Affiliate marketing is everywhere, from TikTok to the most niche message boards for garden gnome collectors or tandem-bicycling enthusiasts. In an affiliate marketing program, a third party, known as an affiliate, promotes a business’s products or services in exchange for a commission on the resulting sales.
You’ve probably seen affiliate programs at work on the social media pages of your favorite influencers, or tucked into podcast commercial breaks: “Use code ABC for 15% off your next purchase at Retailer X.”
Not only is affiliate marketing omnipresent, it’s also one of the fastest-growing revenue-sharing models out there. Economists estimate that a decent compound annual growth rate (CAGR) for any industry is between 5% and 12%. The CAGR for the affiliate marketing space is expected to grow at a rate of nearly 19% annually between now and 2032, cresting at an industry-wide value of nearly $40 billion.
Affiliate marketing’s explosion in demand is not free from growing pains, however. This is particularly true in the realm of compliance, where a novel body of regulatory requirements is evolving right alongside the nascent industry it’s meant to manage. Brands leveraging affiliate marketing—especially those new to the practice—must pay close attention to regulations to avoid penalties and brand tarnishment.
In the realm of compliance, a little expertise can go a long way. Todd Crawford is a veteran of the affiliate marketing space and cofounder of Impact.com, a partnership management platform that offers a SaaS suite of affiliate marketing tools that integrate with Shopify. Below, he offers his tips for navigating affiliate marketing rules and best practices with ease.
Table of contents
Why is compliance important for affiliate programs?
- Protecting your brand
- Protecting you from risk
- Protecting your bottom line
- Protecting your consumers
There are four big reasons why affiliate marketing compliance is essential for companies at any stage:
1. Protecting your brand
When it comes to leveraging affiliate marketing compliance to protect your brand, the asset at issue is your brand’s reputation. In effect, compliance policies are meant to ensure your brand does not suffer because of preventable misconduct by one or more affiliates.
Todd says one type of affiliate fraud involves running up sales with stolen credit cards and then canceling them. When fraud victims review their credit card statements, they see unauthorized transactions coming from the affiliated companies. In addition to dragging a brand’s name into whatever criminal or civil investigation might result, these unfortunate situations can also lead to bad public-facing reviews on websites like Yelp and the Better Business Bureau, which can be difficult to rectify or remove.
2. Protecting you from risk
Unethical or illegal marketing tactics used by unscrupulous affiliates can come back to haunt your brand’s reputation in ways more damaging than a bad review. They can lead to direct regulatory review and lawsuits. Even where a company is entirely ignorant of a fraudulent marketer’s tactics and is proven innocent in the public record, guilt by association can wreak havoc on brand goodwill for years. All it takes is for a lawsuit filing to appear on the first page of your brand’s Google search results.
The best defense here is a good offense: Having thorough compliance policies documented and regularly enforced can show regulators—and potential customers—that your business has done all the due diligence possible to prevent unethical or illegal affiliate marketing practices.
3. Protecting your bottom line
Having compliance policies in place is only half of the battle. It’s equally important to regularly monitor your affiliate marketing programs for indicators of fraud or other misconduct that could have an impact on profits. “You want to periodically review for anomalous behavior,” Todd says. “Higher return rates, maybe an unusual conversion rate—either super low or super high.”
He warns against letting your program run on autopilot with no ongoing monitoring plan in place. If, for example, an affiliate is artificially boosting their sales by making purchases themselves or through intermediaries and then returning the goods, a well-monitored affiliate marketing program would reverse the commissions on those returns.
“Some people don’t have enough resources on their affiliate programs,” Todd explains. “So if reversals stop, and if this went on for a year for an affiliate channel that’s, say, 20% of your revenues, and you have a 5% reversal rate, you could end up inflating your costs by 25%.”
4. Protecting your customers
Perhaps above all, it is important to maintain compliance in affiliate marketing, because doing so promotes consumer protection. There are a variety of consumer-targeting, unethical, and sometimes illegal practices that can leak into affiliate marketing programs, even when run by otherwise law-abiding businesses that place a premium on customer experience:
- Cookie stuffing. Also known as “cookie dropping,” this practice involves “stuffing” or placing affiliate tracking cookies into a browser or device without the user’s consent. The cookies track users’ online activity and attribute sales to the affiliate, even if they didn’t play a role in the transaction.
