specific item you link to, or even only if the visitor fills in the payment details immediately without clicking on any other link out of the order page! In this case, even if your intrepid visitor goes on to buy 30 kinds of widget from The Widget Store, you'd only get paid if they happen to buy the Purple Citrus-flavoured Widget that your site links to. Amazon.com operates on a hybrid model, whereby affiliates get paid more when their visitors purchase the specific products being linked to, but where (most) other sales also get rewarded, albeit at a lower commission rate.

Other affiliate programs pay a commission on all products purchased during a given site visit, or even on all the items sold during a given time period starting at the time of the visit (for instance, 30 days). Affiliate programs that continue to reward affiliates for purchases made by visitors after their initial session almost always rely on cookies to track such purchases.

The role of cookies

Many sites make use of a tracking technology known as "cookies" to keep track of a visitor's progress across the site. A "cookie" is a small piece of data that is stored automatically by your web browser. Inside the cookie, the site will have encoded a certain amount of information about the customer, such as a unique tracking code or address details.

The problem with this approach is that cookies can be refused, discarded and eaten. Some paranoid web surfers, worried about their online privacy, systematically refuse to accept cookies from web sites they visit. In this case, their purchases will not reward you in any way since the site has no way to track them. Cookies will also be discarded when the storage area for cookies fills up (depending on your web browser, the storage area has space for up to a few hundred cookies). Again, if you are participating in a program where you are supposed to receive income over an extended period of time, you may well find yourself empty handed if the cookie expires and gets overwritten by a new one. Finally, certain system maintenance programs also "clean" your computer by deleting cookies.

Unfortunately there is very little you can do about this problem, except be aware that it exists, and that it may well have an impact on your results.

Unrealistic trial periods

If an affiliate program relies on cookies on an ongoing basis to track conversions from an extended free trial (e.g. 30 days free use of an email service or hosting provider), there are many chances for the cookie to get deleted or overwritten before the free triallers convert to paid users. If the cookie is gone, or the user signs up from a different computer from the one that the cookie was stored on, you're going to miss out on a commission. On the other hand, some affiliate programs will associate free trial accounts with the unique affiliate code of the affiliate that sent the visitor over, meaning that in theory all conversions should be successfully tracked.

Commission thresholds, roll-overs and deductions

Most affiliate programs operate on a monthly or quarterly basis. That is to say, at the end of each month or quarter, they will calculate the commission payable to each affiliate based on the amount of business generated by the affiliate during the period, and issue a cheque to the affiliate if they have passed the minimum earnings threshold for that particular affiliate program. Such payments are typically made within a few weeks of the end of the preceeding period.

There are three related elements of an affiliate program that have a potential effect on your eventual chance of receiving a cheque:

The commission threshold is the minimum amount an affiliate has to earn in order to get paid that period. Many affiliate programs set this threshold at a relatively approachable level, typically US$25-50. Beware of affiliate programs that have an excessively high commission threshold, or that have a commission threshold that's totally disproportionate to the average commission generated by a single transaction. For example, if an affiliate program has a commission threshold of US$250, you may have to wait a VERY long time before you see a cheque. Similarly, if an affiliate program pays a commission of US$0.50 per lead and has a US$100 commission threshold, you will have to send at least 200 leads before you can get paid!

The roll-over (or carry-over) criteria define how a particular affiliate program will handle payments to affiliates that have not reached the minimum required for a cheque to be issued. Most affiliate programs will roll over the payments into the next monthly or quarterly pay period, and will continue to roll over payments until an affiliate either reaches the minimum amount required for a cheque, or gives up completely. However, some affiliate programs will not roll over earnings at all, or will stop rolling over earnings at the end of a predefined period (for example, earnings are not carried over from one calendar year to the next). In this case, if the affiliate program had a minimum commission threshold of US$100, for instance, and you'd earned US$99.99 when the commission stops being rolled over, you've just waved goodbye to that cash! Unless there are other exceptionally good reasons for using such affiliate programs, you're better off avoiding any that won't allow you to work slowly but steadily towards accumulating enough commissions to get paid.

Some affiliate programs make deductions for all kinds of reasons. For example, they may charge you a fee to issue you with a cheque (processing fee), or they may deduct an amount every payment period as an "administrative fee" on all commissions being rolled over. Again, unless exceptional circumstances dictate otherwise, you're better off giving such affiliate programs a wide berth.

Terms of payment

Some affiliate programs pay promptly, a few days after the end of the previous month or quarter. With other programs, you'll grow old waiting for a cheque to arrive - some pay as late as 90 days after the end of a quarter, exposing you to risks such as bankruptcy or server clashes for an uncomfortably long time. While you will have to weigh the merits on a case by case basis, you may be better off working with an affiliate program that pays slightly less than a competing program, but which pays you much more quickly than the competition will.

New clients and existing clients

Some affiliate programs will only pay you for the first sale to a new client. In other words, if your site sends them a visitor who's already purchased from them in the past, you won't get credit for anything they buy. This leads to the paradox that the more successful the site gets, the less desirable the affiliate program will become, since the probability that you're referring visitors who have shopped there before keeps on increasing and therefore the chance of getting paid decreases over time.

Exclusivity

Ah, the dreaded "E" word! While affiliate program managers are generally becoming more savvy about such issues, some affiliate programs still place very hefty and unreasonable exclusivity provisions in their Agreements. Some affiliate programs may specify that you are forbidden to work with competing companies for a period of months or years, and will even seek exclusivity over an entire network of sites, even if your intention was only ever to include their ads on one site.

NOTE: Not all exclusivity clauses are automatically bad... there is certainly a case to be made for affiliate programs demanding exclusivity on a page-by-page basis, i.e. requesting that their ads will not appear on the same web pages as those of their direct competitors. Similarly, the idea that affiliates should not make use of competing affiliate programs on sites that use content supplied by the affiliate program also has merit.

Don't throw all your hard work away...

Some affiliate programs will penalize you if you try to buy products for yourself via your affiliate link in order to get commission kicked back to you. In the worst-case scenario, you could lose all the commissions you generated after placing a single order! So don't make a mistake; always approach any site you are affiliated with through the "front door" (their main URL) and not via the link from your own site.

Key info to take away

The majority of affiliate programs have logical, realistic terms and conditions that apply to them. It's the bad apples you need to be on the look out for - which is why it's essential to get into the habit of reading (or at least skimming) every Affiliate Agreement you come across, watching out for pitfalls such as those outlined above. Unfortunately, ignorance is generally not considered a valid excuse, so if you've executed an agreement binding you to very onorous terms, you're likely to be stuck with it. Proactivity up front could therefore save a ton of trouble later!