Affiliate marketing is one of the most popular streams of income online for both affiliates and companies. You see it everywhere in social media posts, blogs, videos, emails, and even books.
Affiliate programs provide lots of benefits. Companies that offer one get to advertise their products or services through affiliates with minimal investment or risk. They only pay when there are sales. Affiliates get a relatively simple way to earn money for promoting products or services without having to spend lots of money upfront on store inventory.
So today, I talk all about affiliate marketing. I cover the common legal terms and conditions, commissions, and disclosures obligations in affiliate contracts from the perspective of those who run affiliate programs and those who serve as affiliates.
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In this episode:
[01:34] – What is affiliate marketing?
[02:34] – Danielle gives a great example of affiliate marketing in action and discusses the potential income affiliates can make.
[03:37] – A cash commission is the most common payment option but not the only one. What other incentives can affiliates receive?
[06:00] – Those who offer affiliate marketing programs should have terms and conditions. Danielle goes over each section.
[07:13] – What if you work with affiliates on a smaller scale and don’t use software for tracking purposes?
[08:08] – Danielle talks about affiliate obligations commonly included in program terms. These are the business’s basic expectations of the affiliate.
[09:50] – In affiliate agreements, companies usually outline obligations and reserved rights on their end, in addition to terms regarding the termination of the agreement.
[10:47] – How are affiliates paid? Danielle discusses common commission terms.
[12:23] – Most companies reserve the right to modify their terms and conditions without notifying affiliates and may put some program restrictions in place.
[13:32] – How does confidentiality play a part in being an affiliate?
[14:19] – Danielle focuses on the other big legal issue for affiliate marketing: disclosure.
[15:54] – Find out the next steps to take, whether you’re an affiliate or a business that offers an affiliate program.
Links & Resources:
- Businessese Affiliate Program
- Affiliate Terms and Conditions
- Referral Agreement
- Liss Legal
Welcome to the Simplifying Legal podcast, brought to you by Businessese. I’m your host, Danielle Liss.
Many years ago, someone told me I was the least lawyer-y lawyer she’d ever met because I helped make legal easier to understand. To this day, it’s one of the best compliments I’ve received in my professional life.
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Hey there, I’m Danielle. Welcome to episode 39 of Simplifying Legal for Small Business Owners. Today, I’m talking about affiliate marketing. I’ll cover this from the perspective of those who run affiliate programs for their own products and those who serve as affiliates.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and does not create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
What Is Affiliate Marketing?
Affiliate marketing allows a person or business to promote the products or services of another company. The person or business who is promoting is typically referred to as an affiliate.
When an affiliate refers a sale, the affiliate will receive an agreed upon form of compensation.
Benefits of Affiliate Marketing
As you can imagine, there are a lot of benefits to affiliate marketing for both the sellers and the affiliates.
For a seller, affiliate marketing gives you access to market your products and services to the affiliate’s audience with minimal investment or risk. As a seller, you’re only responsible for payment if there are sales.
For affiliates, this is often a relatively simple way to earn commissions for promoting products or services to your audience. For many bloggers and influencers or other types of online businesses, affiliate marketing gives you one more income stream as part of your overall monetization strategy. A great example of affiliate marketing in action is gift guides, which are often a staple in the blogging world.
Without naming any names, I want to talk about the potential income in affiliate marketing. In the past, there was a very popular online business program. Each year, a handful of prominent affiliates would essentially begin what felt like an intense competition with bonuses galore. It’s rumored that the top affiliates were earning multiple six-figures and up to seven figures in commissions each year during the launch. So, clearly, serving as an affiliate can be lucrative, as long as you have an audience who is willing to purchase the product.
Types of Affiliate Compensation
Most often, an affiliate will earn a cash commission, which may be a percentage of the sale. For example, at Businessese, we pay our affiliates 30% of all sales, so an affiliate will earn just under $75 for a $249 template.
Some companies may offer a flat fee commission. For example, each sale is a $50 commission, regardless of the total amount spent by the purchaser.
While cash is the most common, it’s certainly not the only option. Some companies may offer gift cards, free products or services, or other incentives. Some even offer points programs that can then be used to purchase additional products.
Some companies will vary their commission offers. I use Gusto as my payroll software and they often vary their affiliate commission. Some past offers that I’ve seen include: $100 Amazon gift card, $200 Amazon gift card, $500 Visa gift card.
How Is the Referral Tracked?
Now let’s focus on how affiliate programs track sales.