- URL hijacking. URL hijacking involves the redirecting of traffic from one site to an affiliate’s site for referral or marketing purposes. It often takes the form of clickable advertisements that are made to look indistinguishable from the brand’s own in-house ads. Shoppers click the ads thinking they are going to the brand’s official website, when in fact they are being routed through an affiliate’s site. The affiliate then takes commission on any resulting sales without the customer’s knowledge or consent.
- False advertising and misleading endorsements. Affiliates may intentionally misrepresent a product’s functions, features, or capabilities, or obscure the fact that they have a financial incentive for promoting it.
Companies can face legal consequences for these activities, even in situations where the fraudulent affiliate marketing practices are committed by a third-party affiliate. For example, the Federal Trade Commission has taken action against both individuals who commit cookie stuffing and companies that facilitate it. Additionally, there have been a number of high-profile, multimillion-dollar false-advertising lawsuits in recent years where the false claims or misrepresentations at issue were made by an authorized affiliate.
How to ensure your affiliate marketing program is in compliance
- Create documentation
- Train your affiliates
- Regularly check affiliate marketing communications
- Organize and monitor sales metrics
- Enforce consequences for non-compliant affiliates
Now that you understand some of the risks that come with not having thorough affiliate marketing compliance policies on the books, you can explore what building such policies might look like. Todd suggests the following:
1. Create documentation
Every business leveraging affiliate marketing should create and implement in-depth brand guidelines to establish criteria for content quality and articulate compliance policies for affiliate marketing solicitations. The guide should prioritize rules that protect the brand and its customers from unethical or illegal activities, by, for example, dictating precise language for affiliate disclosures and explicitly closing loopholes around affiliates making commissioned purchases for themselves or directing others on their behalf.
It can also lay out rules that affirmatively benefit the business, such as limiting what branded keywords affiliates can pay to target on search engines. “If I’m a large brand, I might not even allow my affiliates to do that,” Todd says. “I may have an agency or someone in-house doing that, and I don’t want competition from my affiliates.”
2. Train your affiliates
Throwing a big guidebook at your affiliates isn’t always enough to ensure network compliance. When onboarding new affiliates, make sure they undergo some hands-on training around your most important compliance rules. At the very least, they should be required to attest that they’ve read and understood your style and compliance guide. An attestation like this can usually be incorporated into a written agreement, which can lay out terms and conditions of your affiliate marketing program in more detail.
3. Regularly check affiliate marketing communications
While some affiliate networks are too large to monitor regularly on an affiliate-by-affiliate basis, Todd stresses that manually sampling and running compliance checks on affiliate marketing materials is crucial. “Especially for the newer partners,” he says. “If you’ve got affiliates you’ve been working with for a long time, who you’ve built trust with, you can review those less frequently.”
4. Organize and monitor sales metrics
Your sales metrics are the canary in the coal mine. If unethical or illegal practices have infiltrated your affiliate marketing program, you’ll see it in the sales reporting first. That’s why it’s critical to regularly review key sales metrics, such as average order size, return rates, conversion rates, and referring URLs.
Effective monitoring is only possible if your sales data is well organized, however. “We offer the ability for brands to check for high order values and high conversion rates, and you can set up alerts if a conversion rate is above X or below Y,” Todd says of Impact.com’s software. “If the order size is above a certain dollar amount, it flags it. You can also create custom reports that pull just the data you want.”
While the need for intensive, regular sales-data monitoring can seem daunting at first, Todd says that once the initial organizational groundwork is laid, it becomes a fairly smooth process. Chances are you already have a common database that contains all the information you need. “Once you set up the processes and reports, you can look at them maybe once a week for an hour or two,” Todd says.
5. Enforce consequences for non-compliant affiliates
“Make sure you have outlined in your terms and conditions what’s acceptable and what’s not,” Todd says. That way, when an affiliate engages in non-compliant conduct, you can point back to documentation to support any disciplinary action that might be appropriate. “You should have consequences for affiliate non-compliance. One strike, you’re out. Three strikes, you’re out,” Todd says. “You want an even, methodical way of dealing with misconduct.”
Affiliate marketing compliance FAQ
What is affiliate compliance?
Affiliate compliance is a multivariable plan or set of policies that protect both the business and its customers from unethical, illegal, or deceptive affiliate marketing practices.
How does affiliate compliance protect a brand?
Affiliate compliance protects a brand by preventing fraud and other affiliate misconduct that can reflect poorly on a company’s reputation, harm its customers, or even subject it to legal action.
What tools can you use to help with affiliate program compliance?
You can use data reporting and partnership management tools, like those offered by Impact.com, to monitor sales for anomalous activity that could indicate fraud or other dishonest affiliate conduct.
