There are many things to consider when creating an affiliate marketing program. You need to consider your payout rates, optimize your program for conversion to reach the KPIs you set, ensure you have the necessary affiliate program agreement terms and marketing material in place, promote the affiliate program, and, of course, get affiliates that will promote your product(s) or service(s).
This guide will focus on one of these issues: clauses in your affiliate agreement.We will discuss eight critical clauses that you have to include in the affiliate agreement that will keep you out of trouble.
Let’s dive into this guide.
Why is an affiliate program agreement essential?
An affiliate agreement is a legally binding contract that establishes a legal bond between the brand and an affiliate. It is designed to protect the interests of both parties.
The seller (affiliate program owner) creates the agreement to protect its reputation from affiliate marketing wrongdoings.
Besides that, also they have to protect themselves from legal claims from affiliates or the legal authorities. Hence, the affiliate agreement will outline what practices are and are not acceptable.
From the affiliate side, the agreement provides a framework within which they know they can operate.
You will rarely need to invoke the clauses in an affiliate agreement. Most affiliates are hard-working and ethical business partners looking to generate a revenue stream while adding value to companies. However, it’s good practice to have these guidelines in place to safeguard your company in case a problem arises.
Think of an affiliate agreement as a two-way street: it contains clauses that protect both the seller’s and the affiliate’s interests. Let’s look at the affiliate agreement from both perspectives.
What the seller can expect from the affiliates
The most critical clauses in an affiliate marketing agreement cover what you can and can’t do when promoting a product.
Broad areas you can expect the brand to need a sign off on:
- Dos and don’ts of promoting: The content and phrases or keywords you can’t use to promote and sell the products or services. Hence, no false claims to try and sell the product, no running down the competition to upsell the brand, to name two.
- Affiliates the brand will not work with: This will include clauses to cover not having any harmful content on your site and the ones you link to. The seller will not work with any affiliate who would negatively impact its image or use fraud or unethical methods that endanger the company.
- Statutory compliances: Most brands will require compliance with FTC’s Endorsement Guidelines; hence, getting this done before you even approach a seller is a good idea.
- Copyright practices. Think about how the brand will and won’t allow you to use branded images and content.
- Return and Refund: The return and refund policy should clarify areas like the window for return from delivery date, the timeline for processing the return, and issuing the refund.
These are just a few of the clauses that most affiliate program owners will include in your contract. The company will also define the type of content you can use in your email outreach programs. Your affiliate contract is a document that spells out the rights and responsibilities of both parties.
What you can expect from the seller
The affiliate invests time and money in promoting the seller’s product and puts their credibility on the line with their audience every time they sell a product/service. The affiliate needs clarity on payment terms and in-stock guarantees from the brand to how much they will make and minimize any sales loss.
Clauses that most brands will include in your affiliate agreement:
- Remuneration Clause: What is your commission structure for the sales you make. Let’s say it’s 20%. Check the other brands in the industry to see how much they pay and the industry average. Some startups will pay a commission on every sale and a nominal payment for every click you drive to their website. Explore and codify all possibilities.
- Indemnification Clause: In legal terms, an indemnification clause protects either party from liability for harm caused by the actions of the other. For example, if the affiliate holds promotions that the brand did not approve, the brand is not liable for the affiliate’s activities.
- Dispute Resolution: What happens when there is a dispute between you, the affiliate, and the brand you represent? The dispute could be over an issue that is not specified in the contract. This clause defines how all parties concerned will resolve these disputes. This could range from mutual negotiation, forming a review committee to legal action and jurisdiction.
Before entering into a contract with a brand, make sure you perform your due diligence on the company. Do they work with other affiliates? If so, what is their reputation on affiliate marketing platforms like ShareASale or forums?
Look at Google reviews on their product and services. Just like a company looks for an ethical affiliate, you as that affiliate should also know that you’re working for a company that is ethical and makes products and services that customers like.
