Largely hidden commissions drive ‘explosive growth’ in affiliate marketing and Christmas gift guides

With less than a week until Christmas, the gift guides are out in force.

Influencers are peddling perfumes. News sites are pumping out lists of knick-knacks. Bloggers are merrily reviewing gadgets. ‘Tis the season of pervasive marketing.

Now, can you guess what commission these influencers and publishers get for the products they push?

1 per cent?

5 per cent?

It may be 20 per cent or higher.

The process by which an influencer or company earns a commission for marketing another person’s, or another company’s, products is “affiliate marketing”.

Beneath the Christmas commercial bustle lies the sophisticated machinery of affiliate marketing.

Commissions are negotiated, clicks tracked, products sold, revenue shared, and then it all starts over again.

This Christmas will be the biggest ever for affiliate marketing as converging trends drive “explosive growth”, according to those in the industry who spoke to the ABC.

Here’s how a form of marketing once known simply as “word of mouth” is taking over.

Why gift guides are everywhere this Christmas

Once upon a time, the department store catalogue was king. 

Then commerce moved online. Banner and pop-up ads partly took the place of that glossy colour printing.

But the new online ads were everywhere. People found them annoying, which made them less effective at selling things. 

“Essentially, people are becoming more and more sceptical of what they’re being advertised,” Laura Redman, owner of the Sydney-based marketing agency Redman Agency, says.

Affiliate marketing is partly a response to this need for trust, and partly the result of changes in the broader internet.

Through the 2010s, social media and the emergence of influencers combined with the development of massive online shopping platforms, such as Amazon. 

Shrinking ad revenues pushed news websites to publish gift guides, product reviews, unboxing videos, and the like.

New ways of tracking clicks allowed advertisers to measure word-of-mouth marketing’s sales impact.

Slower economic growth post-COVID meant tighter advertising budgets. Rather than paying for a marketing campaign that may deliver sales in the future, companies tried to save money by paying affiliates for sales they’d already made.

The same economic slowdown pushed consumers to research big purchase decisions through product reviews.

Company spending on affiliate marketing in Australia tripled or quadrupled over the past five years, Ms Redman estimates.

“It used to average 5–7 per cent, whereas now we’re seeing more like 15–20 per cent.”

Sam Morton is a senior director at Impact, a platform that accounts for over half of the affiliate marketing industry in Australia by revenue. This market share makes the platform’s metrics a good guide to the state of the broader industry.

The recent “Cyber Monday” retail event on December 2 saw 18 per cent growth in affiliate marketing advertising spend in Australia compared to Cyber Monday last year, Mr Morton says.

“Certainly over the past three to four years, since COVID and that shift to people consuming more content, buying more products online, we’re really seeing explosive growth.”

What size commissions do affiliates earn?

A cynic might point out that “affiliate marketing” is just plain old advertising by another name.

Instead of a company promoting a product, they’re paying a third party to do the same. It may look like an authentic endorsement, but that’s a sleight of hand. The reader, viewer or customer doesn’t see the commission get paid.

And these commissions can be hefty.

Companies pay commissions of 10–70 per cent, according to a survey conducted by the Influencer Marketing Hub for the 2023 State of Affiliate Marketing report.

Laura Redman gives slightly different estimates.

“For fashion and beauty, they tend to offer anywhere between 4–20 per cent.”

Electronics, which she says has “super-low margins”, offers commissions of 1–5 per cent. Luxury goods are about 2–8 per cent. 

Sam Morton says hotels might offer 5–10 per cent commission and airlines 1–2 per cent.

The recent Black Friday and Cyber Monday shopping days saw some brands temporarily bump up their commissions from 5 per cent to 15 per cent to incentivise sales.

“I think Temu was 60 per cent but Temu is an outlier,” Mr Morton says.

In summary, commissions can equal decent money.

The sale of a pair of $800 boots, for instance, might earn the brand’s affiliate $160.

This raises an obvious question: How much can you trust a review when the author is on commission?

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Do affiliates clearly disclose their commercial relationships?

Let’s call it the tension between earning trust and earning a dollar.

Affiliate marketing grew with a shift towards “trust, authenticity and community-driven purchasing decisions”, Mr Morton says.

And he says affiliates maintain that trust through “clear disclosure of affiliate relationships”.

Disclosure usually takes the form of the hashtag “#ad” in a social media post or an italicised line in a gift guide: We may receive advertising or affiliate commission if you buy through our links.

If an affiliate doesn’t do this, they can be fined millions of dollars for misleading or deceptive conduct.

The Australian Competition and Consumer Commission (ACCC) last year investigated 118 influencers dobbed in by the public and found most had posted misleading content.

This remains a problem, according to an ACCC spokesperson in a statement to the ABC.

“A number of influencers, brands and advertisers are taking advantage of consumers’ trust through hidden advertising and practices,” they say.

Most affiliates, however, do comply with these rules.

But that doesn’t necessarily mean they’re clearly disclosing their affiliate relationship.

Affiliates don’t have to disclose, for instance, what commission they receive for each product they endorse.

And this is where there’s potentially a breakdown of trust. Some affiliates will naturally promote products that offer higher commissions, Ms Redman says.

“When you’re an affiliate, you’ve got to make money at the end of the day.”

Casey, a part-time wine influencer, agrees.

She earns a few hundreds dollars per month on wine sales through her “Travelling Corkscrew” blog. 

And although she never endorses a product she doesn’t like, she suspects many other influencers aren’t so scrupulous.

“As soon as you bring money into anything, people change,” she says.

“Everyone is wanting to make money.”

What’s next?

On current trends, we appear to be heading towards a future where everyone is selling something.

More “micro-influencers”, or people with as few as 1,000 followers, are earning a buck through affiliate marketing to ease cost-of-living pressures, Ms Redman says.

This affiliate marketing space is also becoming easier to enter.

A content creator typically has to join an affiliate marketing platform and then jump through hoops to satisfy a brand that they fit its image.

Late last year, TikTok introduced an in-app shopping feature, TikTok Shop, that connects affiliates with brands.

“It’s becoming more and more streamlined,” Nikita Baklanov, a researcher at the influencer marketing platform HypeAuditor, says.

“The brand just says, ‘We’re on TikTok right now, here’s our product, post about us and you will earn money.'”

But even as affiliate marketing becomes more accessible for content creators, an emerging technology threatens to change the game again.

Mr Baklanov is concerned about the growing number of videos generated by artificial intelligence.

“I have seen a lot of ads selling user-generated content videos. They say: ‘Pay us $10 and we will make you five ‘user-generated’ videos generated with AI to promote your product.’

Can affiliate marketing stay “authentic” when genuine-looking guides and reviews are being automatically generated in a split-second response to the latest audience trends?

And what could take its place?

That remains to be seen.

Either way, next time you’re browsing a gift guide, think of that 20 per cent commission.

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