So Graeme, what is an affiliate program?
An affiliate program is a cross between advertising and a commission sales agent. It all started about 3 years ago when Amazon.com set up the first affiliate program. Their program  offers web site owners an ability to send customers to Amazon.com and receive a share of revenue created. For example, if I had a web site about Cricket, I could join the Amazon.com affiliate program, put on their banner or some links direct to cricket books available at Amazon.com, and when  someone clicks on those links and buys a book, Amazon will pay me a commission of 5 to 15%.

There are many advantages of affiliate programs to both the web site owner and the merchant. For the Merchant, the advantage is that it is always results based, so there is no wasted advertising. The Merchant only pays when the sale is completed. Unlike advertising where the merchant pays in advance and for a set amount of banner impressions or other exposure, and takes all the risk of whether its advertising will be effective or not. With an affiliate program the merchant sets the commission rates and always knows exactly how much each new sale will cost. Statistics released from Amazon.com revealed that its affiliate program was its most cost effective source of new customers.

For the web site owner who becomes an affiliate the advantage is being able to generate an income from a web site. It allows for any unsold advertising space to be filled with affiliate banners. It can also be used to add content to a site, or provide a wider range of  products and services to your customers. It is usually very simple to join and set up the links for an affiliate program and can often be done within minutes, so the whole process is very quick and easy.

What are the common types of Affiliate programs?
There is a wide variety of Affiliate Programs designed to suit the individual requirements of each business. Some of the standard types are:

A. Pay per sale
This is the typical affiliate program that Amazon.com and many others use. As described in the above example a commission is paid by the merchant only when a product is sold. The merchant installs software that provides individual links for each affiliate and then tracks the links and sales that result. Each month the numbers of visitors and sales are totalled and commission cheques are issued. This type of affiliate program is often used when there is a physical product being sold, such as books.

B.  Pay per click
A variation on the above is that instead of paying for a sale, the merchant will pay the affiliate for each click or visitor that is sent. The merchant installs the affiliate software that provides the individual links and then tracks the visitors that result. Usually a payment of a few cents is paid for each visitor, and cheques are issued when a minimum amount is reached.

C. Pay per action
An affiliate program can be devised to promote and reward any specific action that is required. For example, a merchant may decide to pay affiliates for each new member or subscriber they receive or for each application form or survey response correctly submitted. Just about any specific action that can be done on a web site can be used in an affiliate program. The merchant simply installs the software that issues the individual affiliate links and then tracks the resulting visitors and actions. A typical example is that Netezines.com will pay for every new subscriber to one of their Ezines.

D. Affiliate Network
This is a variation that can be applied to each of the above 3 types of programs. Instead of the merchant installing the affiliate software, an affiliate network manages the program for the merchant. They provide the affiliates with their unique links, provide all the tracking, and then issue the cheques. This has considerable advantages for the merchant as it relieves him from problems of installing and maintaining affiliate tracking software. It also helps the affiliate as a trusted 3rd party handles the tracking and issuing of cheques so it ensures accurate reporting and payment of commissions. Some examples of affiliate networks is Commission Junction and PlugInGo

E. Composite programs
Affiliate programs can be tailored to meet the requirements of each individual business, so many programs have multiple payout levels. Some will combine pay per sale, and pay per click. Others offer various commission levels based on sales or traffic levels. It is typical for high traffic sites or the most successful affiliates to be given higher commission rates.

F. Two tier programs
To encourage more affiliates to join a program it is common to offer a two tier commission structure where affiliates are rewarded for introducing other affiliates.  Merchant Express for example has a commission structure of $50 for direct sales and $20 for any sales that people you introduce may make. These programs ensure a rapid spread of a program as affiliates encourage others to join, although it worth noting that purely recruiting affiliates will not make any money for anyone and commissions are still only paid when sales are made. While 2 tier structures are most common, some programs such as Alladvantage offer a 5 level program or more.

Graeme, you have been helping Internet Businesses put together Affiliate Programs,  could you recommend further resources and reading for anyone interested in setting up an affiliate program or being part of one?

Well, you could start at my web site, AffiliateGuide.com 
This site lists hundreds of affiliate programs as well as providing resources for merchants intending to start a program.

Some other useful resources:

PlugInGo PlugInGo.com is an affiliate network and provides an easy hassle free way for merchants to start an affiliate program or for people to join affiliate programs. This web site has a number of informative articles on affiliate programs. link 

AssocTRAC Affiliate Software
AssocTRAC is a good affiliate tracking software package. They also have a substantial amount of information about why and how to set up an affiliate program. Link

You can contact 
Graeme Eastman @
Eastman Internet - Web production, promotion & E-Commerce consulting.
209 Shaftesbury Ave, Bedford, WA 6052
Ph (+61 8) 9275 6246
Fax (+61 8 ) 9275 3874
Email:   graeme@eastman.com.au
Web:  www.eastman.com.au/ei/index.html