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  1. #1
    Member ishank's Avatar
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    Why do Affiliate Networks Charge Transaction Fee ?
    I was wondering, why do affiliate networks charge those 20%-30 % transaction fee and monthly minimum fee ? I know they have to maintain program and other infrastructure, and they have to pay their employees well.

    But why don't they adopt a model similar to web hosting providers ? They could charge fixed monthly prices based on bandwidth/number of hits.

    ---
    PS - This is just for discussion.

  2. #2
    Member Prosperent's Avatar
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    Simple, they make more money this way.

  3. #3
    Member ishank's Avatar
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    Sad but true.

    @Prosperent
    I like prosperent web design. Did your team used bootstrap front-end framework ?

  4. #4
    OPM and Moderator Chuck Hamrick's Avatar
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    There are SaaS Provider like HasOffers, Impact Radius and Performance Horizon Group which offer the service based on usage but you have to seek out and recruit affiliates yourself. Part of the benefit of the network goes beyond tracking. Also certain types of affiliates won't work with those systems.

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  6. #5
    Member ishank's Avatar
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    I saw Hasoffer, their plans are very costly.

    Quote Originally Posted by Chuck Hamrick View Post
    Also certain types of affiliates won't work with those systems.
    Thanks, I did't know this. I believe this is because of the reason that if an affiliate program run out of bandwidth, then all affiliate ads would become inactive, thereby causing monetary loss to affiliates.

  7. #6
    Member Prosperent's Avatar
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    Quote Originally Posted by ishank View Post
    Sad but true.

    @Prosperent
    I like prosperent web design. Did your team used bootstrap front-end framework ?
    Thank you! We used Foundation for the front end work. We still have to redo the back end. One project at a time haha.

  8. #7
    Member Prosperent's Avatar
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    ishank, it would be very difficult to offer a decent level of service without a per transaction fee. Take our business model as an example. We offer various affiliate tools, and a comprehensive api with unlimited data access. We spend 15K a month in JUST server infrastructure to handle this (and that's doing things insanely cheap for the hardware we have). If we used a subscription model, we would need 1,000 active affiliates just to keep the lights on in our datacenter. In affiliate marketing, as with almost any industry, the top 10% of your affiliates make up over 90% of the revenue.

    Networks have a lot of overhead. Servers, tracking, software development, marketing, recruiting, affiliate managers, etc. It all adds up FAST!

  9. #8
    OPM/Moderator Hectic GHC's Avatar
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    Because some of the networks report to Wall Street.
    Greg Hoffman
    Affiliate Marketing Advocate of the Year 2016; Best OPM/Agency - 2014; Best OPM/Agency, Five Years in a Row - ABestWeb.
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  10. #9
    Affiliate Network Rep JCrooks - AffiliateWindow's Avatar
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    There are so many different factors here. Some networks are simply tracking solutions, so a flat fee structure may work for them.

    Other networks offer full service assistance to merchants with things like custom reporting, affiliate recruitment, a full-time account manager that can always be reached, etc. They also invest a great deal of time and money into contiuing to monitor new industry trends, create new functionalities, promote the programs and fight fraud. The cost of all those services is substantial, and many merchants may not be able to afford a higher fixed amount to cover that, especially when their programs are new and may not be profitable yet. By having an affordable minimum fee combined with a percentage, the merchant has full access to all the services, but is only paying for what they are truly using based on the actual completed transactions.

    If you think about it, it actually is a fixed cost scenario. There is a fixed amount paid each month, and a fixed amount of each sale. Merchants can easily plan around that. And unlike hosting, if you aren't using the excess capacity, you aren't paying for it.
    Jeannine Crooks - Always happy to share what I know! - Voted Best Network Rep 2013 & 2014
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  11. #10
    Member ishank's Avatar
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    Quote Originally Posted by akagorilla View Post
    Because some of the networks report to Wall Street.



