Crash Course: What Are CPA Affiliate Networks?

Xoxo, everyone — it’s Reznik, and today we’re going to try to dig down to the very roots of CPA and traffic arbitrage.
When friends or relatives who have no clue what traffic arbitrage even is ask me, “So what is it you actually do?” – I just freeze up. After some garbled explanation, best case, they walk away convinced I sell dick cream online. That’s exactly why I decided to throw together this little article – something I can always point people to, to explain the basic concepts behind affiliate networks and everything that comes with them, quick and clear.

What Are Affiliate Networks?

At its core, an affiliate network is basically a complex advertising-and-trading marketplace. It’s where affiliates (advertising specialists) and advertisers of all kinds of goods, services, and offerings find each other. The main players in this whole business are: the advertiser, the affiliate, the buyer, and the affiliate network itself. Let’s take a slightly closer look at each one.

1. Advertiser (also the merchant, the company, sometimes shortened to just adv) – is the party that owns some kind of sellable resource. For example, a specific product, an interesting service, access to a paid platform, or any other resource with information value. The advertiser is ready to pay for a certain action that a buyer takes on their resource. Most often, that means buying a product, paying for a service, or signing up for a platform. For every such action, the advertiser offers either a fixed payout or a percentage of the deal’s value. The advertiser has some kind of ad creatives used to drive that action, and more often than not, those are websites or mobile apps.
2. Affiliate (also advertising specialist, arbitrageur, sometimes an entire arbitrage team, reseller, ad agency, or just aff for short) – is the party who knows how to work with ads and land the advertiser new orders. Exactly how the affiliate pulls this off is a mystery wrapped in darkness. One way or another, the affiliate generates traffic on the advertiser’s sites, and that traffic magically turns into orders. For every such order, the affiliate gets a payout from the advertiser.
3. Buyer (also, in most cases, a sucker and a degenerate) – is the source of money for everyone involved in the process. Thanks to their limited intelligence and their inability to use Google or AliExpress, the buyer falls for the affiliate’s ad, lands on the advertiser’s site, and places an order there. Thanks to an even more limited intelligence, some of these buyers even confirm and pay for that order. Why is it bad to be a buyer? I’ll get to that later.
4. Affiliate network (also just the network, or the aff network) – is a special service that organizes the interaction between the three previous players and gives them convenient tools to do their jobs. For example, the affiliate gets handy tools for analyzing stats, the advertiser gets a CRM for handling orders, and the buyer gets specialized sites with detailed information about the goods and services they’re buying. It lives off a cut of whatever the advertiser pays the affiliate.

What Is an Offer?

The central element of the network, the one everything revolves around, is the offer. At its core, an offer is a proposal the advertiser makes to the affiliate. Beyond all the fine print about how it works, an offer contains a number of very important elements:

1. Goals. These define exactly what the affiliate gets paid for. Most often, a goal is a confirmed or paid order, a sign-up on the advertiser’s platform, or a deposit into the advertiser’s platform. A single offer can carry one goal or several different ones. For every goal a buyer reaches, the affiliate earns a payout.
2. Payouts. The network’s cornerstone – this defines the amount the affiliate gets for a goal reached by a buyer they brought in. Payouts can vary depending on the goal itself, the buyer’s country, the buyer’s device (mobile or desktop), and where the buyer came from. The amount the advertiser pays and the amount the affiliate receives also differ. The network lives off that gap.
3. Sites (landing pages). Offers very often come with specific sites where the visitor can actually place their order. These are engineered within an inch of their life to hook the visitor and convince them that handing over their hard-earned cash is a matter of life and death. As a rule, they’re set up as a pair of two sites – a pre-lander and a landing page. The visitor first lands on the pre-lander, styled as a site full of reviews about the product, and then clicks through from there to the site dedicated to the product itself.

As a rule, offers fall into several types that work on fundamentally different principles:

1. Physical/e-commerce offers. No, that’s not your high school girlfriend – this is an offer tied to a real, physical living product that needs to be packed and shipped to the buyer. Considered the classic bread and butter of affiliate networks.
2. Info-product offers. Grade-A air trading: info-courses, training programs, seminars, franchises. People in the info-business are usually called info-gypsies, and the rest of the CPA crowd treats them with a bit of gentle irony.
3. Finance. This bucket covers not just Forex, exchanges, and options, but also casinos, gambling, betting, and similar offers where the product being sold is money itself.
4. Apps and games. One of the most varied categories in terms of payouts, since within apps the advertiser can offer payouts for some pretty unusual and interesting goals. Mostly made up of white offers.

Oh right, about offer colors …

What Colors Do Offers Come In?