Your affiliate marketing agreement is a legal document in its own right. However, it should contain a separate section that covers legalities like the duration of the contract, termination clauses, regulations you have to comply with (such as FTC regulations), state or federal laws that govern your business relationship with the brand warranties, and limitation of liabilities.
The affiliate contract must specify that both parties are following all legal rules and government regulations. This liability cuts both ways. The affiliate has to offer transparency by mentioning that they get compensated for promoting a product. In turn, the company has to guarantee that the company will handle all warranty issues.
Let’s say an affiliate is promoting a CPaaS platform with a statement saying, “This is the best virtual communication platform in the market”. They must state that the company provides this content and that they will receive compensation for a sale.
Failure to disclose this information would amount to dishonesty and be in breach of FTC guidelines. In such cases, the liability falls on the brand.
The brand wants to protect itself from all IPR (intellectual property rights) claims. To this end, the brand will include legal clauses that specify the copyrights, patents, trademarks, and all private and sensitive information that the affiliate cannot use while promoting and selling the product.
A brand must ensure that the affiliates respect copyrighted content when promoting products or services. Any breach of copyright rules could lead to the brand facing expensive legal repercussions. This guideline applies to all businesses regardless of their size. Any corporation, no matter how big or small. There are well-documented cases of global giants like eBay or Google suing over affiliate marketing infringement claims.
Most affiliate marketers prefer to work with multiple affiliation programs, increasing their earnings from various sources. This brings into question the issue of exclusivity. Most brands that you sign up with will not want you to work with their direct competition.
Exclusivity comes down to who needs whom more. If you are starting in affiliate marketing and looking to establish a reputed brand, chances are the brand will want you to sign an exclusivity agreement. Irrespective of if you’re starting or an established affiliate, you always have the option to opt out of an agreement that requires exclusivity.
Market dynamics also drive exclusivity. It’s easier to get non-exclusive contracts in an industry with fragmented demand and multiple suppliers with no clear leader. However, if you’re representing a brand that controls most of the market, you may need to sign an exclusivity clause. I would suggest avoiding exclusive contracts as that would limit the potential for you.
From the affiliate’s perspective, they would want a legal binding on issues like returns and refunds. Without a clear-cut policy on returns and refunds with the brand, the affiliate could be out of pocket if their customers return a product and the brand refuses to accept the return.
Updating the agreement
All affiliate agreements should include an update clause that offers both parties the opportunity to renegotiate all contractual clauses from time to time. It is essential to build this flexibility into the contract and to communicate all changes to the agreement with your affiliate partners.
An annual review and update is the norm for affiliate contracts. You can automate this process on most affiliate platforms.
Discount and coupon usage
Everyone loves getting a break on prices when they buy something.
For affiliates, coupons and discounts are often the lifelines for conversions, and they tend to work best in highly competitive digital markets while selling products like beauty products or clothing.
Coupons have a direct impact on your conversion rates. For instance, according to Statista, in 2019, Consumers redeemed 31 billion digital coupons online worldwide. Coupons are also an enticement and purchase trigger to try out a new product or service.
Some tips to keep in mind about your coupons and discounts strategy:
- Design them around a simple graphic. You only have a short period to catch the viewer’s attention. Keep things simple.
- Add a positive description about the product or service, its benefits, and segue into the offer at the end.
- Ideally, your offer should take the customer to a landing page that offers focused messaging and a powerful call to action.
- Get users involved by requesting feedback and social shares. This step will give your offer added visibility, while the positive feedback will become personal recommendations and purchase triggers for the next user.
Coupons offer immediate value to potential customers while leading to a naturally higher conversion rate.
You can display a promo on a pop-up or a landing page. While many affiliates ask the customer to input the promo code manually, I avoid this approach. In the example above, clicking on the CTA will bring users to a product page that is prefilled with the coupon code. You may also post coupon codes on your Facebook or Instagram page to reach more people.
Affiliate marketing is just one of the sales channels used by the company to sell its products and services. The brand would also sell from its website or online, distribution network, and physical stores.
