Affiliate marketing

What it means

Affiliate marketing is a model in which a company pays not for ads being shown but for results. A partner places a link to the product on their website, blog or social channels and earns an agreed commission for every purchase or sign-up made through it. For an online shop it is a sales channel that costs money only once it brings in revenue.

A sale is attributed to the partner through a tracking link, usually carrying UTM parameters or a partner code, and through cookies the browser keeps for a set number of days. Who earns the commission when a customer came through several partners is decided by the programme terms, typically the last click before purchase.

Commission is a percentage of the price excluding VAT, a fixed amount per order, or a fee per lead. It only makes sense if the product margin can carry both the commission and returns, so the rate is set by what the company earns on a customer over the whole relationship, not on the first order.

How it works in practice

Programmes run either through the shop’s own system or through an affiliate network that connects hundreds of partners and settles commissions on the company’s behalf. The network charges its own fee and is often based in another EU state, so its invoice is a service received from the EU and the company accounts for the VAT itself under reverse charge.

Commissions paid are a tax-deductible expense as advertising costs, provided they are backed by an invoice or statement and a list of the orders they arose from. A partner who is a private individual without a trade licence taxes them personally; where the partner is foreign, we check whether tax has to be withheld from the payment.

For clients with online shops we set up the books so that commissions fall into the period they relate to, even when the network settles them late. At year end we therefore often book an accrual for December commissions that will only be invoiced in February.

What to watch out for

Commission is sometimes paid on orders the customer later returns. If the programme has no order confirmation period, the company pays for a sale that never actually happened. The terms should therefore provide for commission reversals on returns, and network statements should be reconciled with the books regularly.

Partner tracking relies on cookies, which may run only with the visitor’s consent. If consent is not set up properly, the shop breaches data protection rules and also loses some of the attribution, so the figures in web analytics and in the network statement no longer match.