Every Penny Counts: Stop Losing Money from Affiliate Marketing Fraud
Affiliate marketing has proven to be an effective and reliable way for businesses of all sizes and industries to increase their reach online. By partnering with social media influencers, merchants can get their foot in the door with those influencers’ audiences. However, affiliate marketing campaigns are often susceptible to ad fraud.
To understand affiliate ad fraud, it’s important to understand the state of affiliate marketing, what drives fraudsters, why affiliate programs are susceptible to fraud, and how such fraud can impact your business.
The State of Affiliate Marketing
Make no mistake—affiliate marketing is a multi-billion-dollar industry. In fact, estimates from Influencer Marketing Hub state that the “Affiliate Marketing Industry is set to grow to approximately $13 Billion in 2022 and $15.7 Billion by 2024.”
Meanwhile, a Fortune Business Insights press release notes that the global PPC software market size “was USD 12.58 billion in 2019 and is projected to reach 28.62 billion by 2027.” In other words, affiliate marketing now is as big as PPC advertising was just a few years ago. This shows just how important affiliate marketing has become as an advertising channel for businesses of all sizes.
Unfortunately, a market size of $13 billion means that there are 13 billion reasons for fraudsters to engage in affiliate ad fraud.
What Is Affiliate Fraud?
Affiliate marketing fraud is a type of ad fraud where fraudsters look to cheat merchants, buyers, or legitimate affiliates of money by using misleading or fraudulent activities. This earns the fraudster illegitimate commissions for creating impressions, clicks, leads, or even sales when they have actually done nothing to promote the merchant paying them.
Affiliate fraud works in several different ways. Some typical affiliate ad fraud scams include:
- Cookie Stuffing. This is when a fraudulent affiliate adds illicit cookies to a website visitor’s browser—often usurping the cookies planted by legitimate affiliates and without the visitor’s knowledge. This allows the fraudster to misattribute any actions taken by the visitor to themselves so they can claim any applicable commission.
- Bot Traffic for Impressions, Clicks, and Lead Gen. Some affiliates may try to skip the whole process of promoting a merchant’s goods and services by using bots to create fake traffic that they can claim credit for. These bots can do a variety of things to drum up revenue for the fraudster—such as repeatedly reloading pages to create impressions on ads, clicking on ads for PPC bot fraud, or automatically filling out lead gen forms as part of a lead gen fraud
- Human Fraud Farms for Clicks and Lead Generation. Some fraudsters may employ a human fraud farm (a group of real humans operating in sweatshop-like conditions) to click on ads or fill out lead generation forms. This type of affiliate fraud can be especially difficult to detect because there are real people behind the screen—allowing them to bypass many of the tests meant to detect bot activity.
- Transaction Fraud. Some fraudsters go the extra mile to try to claim credit for generating transactions that they can claim credit for. Using stolen credit card information, these fraudsters will complete transactions—only for the original cardholder to generate a dispute that causes a chargeback later. This type of fraud creates multiple victims: the cardholder who gets hit for large upfront monetary losses, the merchants who lose money on the transaction and chargeback fees, and the bank or card issuer who may be held liable for fraudulent charges.
- URL Hijacking Fraud. This is when a fraudster creates a fake website that closely aligns with a company’s real website or product page in an effort to redirect traffic from the fake page to the real website. When a visitor hits the fake page, a cookie gets stuffed into their browser and they get redirected to your website. This allows the fraudster to take credit for organic traffic that would have hit your website anyways. The fake page URLs often use minor variations of your real website URLs, such as what you might expect from a typo. For example, abvmetals.com vs abcmetals.com for a common typo where someone hits the “v” key instead of the “c” key on their keyboard.
Within these five broad categories of affiliate ad fraud, there is endless room for variation. Unscrupulous affiliates have proven incredibly creative over the years in creating new ways to scam businesses out of money while simultaneously hiding their efforts from view.
Why Are Affiliate Programs Susceptible to Fraud?
So, why are affiliate programs susceptible to fraud? Part of the problem is that, with many affiliate programs, the fraudster can hide behind the anonymity of the internet even while pretending to provide a comprehensive profile to any company that wants to vet them.
