An affiliate agreement forms a legally-binding relationship between two parties (typically, two businesses), where one party (the “affiliate”) receives compensation for promoting the other (the “Company”) to visitors of the affiliate’s website or app.
A typical affiliate agreement is structured to provide compensation to the affiliate in one – or both – of the following ways:
- When a visitor purchases goods on the company’s website
- When a visitor clicks on the link to the company’s website (called “pay per click” or “PPC”)
The payment structure you choose will depend on the amounts to be paid by the company to the affiliate. Consider the following factors when deciding how to outline compensation in your affiliate agreement:
- The conversion rate of the company’s site
- The average number of sales
- Average profit margin
- Traffic to the affiliate’s site
- Percentage of users that are likely to click on the link to the company’s website
There are no hard and fast rules when it comes to drafting an affiliate agreement. Therefore, it’s important to run the numbers and make a deal that is beneficial and sustainable for both parties.