How Pay for Performance Marketing Works

Pay-for-performance marketing (also known as affiliate marketing) is a web-based marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's marketing efforts.

Pay-for-performance marketing overlaps with other internet marketing methods to some degree, because affiliates often use regular advertising methods. Those methods include organic search engine optimization, paid search engine marketing, email marketing and in some sense display advertising. On the other hand, affiliates sometimes use less orthodox techniques like publishing reviews of products or services offered by a partner.

Affiliate marketing — using one site to drive traffic to another — is a form of online marketing, which is frequently overlooked by advertisers. While search engines, e-mail and RSS capture much of the attention of online retailers, affiliate marketing carries a much lower profile. Still, affiliates continue to play a significant role in e-retailers' marketing strategies.

Merchants like affiliate marketing because in most cases, it uses a pay-for-performance model, meaning that the merchant does not incur a marketing expense unless results are accrued (other than the initial setup cost). Some businesses owe much of their success to this marketing technique, a notable example being Amazon.com.

Pay-for-performance marketing requires that referred visitors do more than visiting the advertiser's website in order for the affiliate to get paid commission. The advertiser must convert that visitor first. It is in the best interest for the affiliate to send the best targeted traffic to the advertiser as possible to increase the chance of a conversion. The risk and loss is shared between the affiliate and the advertiser.

For this reason affiliate marketing is also called "performance marketing", in reference to how employees that work in sales are typically being compensated. Employees in sales are usually getting paid sales commission for every sale they close and sometimes a performance incentives for exceeding targeted baselines. Affiliates are not employed by the advertiser whose products or services they promote, but the compensation models applied to affiliate marketing are very similar to the ones used for people in the advertisers' internal sales department.

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