With a quick search on Facebook for headshots of real people (complete with matching names), a few minutes of time with a social media botnet to build up a fake following, and spending some cash on Fiverr or other platforms to generate some content for the profile, a fraudster can create a realistic-looking profile for an “up-and-coming” social media influencer who looks like the perfect fit for your business.
Without a personal, face-to-face interaction (or some extensive experience in identifying and tracking down social media bot fraud), it can be extremely difficult to verify that the person behind the affiliate program account profile is who they claim to be.
Additionally, some affiliate programs have a hard time keeping up with the sheer number of applicants they get. The larger the affiliate program is, the less time there is to individually verify each and every account in it. This can make it easier for fraudsters to sneak into the program.
Cost of Affiliate Fraud
Why is affiliate fraud such a bad thing for businesses? What makes affiliate fraud so harmful isn’t just the direct monetary costs of paying a fraudster for leads they didn’t actually create. No, the costs of affiliate ad fraud get so much worse than that.
Some of the impacts of affiliate fraud include:
Reduced Affiliate Marketing ROI
One of the primary issues of paying fraudsters is that it directly impacts the return on investment that you see from your marketing efforts. With affiliate fraud, the drop in marketing ROI can be especially bad since the fraudsters are often claiming credit for sales and other activity that you would have otherwise generated organically.
For example, say a fraudulent affiliate is using cookie stuffing and URL redirects to send traffic to your website that was already going to go there. You check the visitors’ cookies and see that the “affiliate” sent them to your site, so you pay the affiliate whatever your program’s commission fee would have been. However, because the traffic was already going to happen with or without the affiliate, you don’t see any noticeable increase in overall website visitors, leads, or new customers.
In a way, this can serve as a warning sign of affiliate fraud in and of itself. If you have X number of visitors each month like clockwork and add a new affiliate who claims credit for a significant number of visitors but doesn’t see any actual increase in website traffic, there’s a chance that the affiliate is simply claiming credit for visitors you were already going to get.
This makes your affiliate marketing program less effective per dollar spent than it should be.
Alienating Legitimate Marketing Affiliates
Potentially worse than the risk of reducing the ROI of your affiliate campaign is the risk that affiliate fraud can cause you to lose the trust of your other affiliates—to the point that hard-working affiliates withdraw from the program.
How and why does this happen? It’s often a side effect of fraudsters claiming credit for activity generated by legitimate affiliates using cookie stuffing techniques.
For example, say Affiliate A generates 100 leads for your website in a day. However, Affiliate B is a cookie-stuffing fraudster who manages to get 60 of Affiliate A’s leads to visit their website first using URL redirects or other scam tactics. Affiliate B then strips Affiliate A’s cookies from those visitors and replaces them with their own cookies. So, when the time comes to tally who gets credit for the visitors, Affiliate A is only paid for 40 of the 100 leads they generated.
Naturally, Affiliate A would be angry if they realized the discrepancy between the results they’re generating and what they’re getting paid. After a while, they may decide that the affiliate program isn’t worth the time and effort—withdrawing to look for other programs to join.
Over time, this will lead to a decrease in leads generated by the affiliate program as honest, hardworking affiliates abandon it. This, in turn, can further reduce the ROI of your affiliate marketing program since the honest affiliates leave while the scammers who aren’t contributing stay for the free money.
Wasted Sales Team Time on Fake Leads
One of the problems with affiliate fraud is that, if the affiliate feeds you bad leads, your sales team could waste a lot of time trying to reach out to people who were never interested in your product.
This can make each call your sales reps make less productive and take longer as they have to explain product benefits and features to people who have no idea who you are. Worse yet, these calls could be seen as a nuisance, leading to complaints and increased stress on the sales team.
Added stress from constantly fighting uphill battles to make sales quotas with bad leads can, in turn, contribute to attrition amongst the sales team—making it harder to keep good sales reps and driving up recruitment costs for new people to fill empty sales seats.
Negative PR from Lead Gen Fraud and Transaction Fraud
Some forms of affiliate fraud can actively hurt a company’s reputation. For example, lead generation fraud scams (where the affiliate uses bots or fraud farms to generate fake leads) often use stolen information from real consumers. When the company reaches out to the “lead,” they actually end up contacting a stranger who never opted to receive marketing communications.
This can lead to a TCPA violation, which then generates potential lawsuits and headlines in the news.