Most affiliate programs are tracked through the usage of a customized affiliate link that places a cookie on the potential buyer’s browser. If that potential buyer then makes a purchase, it tracks the sale as the affiliate’s referral based on the cookie.
Since this is meant to be a general overview, I’m not going to do an in-depth conversation about privacy and third-party cookies as they relate to affiliate marketing. However, this has been a big topic of conversation since Google announced that Chrome would remove support of third-party cookies in 2022. They later changed that date to late 2023 as they plan alternative options.
If you have any concerns about third-party cookies and privacy in affiliate marketing, you may want to explore what type of cookies are used in the programs that you work with. If your affiliate program uses first-party cookies, you wouldn’t be impacted by the removal of third-party cookies.
Others might use a dropdown box so the purchaser can select who referred them. And some even ask the purchaser to type in the name and then they manually assign the sales. This is typically not a great option for a high-volume program.
At Businessese, we use a mix of cookies and codes. All of our affiliates sign up and receive access to their affiliate links, which use first-party cookies. Some of our affiliates also have special discount codes that they use and these will automatically assign any commission for sales using the code to that affiliate.
There are many different ways to track, so it’s important to make sure it is clear to both the company and the marketer how the tracking is done.
Legal & Affiliate Marketing
Now, I want to shift and talk about some of the most important things on the legal side of affiliate marketing. I’ll start with Affiliate Program Terms and Conditions and then I’ll shift to talk about disclosure of the affiliate relationship.
Affiliate Program Terms and Conditions
Companies with affiliate marketing programs should have terms and conditions for their program. This is the contract between the company and the affiliate and it will contain a number of key terms.
If the company uses software to administer the affiliate program, it will likely display the affiliate terms at the time someone applies to become an affiliate. It’s usually displayed with a checkbox that says they have reviewed the terms prior to submitting an application. Kind of like when you make a purchase and you check the box to say you’ve read the purchase policies and terms and conditions.
Even if a company doesn’t use software to administer its affiliate program, it may still have an application process. This can be something as simple as a google form where the company collects contact information and payment details from the affiliates. There, the company can include the terms and conditions for the program.
Affiliate Program terms and conditions are extremely important, so don’t skip this step. If your company has an affiliate program and you need terms, we do have them in the Businessese store. I’ll include a link in the show notes.
If you are a business who works with affiliates on a smaller scale, you may not have software that tracks purchases.
For example, if you are a coach, you may have a small group of people who you pay a referral fee to if they send you a client. This is, at its core, an affiliate marketing relationship too. But, you may simply track this based on the information in the discovery call with the potential client. Then, if the client signs, you send the commission to the referrer. In this case, for a smaller program, if you don’t want to do fees, you should still have an individual agreement with the people referring you business.
At Businessese, we have a template for a referral agreement that you can use. It covers a lot of the same important terms as the affiliate terms and conditions, but it removes the software aspects and it’s a signed agreement, rather than terms and conditions where you check a box.
Next, I’ll review those important terms. What is it that you should include in either your terms and conditions or referral agreement?
First, there is typically a section that lists the affiliate’s obligations. This describes what the affiliate is obligated to do if they become an affiliate for the company. Consider these the basic expectations of what is expected from an affiliate.
First, this section may state that an affiliate isn’t allowed to include certain content on their site. Usually, this is things like obscene materials, anything defamatory, or hate speech. I’ve seen some terms that go into more detail, depending upon what the company’s goals are.
The affiliate obligations may also state that an affiliate is obligated to make changes to the site if the Company makes a request. This type of term is fine if it’s related to the affiliate relationship.
For example, if you’re an affiliate and the company reviews your site to see how you’ve referenced them, if they see that you have a factual error, they may then ask you to make a change to the content to ensure that the information is correct. This is a reasonable ask.
A tip for affiliates: Don’t give the company the ability to make broad changes to any of your content. Their rights should be limited to things that are related to the affiliate content.
This section may also include a requirement to follow FTC guidelines, which I’ll discuss shortly. It may also ask the affiliate to take responsibility for following intellectual property laws. This might say something like, an affiliate can’t infringe on someone else’s IP rights in the promotion of the company’s products.
Company’s Rights and Obligations
In this section of the terms, the company will typically outline its obligations and potentially reserve rights related to the relationship. Often, this section includes the Company’s reservation of rights to take certain actions, like the ability to ask the affiliate to make changes, etc.
Termination of the Relationship
This section will describe how to end the affiliate relationship. It’s important to note whether the parties are required to give one another any type of notice of the termination.
