Why do you open an affiliate network? Let’s cut the poetry: to take a commission. The webmaster pours traffic, the advertiser pays, and you bite off your cut along the way and live on it. Traffic, of course, will just come to you for no particular reason, you’ll just pass leads on to advertisers for no particular reason — and get paid for all of it. Not a business, a thing of beauty!
Except that for you, the commission is the whole point of the network’s existence, while for everyone else you’re a useless link that just gobbles up their money for nothing. So for that commission to actually end up in your pocket, you have to create real value for it.
What value? People usually name five options. Each has a grain of truth, and we’re about to go through all five. And at the end I’ll tell you what an affiliate network actually gets paid for.
Are You an Offer Catalog?
Maybe you thought your network is a big offer catalog. A webmaster comes in, instantly finds something to his liking, picks an option and starts pouring. There’s something to that. But our AlterCPA WatchCat, the guard kitty, does a far better job of cataloging offers. It’s free, and it has a fair bit more offers than your network ever will: the kitty collects them from a whole bunch of networks at once.
Truth is, being a catalog is pointless and useless: finding an offer today is dead easy, and reaching a direct advertiser isn’t much harder. In gambling, for example, almost every casino has a “Partners” section on its website — I wrote about that. And in other verticals? How? Simple: just booze it up at conferences — and you’ll have direct advertisers, and no problems with anything.
Are You a Reliable Middleman?
Tech-savvy folks might think the main job of an affiliate network is to build a perfect interface with a normal human API for normal people, meaning webmasters, and inside — by some miracle, through very clever integrations — route the traffic to advertisers. Because advertisers, as far as webmasters are concerned, are completely out of their minds, and their APIs are just as unfriendly: no documentation, no common sense. So the main thing is to be a super-reliable middleman: take the leads in, don’t lose the leads.
Sounds convincing. But there’s a catch: any web can build himself the exact same thing for $250 a month on our AlterCPA. AlterCPA Cloud is eight bucks a day, and with a domain and a front server it comes out to right around $250. It deploys in a quarter of an hour, takes in leads, sends them to advertisers, pulls statuses back. And there’s absolutely no point in handing a network a big cut of turnover for the same thing: the more you pour, the more you give away, while here the sum is fixed. For anyone pouring seriously, that $250 pays for itself literally on the first payouts.
And besides, as we figured out in the article “You Don’t Open an Affiliate Network — You Grow One”, what anyone can do has no value. A middleman is exactly that case.
Are You a Rate Negotiator?
You might think the main job of an affiliate network is to squeeze bumped-up rates out of advertisers for webmasters. After all, it’s the network that can gauge how much traffic a webmaster pours, show those numbers to the advertiser and negotiate a higher payout. Yes, but there’s a catch: media buying teams can agree on exactly the same thing with the advertiser directly. Exactly the way your manager does it: first with one, then with the other. A completely useless link. Though, admittedly, a rather pleasant one.
Are You Support?
Or maybe the main thing is people? Then the most important figure in a network is the affiliate manager: he works with a web or a team, helps with integrations and setup, and generally supports them every way he can — emotionally included. Here you’re partly right, and this really is a very important thing. Without support, nobody needs you at all: it’s a critical part of an affiliate network. Your affiliate managers are the face of the network, and webs judge you not by a pretty website but by how fast and to the point they got an answer. Who else you need on the team, I laid out separately.
And yes, it matters. But again — not the main thing.
Are You a Lead Dispatcher?
Finally, you might think the main role of an affiliate network is to distribute leads properly among advertisers. A stream of leads comes in from a web, and the network’s job is to send it to the right advertiser: sort out call center schedules, caps, and spread it all around. You’re partly right, and in some verticals this is very, very important. For example, in investments, crypto and forex. Advertisers there are very closed-off guys, with the strictest restrictions on geo, on lead volume, on call center working hours. And many networks take on a monstrously hard task: spreading the traffic that came from a webmaster across a whole pile of advertisers (sometimes thousands of tiny ones!) to squeeze out the maximum payoff.
The task really is important. Sometimes downright critical. But again — not the main thing.
You’re the Guarantor!
So: catalog, interface, rates, support, lead distribution — each has a grain of truth, some are even critical, but none of them is the main thing. So what do you actually get paid for? If a web can find an offer himself, negotiate a rate himself and put together his own middleman for $250 — why does he need you?
Because a direct advertiser can stiff him. And with you, that must not happen.
The way we see it, an affiliate network is first and foremost a guarantor: a service that guarantees the money paid by the advertiser reaches the webmaster, and in any disputed situation pays out all compensation out of its own pocket. Essentially, you’re an insurance company. Just skimming a commission for nothing would be weird, but for insurance — that’s perfectly fine.
