Profit Sharing
Profit sharing is another term for affiliate, associate, referral, or partner programs. Basically, a web site that sells goods online agrees to share their profits with other web sites that sends customers their way. When a visitor from one web site clicks on a link that takes them to the merchant site and then buys something, the merchant site pays a commission to the referring site.
*There are a variety of profit sharing plans online. Before signing up for one, make sure you understand when and how you'll get paid.
About Profit Sharing Plans
Most businesses pay for services like advertising in advance. They design an ad and pay a newspaper, magazine, billboard or web site to display it. The display must be paid for whether or not the ad brings in any customers. Profit sharing plans, on the other hand, reduce the up-front cost to advertisers. Web site owners sign up to display the ad but only make money when site visitors do whatever task is defined in the profit sharing agreement. The agreement might specify that payments will be made for click-throughs, registration (leads), or sales.
Profit Sharing Plans
There are a variety of profit sharing plans you can use as guidelines when you are setting up a profit sharing agreement. First, you¡¯ll need to decide whether you are going to pay for leads or sales. You'll also need to determine whether your profit sharing plan should include various tiers (paying different commissions to those who sell more for you).
You'll need to define minimum payment levels and how often you pay. There are also different methods of payment, which can be made by check, bank order, or through an online service like Pay Pal.
Make sure you have all of your ducks in a row when setting up a profit sharing agreement.
Getting Started in Profit Sharing
Profit sharing is available for all kinds of merchants, from sports cards to books.
Most affiliates get started by creating a web site about something they are passionate about, like a hobby they already have. They provide useful content, newsletters, and other services to their site visitors. Once they realize they can make money by referring their visitors to trusted merchants, they research the different profit sharing plans and select a merchant with a good profit sharing agreement. Then, they add links to products or services. Once they are making some income in one niche area, they often decide to branch out and repeat their success in a new market by creating a different web site.
Profit Sharing and Your Business Plan
Your business plan should include your profit sharing plans and profit sharing agreement. You should have targeted commission levels and plans on how to grow your affiliate base. It is also valuable to include a mission statement and a marketing plan.
Focus your efforts on those products that make you the highest profit. Once you've written your plan, don't just set it on a shelf. Pull it out once a year and review it. Are you on target with your goals? What needs adjusting? Have business expectations changed? Update the plan each year.
Profit Sharing: Two Tier Agreements
A two tier profit sharing agreement means that you make money not just from your own web site's affiliate marketing efforts, but also from anyone you sign up as a sub-affiliate.
Sub-affiliates are recruited by you and you receive a percentage of any sales they make on their web sites. Typically, the profit sharing plan will specify a larger percentage commission for first-level sales and a reduced commission for your "downstream" sub-affiliates.