Now it’s time to explain why, in most cases, the buyer is a sucker. In affiliate networks, it’s customary to split offers into three big categories: white, grey, and black. And as it happens, most offers are nowhere near as white as they’d like you to think.

1. White offers. The rarest and best category. This is mostly where you’ll find classic goods or services that aren’t out to con anyone out of their money. Think electronic and paper books, gadgets, small electronics and appliances, real estate. On the non-physical side, you’ll find various mobile and desktop apps, useful services and sites whose owners decided to go after new users. These offers come with fairly low payouts, rarely above 10% of the order value. Working with them is easy and pleasant.
2. Grey offers. Probably the most common category of goods and services out there. We all know them from that god-awful late-night “shop from your couch” TV advertising, and they’re basically cheap Chinese goods sold for ten times their real price. You can’t really call them white anymore, given the wildly inflated prices or the fake “copies” being sold. But you can’t call them black either, since they do actually deliver on what they promise. Casino and betting offers basically belong here too – nobody’s calling them white, and all their “blackness” really comes down to whether Lady Luck is smiling on you. Payouts on these offers sit at a medium level, usually around half the receipt total. Working with them leaves a bit of a stain on your soul.
3. Black offers. The most profitable, and also the most disgusting, category of affiliate network offers – built on plain old lies and preying on people’s basest desires and fears. The poster children here are dick and breast enlargement products, waist-slimming and weight-loss products, beard- and hair-growth products, pregnancy aids. The arsenal of magic keeps expanding with love and wealth amulets, red strings, magnetic fuel/water/gas “savers,” and energy-charged bracelets. All these offers share one thing in common – they’re absolute garbage. They have nothing to do with reality. Payouts on them can run as high as 90% of the product price. After working with offers like these, you’ll need to scrub your karma clean with a toilet brush.

In theory, there should be one more category – absolute black offers, which would cover drugs and psychoactive substances, weapons, and other criminally punishable stuff. But I’ve personally never run into anything like that. Maybe the affiliate marketing model just doesn’t apply to them.

What Is Traffic Arbitrage?

The word “arbitrage” usually makes us think of courts and legal disputes. But as it turns out, arbitrage is also a concept in economics. It comes down to a sequence of deals that generate profit. I’m not sure the classic “buy low, sell high” really covers it – the deals are supposed to be independent of each other.
Take our affiliate. There’s a reason they’re called an arbitrageur. The sequence of deals they run is dead simple. First, they sink their budget into advertising. There are oceans of methods and details here, way more than we can cover, so let’s just say they pay for an ad that leads to the advertiser’s site. The stream of visitors clicking through that ad is called traffic. The second deal in the chain is with the advertiser, who pays for every order the affiliate brings in. That’s what tops up the affiliate’s budget.
The financial goal of traffic arbitrage is to keep the ad budget smaller than the payout budget coming from the advertiser. That gap is what affiliates live on. And to make affiliates’ lives easier, the affiliate network hands them a powerful analytics tool. With it, the affiliate can analyze the conversion rate of their ads and pick out the best-performing ones.
An experienced arbitrageur builds and tests what’s known as combos for every offer. A combo is a specific combination of ad text and image paired with the right pre-lander and landing page. Stealing someone else’s winning combo is a shortcut to success, so people guard them jealously. Never ask an arbitrageur about their combos – it’s just not done.

What Is a Lead?

If we look at arbitrage from the advertiser’s side, we’ll find (SURPRISE!) leads there. And no, this has nothing to do with a girl named Leda, even if we’re talking about tit-cream shipments. A lead is a potential order that the advertiser works with. A buyer submits a request on a site, downloads an app, signs up for a service, or takes some other action – and a lead is born. Under the classic workflow, a lead has to be either confirmed or declined. Once a lead is confirmed, the affiliate gets their payout for it. If it’s declined, the lead goes straight in the trash, naturally. Leads can also go on hold – a state where a lead turns into a genuine Schrödinger’s lead – it’s sort of confirmed, and it can still be declined. This is usually used when a lead needs extra checking after it’s been approved.
A lead embodies that very “action” the CPA acronym is named after – Cost per Action. Depending on which action generates the lead, we can pick out the following payment models:

