Web Hosting is an extremely competitive industry which results in high marketing and advertising costs for companies to obtain new customers. One of the more popular marketing methods which a lot of hosting companies choose is affiliate marketing. The basic idea behind an affiliate program is to compensate the person who refers a paying customer – whether monetary or in kind. The attraction of using affiliate marketing for promotion by web hosting companies is two-fold:

1. Companies pay only for performance. If the affiliate doesn’t deliver a paying customer, then the company is not required to pay for the traffic. This essentially eliminates the problem of having to pay for non-converting traffic.

2. Companies don’t have to actively buy advertisements, negotiate media-contracts, or split-test various advertisements, etc. It is affiliates who actively promote the company and the company only pays the affiliate when it acquires a paying customer.

As a result of the above, virtually every hosting company implements an affiliate program in one form or another. Some of the companies offer extremely lucrative payouts in the range of hundreds of dollars per sale. In this article, we will take a look at the various aspects of operating hosting affiliate programs.

Affiliate Program Basics
The basic mechanism of operating an affiliate program is extremely simple. The idea is to have software which tracks the incoming traffic, which converts into a sale and credits the affiliate with whatever amount is offered for compensation. To explain this in detail, here is a step-by-step breakdown of how an affiliate program is operated:

Step 1: Affiliate-tracking software is setup so that affiliates can sign-up to create an account. There are also numerous remotely-hosted affiliate scripts and networks which allow you to skip the step of creating and maintaining the technical back-end yourself.

Step 2: Assign each affiliate with special links and an affiliate identification code embedded. To be credited for any sales from the traffic they send to your website, this special affiliate link must be used to redirect the traffic.

Step 3: Whenever someone visits the hosting company’s website using the special affiliate link, a cookie is assigned on the visitor’s computer with information about the referring affiliate (stored in the cookie file).

Step 4: If the visitor completes the sale on the hosting company’s website, the affiliate tracking software or the affiliate network is sent information about the sale and the details of the referring affiliate. This information is in turn used to credit the affiliate for the sale.

Step 5: After a particular period of time, (usually same as the number of days a money-back guarantee is offered to the customer), as long as the customer is still a paying client with the hosting company, the affiliate is paid or compensated in kind for the referral.

Self-Hosting or Affiliate Network
When it comes to deploying affiliate programs, companies have an option of either choosing self-hosted software or using an existing affiliate network to manage the technical aspects of running an affiliate program. Some companies also choose to give affiliates a choice by having an in-house affiliate program and their affiliate program on various networks. There are pros and cons to all of these options, some of which are discussed below.

1. Technical Management. When it comes to installing and maintaining the software, opting to choose an affiliate network is an easier choice, since it is the affiliate network’s responsibility to manage the technical aspects of running the affiliate program.

By opting for third-party hosted software, one also loses the option of adding new features or customizing existing ones, which may be considered a limitation for some companies. However, for most companies, the features offered by remote hosted affiliate networks are usually satisfactory and it is other factors which govern the choice between the two options.

2. Affiliate Recruitment. Since sales are not automatically generated simply by having an affiliate program, the company has to recruit affiliates who actively promote the company and send traffic to it via affiliate links – in order for it to be successful,. Companies choosing self-hosted affiliate programs may have to actively promote their programs to potential affiliates at various avenues. On the other hand, affiliate networks usually have a large number of affiliates working with them who can start promoting programs, without having to sign-up at another site or dealing with multiple payments.

There are some companies which choose to opt-in for having both an in-house affiliate program and a remotely hosted program on an affiliate-program, just for the sake of recruiting more affiliates to their programs.

3. Payment Management. With an in-house affiliate program, it is the responsibility of the company to keep track of and manage distribution of payments to all affiliates. When it comes to affiliate-networks, the company just has to pay a lump-sum amount to the network and then it is the responsibility of the network to distribute the payment to individual affiliates. A standard practice when it comes to affiliate payments is to withhold payment until the affiliate reaches a certain threshold. For example, a company may pay $50 per sale when the payment threshold is $100. Then the company will pay the affiliate only when he or she refers two sales. If the earnings of the affiliate are below $100, then the commission will be rolled over to the next month until the payment threshold is reached.

