We all know affiliates have the potential to be highly beneficial to a software company’s bottom line. But affiliates can also be a big risk. If companies want to mitigate the risk from affiliates, they must be able to prevent and detect low quality traffic and affiliate fraud.
Now there are two ways to initiate a partnership with affiliates. One way involves an automatic sign-up process, which allows software companies to distribute many links to to its landing pages, in a short amount of time, to a variety of sites. Before discussing the second way, I want to talk about the dangers of the auto-approval process.
Software companies that allow individuals or companies to fill-out a form and receive links to their landing pages are vulnerable to affiliate fraud and low quality traffic. Both are costly and both are preventable.
The best way for affiliate managers to protect their affiliate channel from low quality traffic and affiliate fraud is to implement a pay-out threshold. For example, a threshold of $100 means the affiliate is required to earn $100 in commissions (not total sales) before receiving their first commission. By requiring affiliates to reach a certain threshold before they can earn their commission, software companies are encouraging their affiliate channels to provide high quality traffic, thus ensuring a win-win situation between the company and its affiliates.
Another way to prevent affiliate fraud and low quality traffic from auto-approved affiliates is to delay pay-outs for up to 90 days. This delay provides the time to properly monitor the sales and traffic from the affiliate channel, as well as factor refunds and chargebacks into the commission.
So how does one monitor traffic from affiliates? The following are different rates that software companies can measure to monitor low-quality traffic and affiliate fraud. Determining whether the given rate from an affiliate channel is good or bad depends upon comparing it with that same rate for sales directly from the company’s site.
Approval Rate – This measures paid orders over the amount of orders that were paid, refunded and/or chargebacked. For example, if an affiliate refers 100 orders that submit payment successfully, but 5% are ultimately refunded and 1% are charged-back, the approval rate for this affiliate is 94%.
The approval rate is a useful indicator of the overall health of your affiliate channel. A low approval rate might indicate low-quality traffic or even fraudulent orders from your affiliates. It may also indicate that you have a problem with your system. For example, an affiliate who is driving Brazilian traffic to your site, but your site is not localized for Brazilian Portuguese. In the end, it’s all about understanding the traffic profile.
Refund Rate – This measures paid orders over the amount of orders that were paid and/or refunded. There are many reasons customers seek refunds in the course of normal business. But an affiliate channel refund rate that spikes above other channels is worth investigating.
Chargeback Rate – This measures paid orders over the amount of orders that were paid and/or charged-back. A high chargeback rate from affiliate referred orders, relative to your other channels, may be a sign of affiliate fraud. And if it is not, it is a sign of poor referral ability on the part of your affiliate.
Bad Decline Code Rate – This measures the amount of orders that experienced a bad decline code. A bad decline code occurs when a system attempts to charge a credit card and the credit institution responds to the charge attempt with a notification that this card has been reported stolen, lost, etc. It is calculated by taking the amount of bad decline divided by total orders processed including those orders where the charge was not approved.
If an affiliate channel is the source of many bad decline code attempts, it’s important to investigate why that is happening.
The other way is that software companies approve affiliates is by vetting potential affiliates, which ensures that your affiliate channel is capable of providing high-quality referrals. There are, at the very least, three things to investigate while vetting an affiliate:
Visit the affiliate’s website – Make sure the layout is coherent and optimized for referring products. If it’s a review site, read the reviews and make sure they are informative and accurate. Click on other product links to see if the referral process is smooth and intuitive.
Search the affiliates URL on Whois.net – Software companies should check the name and address of the person who signed-up as an affiliate with the name under which the affiliate site is registered. Additionally, make sure the email address from the sign-up process is a business email and consistent with the registration information from the Whois search. It is also helpful to check how long the company has been in business. A company who has been around for more than a couple years is a good sign. If there is any discrepancy or red flags from the website visit or the Whois search, the sign-up process should have provided a phone number. Whoever is responsible for the affiliate channel should call and verify the legitimacy of the affiliate site.
Communicate Pay-Out Thresholds – It is a good idea have an introductory call with new affiliates. This type of communication is essential for establishing a relationship. Software companies should take this time to communicate their pay out requirements to the affiliate and clarify any difficulties.
Whether a software company auto-approves or vets an affiliate, certain checks and thresholds must be instituted to prevent affiliate fraud.