The Hidden Cost of Affiliate Fraud: How It Impacts Your Ecommerce Growth

Shoppers these days are seeking recommendations from people they trust. This has made affiliate marketing one of the best ways for ecommerce businesses to capture new customers who are likely to stick around and come back to shop from the brand.

However, having a successful affiliate marketing program does have one downside that is often overlooked— affiliate fraud. As your affiliate program grows, and if you don’t have the right measures in place, you’ll come across unverified affiliates who may use deceptive practices to earn commissions from your program without getting you any sales. 

In this blog, we’ll help you understand the different ways affiliate fraud may happen within your affiliate marketing program, the most common types of affiliate fraud, and what are the best practices for affiliate fraud prevention.  

What is affiliate fraud? 

Affiliate fraud is when scammers who are not a part of your affiliate network, use malicious tactics to exploit your company's affiliate marketing program to get unearned commissions. By generating fake traffic, fake clicks, leads, and sales, such affiliate fraudsters negatively impact the effectiveness of your affiliate program.

Affiliate fraud affects how your program functions, impacts honest affiliates within your program and their earnings, skews your data, and impacts your brand’s growth.

Here’s how affiliate fraud impacts your ecommerce business:

• Skews your data with fake clicks and leads.
• Distorts your customer information with fake customer data.
• Inflates marketing costs.
• Takes commissions away from honest affiliates who converted the shopper. 
• Negatively impacts affiliate relationships. 
• Increases mistrust among customers, if they ever learn about the fraud.
• Loss in revenue.

Common types of affiliate fraud

The kind of fraud that an affiliate program attracts depends on the kind of incentives they have in place. While the tactic that an affiliate uses to commit fraud may look different, it’s important to note that all kinds of affiliate fraud can have legal consequences.

Cookie stuffing

Cookie stuffing lets fraudulent affiliates place hidden or disguised links on the website. This link may look like a pop-up ad or a hidden code. When a shopper lands on the webpage, these cookies track their activity and attribute commissions to the fake affiliate marketer, even if the shopper didn’t purchase through the affiliate's link. 

Another way they leverage this tactic is by embedding cookies on the shopper's device after they've purchased through another affiliate's link, stealing commissions that another affiliate earned.

Click fraud (last-click hijacking)

Affiliates generate clicks on their tracking links without actually intending to purchase. This way, they inflate traffic patterns and numbers and gain commission. Some fraudulent affiliates use bots to stimulate these clicks to get larger payouts.

Fake leads or conversions 

Another common affiliate fraud is leveraging fake conversions to earn commissions. Affiliates generate fake leads through the use of bots, stolen information of individuals, or data points of individuals who aren't interested in your products or brand. 

The affiliate ends up earning a commission for the fake lead that it claimed to have converted when in reality, the brand gained no conversions but paid out anyway.

Ad stacking 

With ad stacking, affiliates place multiple ads over one another in a single ad placement. So, a single action from a shopper ends up being counted as multiple clicks, earning the affiliate commission for multiple conversions.

Brand bidding

Affiliates bid on your branded keyword within search engines in an attempt to push their affiliate links. So, when customers search for your brand, they are taken to the affiliate's links instead. When they make a purchase, the affiliate gets the credit at the cost of your brand’s marketing. 

Commission theft

Fraudulent affiliates steal commissions that another affiliate has earned by replacing the affiliate's ID with their own or by hijacking the URL of a shopper's browser session.

The hidden costs of affiliate fraud on ecommerce growth

While there are obvious and direct ways that affiliate fraudulent activities impact your business, you’d be surprised by the indirect damage that it has. 

Let's dive into the different ways that affiliate fraud can add up and harm your ecommerce store.

Lost revenue from invalid commissions

The biggest hit to your affiliate program is obvious. You lose out on revenue. These affiliate frauds are essentially stealing your profits. 

By not identifying and managing this fraud, your business will continue to pay for fake activity out of pocket, causing a huge revenue leak. 

Incorrect attribution of affiliate sales

Affiliate fraud often distorts how affiliate sales are allocated. There are a few ways this may happen. 

• It takes the commission away from honest affiliates who put in the work and attributes it to fraudulent affiliates who found loopholes in your program. The affiliate who rightly earned the commission would then be less likely to trust your brand. 
• It uses tactics like click fraud and fake leads to fabricate clicks and conversions that actually did not take place.
• It manipulates single sales to look like multiple ones to get larger commission payouts. 