    Quote Originally Posted by Prosperent View Post
    ishank, it would be very difficult to offer a decent level of service without a per transaction fee. Take our business model as an example. We offer various affiliate tools, and a comprehensive api with unlimited data access. We spend 15K a month in JUST server infrastructure to handle this (and that's doing things insanely cheap for the hardware we have). If we used a subscription model, we would need 1,000 active affiliates just to keep the lights on in our datacenter. In affiliate marketing, as with almost any industry, the top 10% of your affiliates make up over 90% of the revenue.

    Networks have a lot of overhead. Servers, tracking, software development, marketing, recruiting, affiliate managers, etc. It all adds up FAST!
    Thanks for this information. Isn't the subscription fee alone adequate to run affiliate network infrastructure ?

    I was wondering, how do companies like Dropbox, Evernote, and Basecamp are managing their program ? They've become giants now, which I believe (I may be wrong) by offering service at low prices and maintaining a huge customer base.

  12. #11
    Member Prosperent's Avatar
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    It's a different market. With a product like drop box, literally anyone can use them. Your potential user base is in the tens of millions, if not hundreds of millions. In this case, a monthly subscription makes perfect sense.

    if the affiliate marketing world, you have a FAR smaller community to pull from. We've been in business for 4 years and have 10,000 affiliates for example. We would have to charge too much to make the business model make sense if we did it on a subscription basis. Same goes for all of the large networks.

    On top of that, to me, it doesn't make sense to charge affiliates a subscription fee when they are just starting out and haven't even made any money. This is the performance marketing industry afterall. You are compensated based on performance, so naturally, it also makes sense to charge based on performance.


  13. #12
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    I get alot of new clients that ask me what the difference is between using a SaaS solution like Offerit vs. an affiliate network like CJ, Linkshare, etc.

    The fact that you are saving a ton of money going with your own solution is a huge advantage that we have over these affiliate networks.

    On top of that our software has much more features, reporting and customization and is affordable for anyone to get an affiliate program started.

    IMO giving 20-30% of your monthly sales + monthly fee to an affiliate network is pretty costly.

  14. #13
    OPM and Moderator Chuck Hamrick's Avatar
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    What's your solution for recruiting and affiliate payments?

  15. #14
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    Quote Originally Posted by Chuck Hamrick View Post
    What's your solution for recruiting and affiliate payments?
    We are more on the actual affiliate management side of things rather then recruiting affiliates. We leave this up to the client to find affiliates that have traffic for their offers.

    We focus more on the software and make sure we are constantly improving it to give you the best tools to manage your program.

    As far as payments go, our system will generate reporting every pay period and let you know which affiliate is owed what along with a dump format which you can easily export into quickbooks or a 3rd party payout service that will cut your checks or send your wires for you.

  16. #15
    Affiliate Network Rep JCrooks - AffiliateWindow's Avatar
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    I appreciate that for some merchants an SaaS program may work, but there are some other reasons to use networks than simply as a tracking solution. While there are some that only offer that service, truly full service networks offer different advantages as well. Just a couple include:

    Payment assurance - for many affiliates, if they don't know a merchant and the merchant has no reputation, how does the affiliate know they will be paid? I've seen merchants disappear and leave affiliates stiffed more times than I care to count.

    Single log-in - rather than logging in to a bunch of individual programs, affiliates working with a network can get their results for multiple programs all at once, rather than having to log out of one and into another merchant. Busy affiliates don't have time to do that.

    Expertise - usually the folks buying an SaaS solution are brand new and have never run an affiliate program. It's easy to lose your shirt that way if you don't know all the tricks and strategies to run a successful program. Networks can help with that big-time.

    Yeah, yeah, I know, I'm with a network so I have to promote them... but the truth is I've been an affiliate, I've been a merchant, and I've been a vendor too. My opinion comes from almost 15 years in the industry, not just based on my current employer.

    Before merchant makes a decision between running with a network and choosing inhouse SaaS, they need to weigh all the pro's and con's, which go much deeper than just cost.

    Just saying....
    Jeannine Crooks - Always happy to share what I know! - Voted Best Network Rep 2013 & 2014
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