Media attention in this kind of situation can have numerous negative effects on a company. One such effect is that it makes it look like the company is willing to use stolen data to make sales—or at least isn’t careful enough to check the National Do Not Call (DNC) registry to see if the leads they’re getting are on it before reaching out.
Such negative PR can drive away potential customers and honest marketing affiliates alike since they may not want to be associated with a brand that has a bad reputation.
Direct Monetary Losses
The direct monetary losses caused by affiliate fraud can be hard to reliably estimate because of how much variability there is from one campaign to the next. Generally speaking, the more you spend on affiliate marketing, the more you stand to lose if fraudsters target you.
Another factor that can affect how much money you lose to affiliate fraud is how your affiliate program is set up. Some monetization models might be easier for fraudsters to monetize than others—attracting more fraud. Additionally, if an affiliate program doesn’t have a reliable way to identify and remove fraudulent affiliates, more fraudsters might slip through the cracks (and existing fraudsters might grow bolder over time).
Because of this variability, it’s incredibly difficult to say for certain how much fraud is in any one campaign without doing a detailed check. However, rates of 25% fraud to 40% (or more) aren’t unheard of. In other words, if you had an affiliate marketing budget of $100,000, anywhere from $25,000 to $40,000 of that amount being wasted on fraud wouldn’t be unusual.
Worse yet are the additional monetary costs. For example, if you use bad leads in your marketing and get hit with TCPA fines, that could be a cost of $500 to $1,500 per incident (plus any lawyer’s fees for potential representation in court). So, reaching out to just 100 contacts once could cost your company $50,000 to $150,000.
How to Fight Affiliate Fraud
So, what can you do to stop affiliate fraud before it begins? There are a few things you can do to prevent or limit the impacts of fraud in your affiliate program, such as:
Setting up a Fraud-Resistant Affiliate Program
As mentioned earlier, some affiliate programs are more susceptible to fraud than others. A large part of the reason why is how these programs are set up. For example, an affiliate program that pays based on impressions is often incredibly easy for fraudsters to take advantage of.
In fact, CPM (cost per mille) is considered a poor revenue model choice for affiliate programs in general. Fraudsters can use simple page-refreshing bots to generate fake impressions insanely fast—though a sudden large surge in impressions is itself a warning sign of fraud.
While models based on specific actions, like generating a sale or lead, aren’t immune to fraud, they’re at least somewhat harder to penetrate than a CPM revenue model.
Another consideration to make when setting up an affiliate program is the process for vetting potential affiliates. How do you check the identities of your affiliate marketing partners, verify that they have legitimate audiences, and then keep those affiliates honest moving forward? Is the solution for vetting and checking on affiliates scalable, or does it require a lot of personal time and effort from a member of your team?
Checking Affiliate Program Data Versus Overall Marketing Results
One way to check for fraud in your affiliate campaigns is to closely monitor affiliate program data and check that against your overall sales and marketing results. For example, if you notice that you have a small handful of affiliates that are claiming credit for generating a lot of traffic and leads, but the actual sales figures for your company remain stagnant, that could be a warning sign of fraud.
These affiliates may be using cookie stuffing or URL redirecting techniques to claim credit for visitors you would have gotten anyways.
Another warning sign of potential fraud is a mass exodus of honest affiliates from the program. When a legitimate affiliate keeps getting the credit for their work stolen by a fraudster, they aren’t likely to stay on the program for long. Instead, they’ll look for greener pastures—and they may warn others off of your program on their way out.
Using an Ad Fraud Solution
Technology has now led to more sophisticated software that can actively monitor and detect potential fraud in real-time. Ad fraud solutions such as Anura have developed software that can monitor your traffic to give you a comprehensive overview of everyone who interacts with your website. This data can help spot any suspicious activity, and also ensures that any ad campaign or affiliate marketing program you are running is working correctly. Many companies use fraud detection because they don’t have the resources or the technical skills within their company to manage this themselves.
Successful affiliate marketers can make a huge difference to your sales and help you to generate a lot of leads. However, affiliate programs can also be vulnerable to attack and misuse. By trying to prevent affiliate fraud, you can save a lot of time and money on false leads and wasted marketing budget that you can then use on honest affiliates. It also means you can prevent your company from paying for a sale that would have happened anyway.
Whilst there are pitfalls associated with affiliate marketing, the benefits of having a successful program far outweigh the negatives.