A large number of affiliates refer sales but don’t reach the payment threshold until months after earning the commission. For companies hosting the program in-house, it is an extremely lucrative proposition, since they earn interest on money by delaying the payment. With networks, such an arrangement is not possible since they are paid a lump-sum amount for all valid sales during a specific period. Compnies need to calculate if the costs involved in managing the disbursement of payment are worth it, compared to interest earned due to delayed payments.

4. Affiliate Relationship. For an affiliate program to be successful, companies not only have to recruit affiliates but also provide them with on-going support and incentives, along with other activities to promote trust between affiliates and the company. Affiliate networks usually hire dedicated affiliate managers who work closely with the affiliates to provide support and build relationships with the affiliates.

Also, a lot of affiliates believe that by working with a network, they have a much higher probability, if not a guarantee, of being paid for their efforts. This is a more desirable situation, given that a random company is more likely to be less stable and reliable. For this very reason, a lot of high-performing affiliates prefer to work with established affiliate networks that have a reputation in the affiliate industry. This often proves to be more than enough of a reason for many companies to run their affiliate program through these kinds of networks.

5. Reputation Management. In general, affiliates have a huge dependence on the trust factor since they get paid after a sale takes place and there is no way of ensuring that all sales are being credited accurately.

The three most important factors that affiliates usually look into before actively promoting a program are: 1) finding out whether other affiliates trust the company; 2) determining how accurate the tracking mechanism is; and 3) measuring the payment punctuality reputation of a company.
While the company may have every intention to be fair and honest in its dealings, it does take time and effort to build this level of trust – especially if the company’s brand isn’t yet established in the marketplace.

Using an established affiliate network eliminates the need to build this reputation. This is because it is the affiliate network, with an already established reputation, that is guaranteeing the payout and accuracy of tracking to the affiliate. This especially comes in handy for companies that are just starting out and still need to establish their brand.

The long time that it may take for a company to build the reputation in the industry and develop its affiliate marketing into a viable marketing vehicle, motivates a large number of companies to a) opt for affiliate networks or b) choose a dual-operation model with both an in-house program and a network hosted program.

6. Setup and Operation Costs. There is a considerable difference in the setup pricing and operation costs associated with an in-house hosted program, versus an affiliate-network hosted program.

With an in-house affiliate, the initial setup cost is that of the affiliate-tracking software. While there usually are no further per-transaction costs involved, there may be other fees when running the program in-house, such as software maintenance, affiliate support, managing payment disbursement and affiliate-recruitment promotion costs.

With an affiliate network, there is usually a setup cost and subsequent network charge of a certain percentage of what is paid to the affiliate. For example, if you pay the affiliate $100 per sale, then the network may charge 20% of every payment that you make to the affiliate, effectively increasing your net payout to $120.
However, there are no promotion costs or ongoing maintenance fees involved when running the program through an affiliate network. Considering these factors, the company needs to determine whether it is more economical to run the affiliate in-house or best to outsource to an affiliate network.

7. Affiliate Vetting. It is important to be aware that some affiliates indulge in illegal and/or unethical marketing practices that can tarnish the brand of a company and can have a negative economic impact. If a company decides to run an in-house affiliate program, it is their responsibility to actively identify such “dirty affiliates” and terminate them from the network to avoid being involved with their unethical and illegal practices.

Affiliate networks, on the other hand, actively track the affiliates they are working with and terminate any such affiliate which may not be following the rules or using wrong methods for traffic generation. It is indeed a costly affair to actively try to identify such affiliates and deal with them. For this reason, it is economical for a large number of companies to choose working with affiliate networks rather than manage the programs in-house.

Conclusion
Affiliate marketing can be a very lucrative method for companies to promote their products and services. It is also a popular way to promote in competitive industries such as web hosting. When a company works out an effective affiliate marketing strategy, a win-win situation can occur, for both the company running the affiliate program, as well as the company’s affiliates.

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