This is also where the terms will describe how the affiliate will be paid if there’s a termination. Most of the time, it will state that the affiliate will be paid for any commissions that are pending at the time of the termination. Usually, there will be exceptions if there was fraud or other prohibited activities on the part of the affiliate.
This section will outline how the affiliate qualifies for a commission. Usually, this will require the usage of a particular link that will add a cookie to the potential buyer’s browser, but, as I discussed before, there may be other ways of tracking, depending on the company.
In this section, if the company is using cookies, make sure you know how long the cookie lasts. Amazon is short (under 24 hours), but other companies may have a lifetime cookie or something that lasts for a month or more.
A tip for affiliates: Review this section carefully as it is the main area that will describe how the affiliate will earn commissions.
This section will usually list the commission an affiliate will be paid, like if it’s a flat fee or percentage of sale. This section will also determine how and when the affiliate will be paid. Most companies do not pay immediately. Typically, the company will wait for the expiration of any refund period, and the affiliate is paid after that.
It is also fairly common for a company to pay commissions monthly. For example, if you earn a commission in August, you will be paid by the end of September.
But this can also vary depending upon promotions. For example, with the Businessese affiliate program, I do two sales each year. And I advise the affiliates that payments will be expedited. Since there’s no refund period, we aim to pay 1-2 days after the sale ends.
Modification to the Terms
Most companies will reserve the right to modify the terms and conditions and it may not require notice to be provided of the changes to the affiliates. If you’re still an active affiliate, be sure to periodically check the terms to ensure you are aware of all changes.
Some companies will put program restrictions into place. Most commonly, this is a prohibition on PPC campaigns, fraudulent behavior, spam, or use of any software that might manipulate your commissions.
Many companies will provide access to some of their intellectual property for promotional purposes.
A tip for affiliates: Look for a section on intellectual property licenses to determine what you can and cannot do for promotion. This is often especially important when it comes to the brand’s logo or images.
Ultimately, it won’t be confidential that an affiliate is working with a company since the affiliate will be actively promoting the products or services to their audience. However, the company may periodically offer information to affiliates prior to sending it out to a general audience. In these cases, ensure that you are adhering to any restrictions and maintaining confidentiality.
Disclosure of the Affiliate Relationship
This wraps up the look at common terms, so let’s focus now on the other big legal issue for affiliate marketing, which is disclosure.
In the United States, the Federal Trade Commission, or FTC, protects consumers from deceptive marketing practices and requires disclosure of material relationships. This means that an affiliate must disclose the relationship to their audience because they are making the recommendation in order to receive a commission.
Usually, a short disclosure is all you need. Something like, “I am an affiliate for X. If you make a purchase, I will receive a commission.”
Whenever an affiliate is disclosing this type of relationship, it’s important that the disclosure uses clear language and that it is easily understood by your audience. It should be attached to the same content that is referring to the product or service.
In other words, it is not sufficient to have a general affiliate disclosure somewhere on your site; on the contrary, it needs to be listed on the particular post where you are promoting the affiliate relationship.
One of the most common questions that I get about disclosures is, is it okay if I say a post may have affiliate links and then link to my disclosure policy, which is on another page. The disclosure still needs to happen near the affiliate link.
A better disclosure would be: Affiliate links are included in this post where noted. If you make a purchase, we will receive a commission. If you’d like more information, please visit our disclosure policy. Then, the affiliate should disclose near the link. A parenthetical in front of the link should be sufficient.
This wraps up our overview of affiliate marketing. Now let’s talk about today’s action steps.
- If you host an affiliate program that uses tracking links, do you have terms for the program? If no, make sure you consider adding these. And, make sure you’re doing a periodic review of your terms to review for any necessary updates.
- If you have referral sources, which likely don’t use tracking links and may be a more limited program, do you have an agreement with them? Do you have a good way to track how these referrals are coming in? If not, consider what updates you need to make.
- If your business uses affiliates, do a periodic audit of the content to ensure that there is proper disclosure.
- If you act as an affiliate, have you reviewed the terms for the programs you participate in? Are you disclosing properly? If you have questions, talk to the business to ensure that you aren’t missing anything.
- Last, as always, if you have questions on affiliate marketing. This is a topic I encounter a lot with my legal clients and if you would like to learn more, you can check out Liss Legal. I’ll include a link in the show notes.
Businessese does offer an affiliate program and you can earn 30% of any referred sales. I’ll include a link in the show notes so you can apply.
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