The guarantor’s job is to make sure both sides stick to the terms: both the advertiser and the webmaster. So that everyone plays the same game — making money. The advertiser doesn’t try to cheat the webmaster and shave him. The webmaster doesn’t try to cheat the advertiser and pour fraud on him. And if a dispute does come up and it’s unclear who’s right and who’s to blame — the network pays. The advertiser refuses to pay the web for some reason, and that reason can’t be proven? The network takes those payouts on itself and doesn’t stiff the webmaster.
A caveat, so you don’t get me wrong: a guarantor isn’t a charity. Proved fraud — cut it. Couldn’t prove it — pay. Where the line runs, I covered in detail in the article on public negativity: for instance, without ironclad evidence you can’t cut more than 10% of traffic.
That’s why the network keeps the maximum of information on its side: it checks sources, checks webmaster data — and under no circumstances hands it over to the advertiser directly. It’s a kind of arbiter and buffer. And that is the main job of an affiliate network: if something goes wrong, nobody should end up out of pocket, neither the webmaster nor the advertiser. That’s exactly what the commission should go toward. That’s its main role.
By the way, in the gambling review I already wrote that without a payout guarantee an affiliate network’s value is purely decorative, and it has no right to take a commission above 2%. Even though networks usually set themselves a margin of around 30%. The difference between two and thirty percent is exactly the fee for being the guarantor.
Yes, it’s very unpleasant. Yes, it takes away your chance to just rake in the dough on the stream of leads flowing through you. But that’s the whole point. Not that you’ve got a booth with pretty girls at conferences. Not that you’ve got a whole ton of advertising. And not that you, if you please, found a pack of advertisers and hand out offers. You are first and foremost a guarantor.
And it makes no difference at all where your network grew from: a media buying team, one or several direct advertisers or, by some miracle, a reseller hustle — we covered all three ways in the article on growing affiliate networks. What matters is where you’re heading. And you’re always heading in one direction only: toward being a guarantor.
A Guarantee Costs Money
The guarantor role is one of the main reasons any affiliate network needs capital: compensations can get pretty hefty. Commission is a percentage of turnover, while an advertiser stiffing you is his entire debt at once, and one such stiffing eats up weeks’ worth of commission, if not months’. That’s why any affiliate network should have at least some kind of fund at the start. How to reduce these risks — with contracts, prepayment, a test cap — is covered in that same article on public negativity.
How Affiliate Networks Die
And by the way, that’s exactly why the main cause of death for affiliate networks is a cash gap. The advertiser doesn’t pay up, the webmaster still has to be paid — and there it is, a teeny little gap. Quite small at first. But for some reason nobody’s in a hurry to patch it with commissions: the commissions still get blown on huge payouts to top managers. Or on promotion — flashy promos, car giveaways and all that jazz.
I know what I’m talking about: in 2014 a cash gap killed my own network, WMsale. On top of it came big webmasters leaving, a ton of fraud, and loans we used to try to plug the holes. I then spent three years paying off the debts. I already told that story in the estimate in style, and listed other ways to die in the article “Your Affiliate Network Belongs in the Graveyard!”.
The main job of the commission is to be an insurance buffer. Not a bonus for the top brass and not a prize in a giveaway, but precisely a buffer. If your network shows even a hint of a cash gap, that’s a reason to sound the alarm. Purely in financial terms, an affiliate network’s balance must not go negative. It has to stay positive, even if you lose a bit of growth because of it. And pushing it into the red for the sake of growth speed and promotion is something you must never, ever do: you should always be in the black. That’s the only way to protect yourself from big trouble and build your antifragility.
A simple check: if your biggest advertiser stops paying tomorrow, what will you use to cover your debt to the webs? No answer — then you’re not a sexy guarantor yet, you’re a sucker and a debtor.
Conclusion
So, what does an affiliate network really sell? Not an offer catalog — the WatchCat will put that together. Not an interface and not a middleman — we’ll launch those for $250. Not rates — a deal with the advertiser can be struck without you. And not even support and lead distribution: they matter, sometimes they’re critical, but that’s not what you get paid for.
An affiliate network sells a guarantee: whatever happens, neither the webmaster nor the advertiser ends up out of pocket. And if somebody does have to end up out of pocket — it’s you. That’s exactly what you get paid your commission for.
So when someone asks what your network does, don’t start in on the catalog and the pretty dashboard. Answer short and skip the poetry:
We guarantee the money will arrive.
The tech side — the engine, dashboards, stats, payouts, accounting — we’ve already built for you: AlterCPA Pro on your server or Cloud on ours. But becoming a guarantor is something you’ll have to do on your own.