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Two-Tier Programs
Amway built a retail empire using a multilevel marketing (MLM) business model. Friends and family would sign up to become Amway distributors, and in turn sign up their friends and family to be dealers, who would then sign up their friends and family, and so on. When an Amway product is sold, the dealer gets a commission and every distributor/dealer up the chain—or their uplinks—gets a piece of the sale. The Amway multilevel marketing model proved very successful and has been copied thousands of times by Amway wannabes.
In the pay-for-performance space, affiliate marketers have created a similar model called the two-tier program. With a two-tier program, you're setting up a virtual sales force that's similar to the real world—manufacturer (your company), sales manager (the master affiliate), and salesperson (second-tier affiliate). The master affiliate has an incentive to build his sales force (affiliates) and the sales force has the incentive to earn commissions and recruit other salespeople so they can become managers (master affiliates) and have other people work for them. The 2-Tier Affiliate Program Directory is dedicated exclusively to two-tier affiliate programs.
Affiliate marketing has the potential to be even more effective when the two-tier model is part of the program. Two-tier affiliate programs can grow an affiliate program very quickly because they reward the affiliates for signing up additional affiliates. Basically, affiliate sites can sign up affiliate sites under them. When these second-tier affiliates make a sale, not only do they earn a commission or fee, but they also earn one for the master affiliate.
Here's an example: Let's say an affiliate joins a simple one-tier program. For every sale he makes, he gets a predetermined commission. So if your affiliate program pays a $20 commission on each sale an affiliate makes and he made 50 sales, his commission would be $1,000. Now let's say you offer a two-tier program, and the master affiliate has recruited 50 web sites under him to sell your product, and your program pays $10 commission for each sale made by a second-tier affiliate under the master affiliate. And let's say that the 50 second-tier web sites each make a sale. You would pay the same $1,000 to the master affiliate and an additional $10 commission per sale from each of his second-tier web sites. The master affiliate earns a total of $5,500—the $1,000 plus 50 x $10. You can see the power and motivation that the two-tier program offers affiliates.
The advantage to the master affiliate is clear. He can receive continuous revenue from his second-tier affiliates virtually without any continued work promoting that specific program. But there are disadvantages too. The first is obvious. The master affiliate can "rest on his laurels," so to speak, and let his second-tier affiliates do all the work. That's a detriment to your affiliate program because your master affiliates are not giving their all promoting your product or service on their sites. They tend to spend more energy signing up second-tier affiliates as a means to generate revenue. If the second-tier affiliates also think this way, your affiliate program will not be as effective.
While this drawback can harm your sales, another can harm your company's reputation. Two-tier programs can cause you to lose control of your affiliate program. Unscrupulous affiliates may use email spam in an attempt to build the tier below them. These affiliates will send emails to thousands of sites with no regard to their content, offering your product or service to sell if the recipients join your affiliate program under the master affiliate.
No one likes spam—especially Webmasters. If your affiliates attempt to build a second-tier program under them by using spam tactics, you run the great risk of harming your product or service and the reputation of your company. One solution to this problem is to personally approve or disapprove any second-tier affiliate that your affiliates sign up. This is an optimal but time-consuming approach to the problem.
Another drawback to a two-tier program is communicating with the second-tier affiliates. Because they didn't directly sign up through your program, you can't capture their email addresses. You need these to communicate and build a relationship with them.
Though a two-tier program can build your affiliate network quickly, the effort, time, and money that you spend dealing with the problems inherent in the system could be better spent rewarding existing affiliates.