How to set up an affiliate system

Last updated: December 2020 | 7 min read


This page provides information about what type of affiliate agreement you will need in order to run your affiliate system with maximum confidence from your affiliate team. We show you different approaches and how these can affect your profit and the success of your affiliates.

Many marketing experts agree that operating an affiliate system is fastest way to explode your sales. It makes sense that you will be more successful with 1000 salesman than with one. Yesterday’s salesmen ran around in vans. Tomorrows are people with high visitor numbers web sites:

  • We now assume you have chosen your affiliate management system and are now you are now about to take on your affiliate team;
  • Choose the affiliate agreement that best suits your way to do business. One size does not fit all. ;The main issues are;
  • Pay per click, per sale or per anything else
  • Pay commission or flat fee
  • What rate or price to pay
  • Pay for first sale, every sale or sales for a certain period of time
  • How to find affiliates
  • How to approach potential affiliates
  • Whether to use one, two or three levels
  • How to keep your affiliate team happy.

Whether to pay per click or per sale

When you use pay per click, you are paying purely for the introduction. Your proposal will be attractive to affiliates who can direct a large number of visitors to your site. However, every time a visitor to your affiliate site is re-directed to yours, the affiliate may “lose” that visitor as potential to take some other action on his site, or indeed to click on a different affiliate link than yours. So you will have to devise a package for pay per click which is viable for the affiliate. In other words, the affiliate agreement must be sufficiently favourable not only to attract a large number of people to your site, but to cover the “loss” to the affiliate of each re-direct.

There is a range of possibilities for commission payment, through pay per page visit, pay per join, to pay per sale. If your affiliate has to wait until you successfully sell your product before he is paid, then he will join you only if he has confidence in your ability to translate visitors into customers. You are now in partnership. So whereas for pay per click your affiliate agreement needs cover only a simple click by the visitor, for pay per sale, the crucial statistic is your visitor to customer conversion ratio.

Often enough, the product or service you are selling from your web site will leave you no real choice, but if you do have a choice, make it carefully!

What rate or price to pay

The criteria for your affiliate agreement are:

  • Competition in your industry sector. Your affiliate agreement will receive a poor response if you offer a lower rate than your competitors, particularly if you are new to the e-commerce market. This may not apply if you are already a heavyweight in the bricks-and-mortar economy, whose presence in e-commerce is likely to expand fast;
  • Competition with other merchants suitable to your affiliate site. You may offer the best rate in your sector, but still fail to “hook” the best affiliates because their sites are set up to operate as affiliates for other industry sectors, which can offer more commission than you. This is a particular problem for merchants selling goods, since it is easier to offer 30% commission on sales of software than sales of a bought-in physical product. There is no way round this. You just have to find affiliates who are suited to your sector.

Whether to pay for first sale, every sale or sales for a certain period of time

Some of the affiliate gurus rate very highly a merchant whose affiliate agreement pays for every sale, for ever more. ;The argument is that the affiliate brings the customer; without the customer there is no sale, so the affiliate should be rewarded every time the merchant is rewarded. In other words, the customer “belongs” to the affiliate more than to the merchant. This philosophy has obvious roots in the bricks-and-mortar commission agent business, where agents tend to be paid for the life of the customer.

However, this view is not entirely logical because:

  • An affiliate does not know the customer personally, so is unlikely to have any goodwill in the connection which can benefit the merchant in the future
  • The customer will return on account only of his satisfaction with the merchant
  • Merchants can easily change their customer terms of business or their affiliate agreement to the detriment of the affiliate
  • It is difficult for an affiliate to prove breach of contract by a merchant and unlikely to be worth suing in a foreign jurisdiction (as many affiliates are)
  • Many computer users delete cookies from time to time, so removing the crucial coding link upon which future commission depends.

For these reasons, our own Net Lawman affiliate agreement offers only one time payment, albeit at a generous 30% rate. You must decide for yourself whether you want “gold stars” in the minds of your affiliates for payment for ever, or whether to offer a higher rate for first time payment only.

How you intend to find and approach affiliates

Once your affiliate programme is operational, you will no doubt also wish to approach a small number of special partnership prospects on a more personal basis. If you are carefully selecting “important” sites with whom to link, it is likely that you will entice them to your proposition more successfully if you approach them with a form of agreement which is fair to both, and obviously designed for them alone and not by merely suggesting they tick agreement to your standard terms.

For that reason we provide not only a selection of affiliate agreements suitable for “take it or leave it” on your web site, but also versions of three which are for the more tactful approach. Three such agreements are listed in the selection below. To differentiate them, we have called them “referral partner agreements” rather than “affiliate agreement”. Of course, if you have a large number of different arrangements, you will create an administrative nightmare.

Whether to use two levels or three

In Australia, there are legal restrictions on what is termed “pyramid selling”. The main identifier of a pyramid selling scheme is the requirement for joiners to buy the stock they hope to re-sell. Other jurisdictions have similar laws which do not necessarily match precisely the Australian version. Unfortunately, all multi level selling has acquired a bad name as a result. On the Internet however, there is no reason why you should not give commission to those who bring you business, including those who bring you sales people. We therefore advise that you should not be against using a three tier affiliate agreement if your product or service is suitable for selling in this way.

The main benefit of three levels is that you may find it easier to attract those precious super affiliates if you can demonstrate that breadth of their potential earnings over a two level scheme.

How to keep your affiliate team happy

By far the most important element in building the confidence of your affiliates is the provision of a programme that they can trust - in other words, a system hosted by a third party, so that you are not in a position to change the figures.

The second most important confidence builder is to use a Net Lawman affiliate agreement. Every affiliate agreement is written in plain English with a view to providing a balance between the interests of the affiliate and your interests. If you want to attract professional affiliates who will provide good business, you cannot expect them to accept unfair and poorly drafted terms.

Then you have to communicate as a human being - but that too is outside the scope of this page!

Choose from a range of eight Net Lawman affiliate agreements, each of which:

  • Is suitable for web based programme or one installed on your own software;
  • Includes commission calculation and payment;
  • Includes tagging condition;
  • Includes merchant tracking and reports;
  • Accounts for publicity and affiliate "tools";
  • Is written in plain English;
  • Includes appropriate legal provisions - warranties, exclusions, indemnities, etc.
  • Is suitable for all web sites.
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