What is Affiliate Marketing (and How to Do it Legally)

If you do business in the online space, chances are you have exposure to the concept of affiliate marketing.

That email in your inbox from the business guru you adore raves about a tool or app she swears that you HAVE to implement in your business.

Or the influencer you follow on Insta is always sharing about the CBD product she recommends.

Or your business coach reaches out and says she’ll offer you a free session or referral fee if you send a new client her way.

With the melding of technology and people’s trust in the recommendations they see online, affiliate marketing has become a widespread practice. And many business owners find that it’s a less expensive (and more effective) method of advertising.

Before I explain more, know that everything I chat about is legal education and information, not business, financial, or legal advice; it does not create an attorney-client relationship between us; and you should chat with an attorney in your area to make sure you’re taking the right steps for you and your business.

(And if you’re not sure where to start to make sure you’re getting your legal in place for your online business, snag An Online Entrepreneur’s Guide to Starting a Business.)

What is Affiliate Marketing?

Affiliate marketing is the promotion of a product, program, or service using a unique tracking link to earn a commission payment when someone makes a purchase using that link. Affiliate marketers typically advertise via email, blog posts, social media, and other online advertisements.

The Federal Trade Commission (FTC) plays a huge role in affiliate marketing – its goal it to protect consumers just like you from false and misleading advertising, including the recommendations you are bombarded with in the online space.

Let’s think about this practically. If you receive an email from the business guru you adore sharing a hyperlink to a tool she swears by to run her business, her recommendation will probably affect your decision to purchase that same tool. Because you know, like, and trust her.

But did she tell you in that email that she’s an affiliate for the tool and will receive a commission if you make a purchase using the link? That’s where the FTC comes in.

Affiliate Disclosure is Required

The FTC has indicated that if there is a material connection between an affiliate and an affiliate program that a consumer would not expect, it must be disclosed. The FTC considers a “material connection” to exist if you receive any:

• Payment,
• Free products and/or services,
• Sweepstakes entries, 
• Travel benefits, or
• Other benefits

from the use of your affiliate link.

The FTC believes that providing a disclosure will allow the consumer (aka you) to decide how much weight to give a recommendation before making a purchase.

How to Disclose That You’re an Affiliate

The FTC has also provided guidelines for how to properly disclose that you’re an affiliate.

Your disclosure should be communicated to the consumer PRIOR TO purchase. And you are required to make sure that your disclosure is “clear and conspicuous” from the perspective of a reasonable consumer. But what does that even mean?!

Practically speaking, your disclosure should be easily noticed and understood – a consumer shouldn’t have to hunt for it or grab a legal dictionary to understand what you’re saying.

Affiliate Disclosure Placement

The closer to the affiliate recommendation your disclosure is the better.

Your disclosure should be “above the fold” (so that someone reading your social media or blog post doesn’t have to click “read more” or scroll to see the disclosure). And if you’re promoting a link on video or in a podcast episode, you should verbally state your disclosure. Seriously.

And a pop-up disclosure on your website won’t cut it – because pop-up blocking software exists.

So now that you know where it should go, what should your disclosure say?

Affiliate Disclosure Language

Your disclosure doesn’t have to contain legalese or technical jargon, but it does have to communicate that:

• You are an affiliate;

and

• You will receive a commission payment if a purchase is made using your link.

Know that the FTC could fine you PER VIOLATION if you fail to disclose your affiliate relationship. It’s just not worth it (or ethical marketing) to try and hide the connection. You can read the FTC’s frequently answered questions here for more information.

If you are an affiliate for any product, program, or service, you should be sure to periodically read the program’s Terms and Conditions so that you know if you are required to use any specific language in your disclosure (and to understand the “rules of the road” so you don’t get in trouble with the affiliate program provider or the FTC).

If you have an affiliate program of your own, your Terms and Conditions for Affiliate Program should clearly outline your affiliates’ disclosure obligations.

What are Affiliate Terms and Conditions?

The Terms and Conditions for an Affiliate Program lay out the ground rules for participating in the program. If you plan to offer affiliate commissions for your products, programs, or services, you want to ensure that you have solid Terms and Conditions in place for your affiliates.

3 key provisions to include in your Terms and Conditions for Affiliate Program are:

1. Commission payment terms – you should outline the commission payments you intend to offer your affiliates, when you will pay out commissions, and how you will pay them out.
2. Affiliate Advertising – you should outline the advertising methods you will (and won’t) allow for your affiliates. For example, will you allow affiliates to self-refer (use their own links to earn commissions)? Are there any Search Engine Optimization tricks that you won’t allow?
3. Termination – you should outline the reasons that you may terminate an affiliate’s participation in your affiliate program, such as failure to abide by your Terms and Conditions.

Please note this is NOT an exhaustive list of provisions to include. And if you need Terms and Conditions for your Affiliate Program, you can snag an easy to use attorney drafted template here.

Be sure that you require your affiliates to agree to those terms BEFORE registering as an affiliate for your program (and keep records regarding their agreement).

So, there you have it – legal affiliate marketing basics for online businesses. Happy marketing!