Affiliate marketing, where you pay per click or per action for your ad to appear on another website or on a search engine results page is a hot form of marketing these days, but it is not without risk. Affiliate fraud, where your ad is clicked merely to generate a charge for the ad network, is a serious problem and something you need to watch out for if you decide to use this sort of advertising.

Who Commits Affiliate Fraud, and How?

Affiliates, networks, merchants and buyers have all been known to commit affiliate fraud. Fraud by affiliates is both automated and manual. When the payment model is pay per click, a program that clicks on your ad (called a Clickbot) is often used to generate hundreds or thousands of clicks. When the payment model is pay per sale, unscrupulous affiliates may use stolen or invalid credit cards to try to make purchases for the sole purpose of generating a commission for themselves for selling that product.

If you are an affiliate, advertising networks or merchants, if they have the account privileges, could raise the percentage they take before paying you commission and report fewer leads/sales without you knowing it. This usually happens when these companies are having hard times or are about to go out of business.

Some buyers will make purchases using stolen credit cards, fraudulent checks, illegal Paypal chargebacks and the like, or they will register with false identification information. The “purchases” they make will later turn into refunds and chargebacks, but by that time, the merchant has already paid the affiliate commission.

Sounds bad, but there are some things you can do to protect yourself.

Protecting Yourself Against Affiliate Fraud

To a great extent, the means of staying clear of a bad affiliate fraud situation boils down to two things: Keep your eyes open and don't put yourself at risk.

You can avoid putting yourself at risk by doing some research and only doing business with well established and reliable affiliate networks. The second thing you can do is to not use pay per click payments. Pay per action and pay per sale are both safer in that there is no payment unless someone does something on your site that is valuable to you, such as purchase something. This eliminates the issue of clickbots entirely and forces the criminal to ramp-up his efforts with stolen credit cards and such.

Here is where keeping your eyes open is important. Credit card fraud committed by shady affiliates trying to earn commissions is typically easy to spot. There will be few clicks and few orders. For example, if you see four clicks and a single fraudulent sale, it is quite probable that you are looking at affiliate fraud. A criminal is unlikely to cover himself by clicking your ad 40,000 times to make a couple of bad purchases.

Another metric you should keep a sharp eye on is your conversion percentages. These data will tell you a lot if you know how to read them. Conversions should not deviate too much from the average. If they are too high, it could indicate an affiliate using incentives, or it may be a clue that the affiliate is placing fraudulent orders. If the conversion rate is too low, that could be a sign that your ad has ended up in a “banner farm” or is buried within some desktop application.

You should be fully familiar with the your web logs, which will give you information on the activity that has taken place on your website. If you are in a pay per click situation, it will be your web log that will show you whether or not you are a victim of affiliate fraud. If your logs are showing a very high click rate, but the graphics on your home page are not even requested by the browser, that is a clear sign that the clickbot is being used. Any time you have a high click rate but little or no sales, that is a sign of fraud and you should follow it up with your affiliate network or with law enforcement.

Some vigilance and some research and you will be able to protect yourself from affiliate fraud.