An affiliate agreement or a referral agreement is a legal contract between two parties where one party (the affiliate) agrees to promote or market the products or services of the other party (the merchant) in exchange for a commission or another form of compensation. Affiliate agreements are common in online marketing, but businesses can apply them to other industries and contexts.
Whether you’re running an affiliate program or looking to form a new affiliate relationship, an affiliate agreement lays out the terms so both parties know their commitments.
What Is an Affiliate Agreement?
An affiliate agreement or a referral agreement forms a legally binding relationship between two parties (typically two businesses), where one party (the affiliate) receives compensation for promoting the other company’s products or services. A typical agreement is structured to provide compensation to the affiliate when a visitor clicks on the link to the company’s website.
The payment structure you choose will depend on the amounts to be paid by the company to the affiliate. Consider the following factors when deciding how to outline compensation in your referral agreement:
- Conversion rate of the company’s site
- Average number of sales
- Average profit margin
- Traffic to the affiliate’s site
- Percentage of users that are likely to click on the link to the company’s website
Who Is an Affiliate?
An affiliate is someone who is compensated for promoting the products and services of another company. Today, with so many people using the internet, an affiliate may have thousands or even millions of followers interested in what they have to say.
An affiliate can make money by promoting specific products and services. For example, one company may partner with an affiliate, asking that affiliate to promote the products and services of the company.
Then, the affiliate will be compensated if their followers purchase products and services from the company’s website. This allows the company to increase its sales while providing the affiliate with an opportunity to make money.
When to Use an Affiliate Agreement
Use an affiliate agreement to form a relationship whereby the affiliate receives compensation for specific actions that promote a company’s services, products, website, or app.
Whether you’re the affiliate or the company, an affiliate agreement should be used whenever forming an affiliate relationship. You can use the same referral agreement for all affiliates if you’re a company and have an affiliate program.
Benefits of Using an Affiliate Agreement:
- It lays out the expectations of each party.
- It sets out the payment and compensation terms.
- It lets you customize the terms to meet the needs of each party.
What to Include in an Affiliate Agreement
Here are some elements to include in your referral agreement:
You need to define the terms that will be used throughout the agreement. For example, you can define terms like “Promotional Content,” “End User,” and “Affiliate Website.”
These definitions are important because they allow people to avoid any potential misunderstandings when they read the rest of the agreement.
Affiliate Site and Content
You need to specify the website included in the affiliate program. This section may also determine the steps that need to be completed before an individual or a company will be accepted into the affiliate program.
This section should also cover the content included in the affiliate marketing program.
Compensation for Your Referred Traffic
The contract has to specify the exact compensation for any referred traffic from the affiliate. Generally, compensation is a percentage of the total sales generated from that traffic, but it could also be a flat fee per purchase.
The compensation might differ depending on the nature of the product purchased, and the compensation might scale up or down based on the size of the referred traffic.
Fulfillment and Customer Information
This section should specify which party is responsible for fulfilling all customer purchases. Generally, the affiliate is responsible for directing traffic to the company website, but the company is responsible for fulfilling any orders the visitors place.
Limited License Rights
This section should specify the affiliate’s rights about the products or services the affiliate is promoting. This section is crucial because it determines that the company retains rights to the products and services sold even if the affiliate promotes them on an external website.
The section should also specify how certain links promoting products and services will be used.
Representation and Warranties
Representations and warranties are any assertions or assurances the parties give to the agreement. This section should specify that the affiliate entering into this agreement is legally capable of understanding the contract and is allowed to agree.
The section should also determine that the affiliate is not to share any information they know is false.
A disclaimer includes information about liability issues specific to the content found on your website. It also warns users of any potential risks of using your site and specifies that the company will not be held responsible for any content on the website.
Limitation of Liability
This portion of the contract will specify that the company is not to be held liable for any damages or costs related to the loss of business opportunities or punitive damages.
This section should also specify a few examples where this limitation of liability might apply.
Term and Termination
The section will specify the length of the agreement. It may be specified in terms of years, or there might be a date on which this agreement expires. It may also specify whether either party (or both) can renew the agreement.
The section will also outline conditions under which the contract can be terminated without either party being found to be breached.
The section is important because it specifies that the affiliate is an independent contractor, not an employee. The section will release the company from providing employee benefits as the law dictates.
This section will specify what information related to products, services, the nature of the agreement, and the company will be held confidential. The affiliate may receive information about the company’s specific products and services that are not available to the public.
This section should require the affiliate to keep that information confidential.
This section compensates a party for harm or loss arising from the other party’s actions or failure to act. Indemnification shifts liability from one party to the indemnifying party.
Assignment and Succession
This section specifies that the affiliate cannot transfer this agreement to somebody else. If the affiliate wants to pass the agreement to another party, that party must enter into a contract with the company.
Choice of Law
This section specifies the laws of the state that will govern this agreement. If the affiliate is located in one state and the company is located in another, the company might want to draw up a contract to ensure its state’s laws preside over this agreement.
If there is a dispute between the two parties, this section will specify how to resolve it. If the matter has to go before the courts, this section should identify the court system responsible for hearing the arguments.
This section should also specify the preferred method if mediation or binding arbitration is involved.
This section specifies that the company can make changes or amend the contract and will notify the affiliate using a preferred method. This section will also determine how long the affiliate has to review the changes to the agreement before those changes become effective.
Affiliate Agreement Sample
Download our affiliate agreement template in PDF or Word format so you can establish an affiliate relationship:
Frequently Asked Questions
Is affiliate marketing legal?
Yes, affiliate marketing is legal if the affiliate complies with the conditions of the advertising platforms they use and the company for whom they’re advertising.
What is the purpose of an affiliate agreement?
The purpose of an affiliate agreement is to specify the obligations held by both parties entering into an affiliate relationship.
For example, an affiliate agreement should specify which products and services the affiliate will promote. It also establishes boundaries and guidelines for how those products and services can be promoted and discusses the commission model that compensates the affiliate accordingly.
Do I need an affiliate agreement?
You need an affiliate agreement because it specifies your rights and responsibilities. If you partner with an affiliate who will promote your products and services, the contract will specify your rights and responsibilities toward the affiliate.