The company will want to ensure that the selling price for its products remains similar across all channels, as this prevents one channel from cannibalizing the sales of another channel. Hence, for instance, the brand will not want its affiliates to sell the product for less than what they are selling at the physical store or from their online store.
It will want to control the discounts and promotions across its sales channels to maintain a price equilibrium from a brand’s perspective. This means that any advertising you wish to run in your affiliate network will need to be approved by the brand.
As the affiliate, you will need to ensure that this promotional strategy fits your overall marketing strategy. You will also need to work out promotional activities with the brand around special occasions like Christmas and Black Friday, to name two. Affiliates will often run paid campaigns on platforms like Google Ads and Facebook to promote the product.
Affiliates business structure
As an affiliate marketer, you first need to define the structure of your business and the limited liability company (LLC). Let’s look at both business structures so that you can decide which suits your needs best.
7.1 Sole proprietorship
A sole proprietorship is an unincorporated business that one individual owns. The owner’s legal name can be the business’s name, or the business can have a different name with you as the sole proprietor.
PROs of Sole proprietorship:
- Simple structure, easy and inexpensive to register.
- Fewer government rules to comply with.
- Tax advantage, the company’s income, and your income are not taxed separately.
CONs of Sole proprietorship:
- Unlimited liability of the owner. As the owner, you will personally be liable for all debts of the company.
- Limitations on raising capital for growth and expansion.
If your affiliate marketing is a side business, and you don’t want to grow it beyond a point, then sole proprietorship may be suitable for you.
Limited liability company
A limited liability corporation, or an LLC, combines single point taxation like in a sole proprietorship while limiting the liability of its owners. If a corporation and a sole proprietorship had a baby, it would be an LLC. It combines the benefit of limited liability of a corporation with single-point taxation of a sole proprietorship.
PROs of LLC:
- Single point taxation
- Less paperwork and compliance compared to a corporate entity
- Limited liability
- Easier to raise capital for growth and expansion.
CONs of LLC:
- As an LLC, you can’t pay yourself wages.
- High renewal fees and publication costs.
- Some states have a capital value tax applied at a flat rate on LLCs.
If affiliate marketing will be your bread and butter and you want to continually grow your business, registering yourself as an LLC is a way to go.
Most companies will offer their affiliates incentives to achieve defined sales targets. These incentives are often in the form of bonus commissions. A simple example would be that your commission rate is 10% for up to $25,000 annual sales. Once you cross this target, the commission rate could be increased to say 15%.
Hence, the affiliates put in extra effort to meet the targets to start earning more.
It’s a win-win situation for both the company and the affiliate.
Brands can structure these bonus commissions in different ways:
- Fixed Amounts: The affiliate receives a fixed bonus commission once they achieve the defined target, or the commission structure gets revised under a percentage-based bonus commission.
- Period: The period defines the period over which the target is to be achieved. This can range from weekly, monthly, to annual.
- Bonus tiers: The commission bonus can also be structured as a tier. Let’s revert to our earlier example for a bit. The annual target is $25,000. If the affiliate achieved $35,000 in sales, The brand would pay the first $25K commission at 10%. For the next $10K, the rate can be 12%. However, if the affiliate achieves $60 K in sales, 10% on 25K, 12% on the next 25%, and 14% on the last 10K. The more the affiliate sells, the more they make.
This is something you will need to discuss with the company and then include in your affiliate program agreement.
Affiliate Program Agreement Templates
There are many affiliate program agreement templates online. Here is one example you can use, however, I recommend you get the help of a lawyer who will add all the necessary clauses regarding your case and/or your specific industry and legal jurisdiction.
An affiliate agreement is a must for all affiliates because it puts down in black and white all the terms and conditions of how you will work with the brand you represent. The eight clauses mentioned above are a good starting point while creating your affiliate agreement.
The agreement is a legally binding document that assigns roles and responsibilities to both the affiliate and the brand while protecting the interests of both parties.
If this is your first affiliate agreement, you may not get it perfect the first time. However, your agreement would be a starting point. You can always add clauses down the line with mutual acceptance of both parties.