1. CPL: Cost per Lead. Under this model, you get paid for any valid lead. Validity is usually determined by whether the lead itself contains real data, isn’t a spam submission, and was created by an actual human. Sign-ups and app downloads, for instance, fall into this category. Payment is made for any lead – successful or not.
2. CPS: Cost per Sale. This model pays not just for a valid lead, but for one the buyer has actually confirmed – say, an online order with delivery. Under this model, the lead gets paid before the buyer actually pays for it. This is where the concept of the buyout rate comes in – the share of buyers who actually pay for their order once it arrives.
3. COD: Cash on Delivery. This is an evolution of the previous model, used exclusively for physical offers. Here, payment is made not for a confirmed order, but for one that’s been delivered and paid for by the buyer. This model is mostly applied to white physical offers. For grey and black offers, it comes with a much bigger payout.
4. CPC: Cost per Click. This model is fairly rare in affiliate networks specifically, and shows up far more often in ad networks. Payment is credited for every click-through the buyer makes to the advertiser’s site. In the smartest version of this model, the lead’s cost simply gets divided by the number of clicks, which folds it back into one of the models above.
5. CPA: Cost per Action. Essentially, this model brings all the previous ones together, but it’s also got a flavor of its own. For instance, only this catch-all category covers payment for some action inside a mobile app, hitting a level in a game, or topping up a deposit in a casino account.

Why Does the Advertiser Need the Lead?

Good question, actually. I’ve been asking myself that for years, and I’m still no closer to an answer. Watching advertisers from the outside, though, I did manage to draw a few conclusions. Feel free to read the following in David Attenborough’s voice.

When a lead lands with the advertiser of a physical offer, a flock of vultures – otherwise known as the advertiser’s call center staff – descends on it at once. The lead always gets snatched up by the most deserving of the available operators; see that positively deathly pale face, and how big a cactus is growing on their desk? It’s precisely the shade of that face and the size of that cactus that separate a seasoned operator from a rookie. Because otherwise, they’re all identical. Call center managers drill their operators hard, training them to push completely useless goods and services and lie about them without so much as a blush. Watching over the operators are senior operators, the pack leaders of the operator teams, sometimes also known as team leads. They keep an eye on the average receipt and push operators toward upsells and cross-sells.

Notice those two scary, mysterious words back there? An upsell (upsale, up) is an additional sale of more of the exact same product the order was for. For instance, the buyer doesn’t just get talked into one jar of miracle lotion – they get talked into a whole course of three. A cross-sell (cross-sale, cross) is also an add-on sale, but of some other, unrelated product instead of the main one. For instance, alongside those three jars of cream, they also sell an extremely useful little spoon for applying it. As a rule, upsells and cross-sells stay locked inside the advertiser’s dashboard and have zero effect on the affiliate’s payout.
A confirmed lead, the one the affiliate already got paid for, becomes an order the moment it’s confirmed. It goes through packing, shipping, and delivery to the buyer. During delivery, the advertiser always tracks every package, so they can call the buyer right on time and remind them that yes, they did order that garbage, and yes, they owe money for it. Based on how many of these orders actually get paid for by the buyer, you get the buyout rate – the single most important KPI for an advertiser. Because the buyout rate is exactly what decides whether the advertiser makes any money on the sale at all.

What’s the Affiliate Network’s Role?

In this whole circus, the lead role belongs to neither the affiliate, nor the advertiser, and definitely not the buyer. The single most important link in this chain is the affiliate network. Its job is to handle the technical side of the entire process:

1. The affiliate network acts as the guarantor of the deal between the affiliate and the advertiser. Every financial transaction runs through the network itself, and every lead gets recorded there. The network collects deposits from advertisers and uses them to pay out affiliates based on the leads they bring in.
2. The network equips the affiliate with traffic-analytics tools that let them attract visitors and generate leads for the advertiser as efficiently as possible. These tools let you analyze how well your ads are performing, run split tests, and figure out which combos actually work.
3. The network gives the advertiser a CRM for handling incoming leads. Well, at least if it’s a network built on AlterCPA. With this CRM, the advertiser can run their whole call center and warehouse operation.
4. The advertiser’s ad creatives live on the network’s infrastructure. In most cases, all of the advertiser’s sites get copied onto the affiliate network’s servers and tightly integrated with it. As a rule, the same offer is fulfilled by different advertisers in different countries, so the network also handles distributing traffic between them.
5. The network’s admins steal arbitrageurs’ combos and hand them off to their own in-house arbitrage team for a little extra profit. Whoops, did I just say that out loud? Come on, it’s an obvious fact! If you’ve got ready-made combos and boosted payouts sitting right there, you’d have to be a fool not to use them.

So Where Does the AlterCPA Team Fit In?

Having read through all this nonsense, you’re probably wondering: so what’s my role in all this, exactly? I don’t advertise dick cream, I don’t sell dick cream – I am dick cream! Me and the AlterCPA team handle the technical side of how affiliate networks actually run, plus all those tools affiliates and advertisers can’t live without. We wire up the connections between networks, prep ad creatives and sites, and do everything we can so our partners’ businesses don’t collapse overnight over some random technical glitch. We’re the invisible guardians of your peace of mind and the guarantors of your prosperity. Love us, appreciate us, and don’t forget to scratch us behind the ear!