Impact of fake referrals on customers 

Affiliate fraud doesn’t just impact the affiliates who actively promote your brand and refer new customers. It also affects the customers who make purchases based on recommendations from these influencers and creators that they trust. 

What if they find out that these affiliates who referred them weren't paid their due commissions because a fraudulent affiliate stole them? It automatically revokes any trust that the customer has for your brand, lowering your brand loyalty and reducing returning shoppers. 

Distorted affiliate data 

Affiliate fraud completely skews your data. Consequently, it becomes hard for you to conduct data analysis and accurately evaluate, as well as understand how well your affiliate program is performing.

If you aren't aware of fraudulent affiliate activity, you would trust your affiliate marketing data completely and make decisions based on it, wrongly allocate resources, waste your marketing budget, and set up strategies that may not yield results.

Time required for fraud management

Managing affiliate fraud is a time-consuming process. Identifying, investigating, removing, and preventing fraud requires constant monitoring. This takes your attention away from other important tasks you need to prioritize to run and grow your ecommerce business. 

Bonus ⛄: If you're running an affiliate marketing program and want to increase the results you're getting currently, we have created a massive 20-page guide on how to do that by gamifying your affiliate program. You can get it for free here, and start implementing the tactics right away! 

How to prevent affiliate fraud and protect your growth

The first step to managing affiliate fraud is prevention. With safety measures in place, you can make sure that fraudulent affiliates have no gaps or loopholes to get unauthorized access that they can use to exploit your affiliate marketing program. 

Safelinks is one of the best ways to do this. With Safelinks, each affiliate link generated is a unique, single-use discount code which expires once a customer uses it. It looks and functions like any other link. 

With it, browser extensions can't copy and recycle coupon codes and fraudulent affiliate partners can't claim commissions. Your affiliate attribution will be more accurate, eliminating coupon fraud.

For instance, Tumble, an innovative home products brand used to face regular leaks with their discount codes, causing revenue loss. The brand's customer support team had to manually monitor and report leaked codes, which ate into their time serving customers. 

Affiliate fraud detection and prevention was becoming the most time consuming task. To avoid this, Tumble chose Social Snowball to make its affiliate marketing program safer, and more streamlined, and pay commissions only to genuine affiliate partners.

Our Safelinks feature, which is a fraud detection tool, eliminated the manual effort of tracking leaked codes, removing any opportunities for affiliate fraud. 

With Social Snowball, Tumble saw a 22.86x ROI with a 4% growth in their total revenue.

Conclusion

Affiliate fraud is an inevitable part of a successful affiliate marketing program. But, with the right measures in place and regular monitoring, you can ensure that your affiliate program runs smoothly, stays fraud-free, and generates revenue for your eCommerce business. 

The right affiliate marketing app will ensure that your program is free of fraud. Social Snowball is a Shopify app that lets you set up and streamline your affiliate marketing strategy in one platform. The app lets you customize the program to fit your brand, track referrals effectively, and most importantly, keep your affiliate program safe from fraud. 

Schedule a demo today!

Frequently asked questions 

How does affiliate fraud work?

Affiliate fraud occurs when an affiliate manipulates how affiliate tracking and commission allocation are managed. These fraudulent affiliates may do this in several ways— click fraud, cookie stuffing, fake leads, brand bidding, commission theft, or even ad stacking.

How does affiliate marketing fraud occur?

Affiliate marketing fraud can occur in different ways:

• They place hidden codes or pop-ups that shoppers click on and cause the shopper’s purchases to be credited to the affiliate. 
• Affiliates use bots or manually generate fake clicks to earn commissions. 
• They create fake leads and conversions using made-up contact information or through bots. 
• Affiliates could also place multiple tracking ads that count as multiple clicks for a single action that a shopper may take which logs as multiple conversions. 
• Affiliate frauds use a competitor's trademarked brand name to drive traffic to an affiliate's website through ads. This is an illegal practice.
• Stealing commissions that another affiliate earned by replacing the affiliate's ID with their own or by URL hijacking a shopper’s browser session.

How to detect affiliate fraud in my program?

To identify and manage affiliate fraud in your affiliate marketing program, look into your data. Suspicious patterns like high click-to-sale ratio, duplicate leads, and disproportionate attribution of sales are easy ways to pinpoint fraudulent affiliates within your system.

Most importantly, you need to have measures in place that help you avoid affiliate fraud within your program. Here are 2 ways to avoid fraud in your affiliate program:

• Ensure that you have a thorough onboarding process that vets the affiliate that joins your program.

Tactics like Safelinks let you set up secure and unique links that track your affiliate referrals accurately.