One of the hardest choices you’ll make marketing online is choosing a payment processor and affiliate program. To help ease the decision making process, I’ve created this lengthy article and fee chart that clearly explains the various benefits and drawbacks to each solution.

Let’s start things off with some numbers. Below you’ll find a chart representing the amount of network fees and revenue for various product price points. The chart below is based on 100 sales of each pricing unit.

Paypal vs. Clickbank vs. Merchant Account Fees

At first glance, it seems as if Paypal or Merchant Accounts are obvious choices. But there’s a lot more to take into consideration. So let’s dive deeper into the rabbit hole.

Clickbank: An Overview

Clickbank is making a healthy living off vendors. Let’s look at some scenarios.

• If you manage to sell 100 copies of a $17 ebook with Clickbank you’ll lose $148 in revenue compared to Paypal.
• If you manage to sell 100 copies of a $47 ecourse with Clickbank, you’ll lose $287 in revenue compared to Paypal.

But looking at the numbers alone isn’t fair. Why? Because Clickbank has certain advantages and disadvantages over the competition.

Clickbank: The Advantages

Here are several reasons why you might choose Clickbank as their affiliate network and give them the extra revenue.

• Trusted Network. Simply put, affiliates trust Clickbank and they know they will get paid on time. They’ll also pay vendors on time via check or ACH direct deposit. There’s a reason I put this one first.
• Large Affiliate Base: Clickbank claims they have 100,000 active affiliates ready and willing to promote. In reality, none of these affiliates will notice your product unless you personally hunt them down or manage to climb to the top of the “Gravity List” on CBEngine. So don’t believe the hype…simply placing a product on Clickbank will not magically create a sales explosion. But it’s very easy for an affiliate to jump in and start promoting your product or service.
• Customer Service: They handle all refunds for you. No need to login to an admin area and process them yourself.
• Paypal Protection: Have you heard those nightmare stories about Paypal shutting down accounts and limiting them? It simply doesn’t happen with Clickbank. Since Clickbank uses it’s own, massive Paypal account, your Paypal account is always kept safe. This is especially important to anyone that runs “events” or webinars. Paypal hates “events” and they tend to be the source of getting limited access warnings.
• Multiple Payment Options: Customer can pay via credit card or Paypal.
• Digital Products or Memberships: Clickbank will let you sell one-time products and memberships as well.
• Tracking IDs: Clickbank let’s affiliates track sales by allowing the addition of a TID to URL’s. Affiliates love this since they can track what sales channels were effective.
• Easy to Setup: Just pay $49 for a new vendor account (or $29 for additional vendors accounts), plug in a thank you page and some other simple details and wait for approval. Bam—you’re selling.
• One-Click Upsells: Once you’ve met their requirements, you can integrate One-Click Upsells into your sales funnel.
• Compatibility: Clickbank works with Amember, Wishlist Member, EDD, FastMember, DLGuard and many other solutions.
• Tax-Free Worries: They pay your affiliates directly so there aren’t any 1099 concerns. Tax time is ridiculously easy and pain-free.
• Lifestyle: I feel this is very important and it goes hand in hand with the Tax-free point above. Since Clickbank is paying you and your affiliates automatically, your lifestyle is allowed significant amounts of flexibility. For example, you don’t need to worry about logging in from your Miami vacation on a Friday afternoon in order to pay affiliates on time. It’s all on auto-pilot. If you get hospitalized for any reason, business continues to chug along. See where I’m going with this?
• Spam/Blacklist Protection: Since affiliates are using Clickbank-branded hoplinks, your site will never get blacklisted for spammy affiliate emails.

Clickbank: The Disadvantages

Here are several reasons why you might not choose Clickbank.

• Approval: Clickbank needs to approve all your products. If they don’t like it…you’re out of gas. Go find another network.
• 1 Tier Program: You can’t run a 2 tier program with Clickbank.
• Fixed Affiliate Commission Rate: Clickbank will let you sell up to 500 products on one account, but they all carry the same commission rate you set in your account preferences. So if you want to offer 75% on the frontend and 50% commissions on the backend…Clickbank can’t do it. Everything is the same rate. So forget about rewarding your best affiliates with a higher commission rate.
• Mystery Affiliates: Remember the 100,000 active affiliates? You won’t have a clue who they are unless you force them to subscribe to your Autoresponder to get Affiliate banners and tools. Clickbank hides their names and contact details. It’s like having an army of invisible leprechauns selling your product near a rainbow.
• Backlink Blackhole: Remember the spam protection I mentioned in the Advantages? Well, you’re also not benefiting from backlinks that can propel your site higher in the search engines.
• Trademarks: Don’t use any Trademarks in your product name or website or Clickbank might ask you to change them after you’re significantly branded. I learned this one the hard way after using the trademark “WordPress” in my product name. After 2 years of sales, I had to rebrand and start all over again. Never again.
• Affiliate Theft: In the Internet Marketing niche, the minute people see Clickbank, they’ll find your affiliate link and buy using their nickname. If you drove the traffic, you just lost money. If an affiliate referred the sale, they just lost money. It sucks and Clickbank doesn’t really care. Non-IM niches don’t present this problem.
• High Refund Rates: Since Clickbank will refund immediately for any reason, you can expect a high refund ratio. In the Internet Marketing niche, expect very high refund ratios. Again, Clickbank knows and doesn’t really care.
• Extra Hidden Fees: Duh…you’ve seen the numbers above. But you’re charged $2.50 every time you get paid. If your account goes dormant, they’ll hit you with fees until it reaches a zero balance. There are fees at every corner. Oh…and they hold a portion of your earnings in a reserve account. This reserve is always maintained and it gets released slowly over time. It’s used to cover refunds, chargebacks, etc. Read their Accounting page carefully.

Overall, Clickbank is a major network powerhouse, but you’re paying a price for the privilege of working with them.

Who Will Benefit Most from Clickbank?

• Vendors that don’t want to deal with 1099 tax issues at year’s end.
• Vendors that don’t need significant control over affiliates.
• Vendors in non-Internet Marketing niches.
• Vendors that are extremely “hands off” with their businesses and don’t mind paying the higher fees.

Paypal Instant Commission Programs: An Overview

Regarding fees, Paypal looks almost as attractive as owning your own Merchant Account. When you add an Instant Paypal Commission affiliate network, things get even nicer. With a Paypal Instant Commission Network set at 50%, you get paid the first full payment, then the affiliate gets paid the next full payment. Refunds are the responsibility of vendors and affiliates. You can easily run a Paypal Instant Commission network with Zaxaa.

Let’s look at the advantages and disadvantages of this setup.

Paypal Instant Commission Programs: The Advantages

Here are several reasons why you might choose Paypal.

• Paypal is Trusted. Simply put, customers trust Paypal. When I briefly tried processing with a Merchant account, many customers kept asking for Paypal. And yes, conversions suffered.
• Lower Fees: Paypal’s fees are on-par with owning your own Merchant Account. Zaxaa has a low per-transaction fee on top of Paypal’s.
• Multiple Payment Options: Customers can pay via credit card or their Paypal account balance.
• Digital Products or Memberships: Paypal will let you sell one-time products and memberships as well.
• Approval: Promote or sell anything. No one tells you what to do.
• Backlink Explosion: You’re benefiting from affiliate backlinks (with your domain) that can propel your site higher in the search engines.
• 2 Tier Programs: You can run a 2 tier affiliate program with Zaxaa. MLM is not allowed on Paypal’s network.
• Flexible Affiliate Commission Rates: You can offer 75% on the frontend and 50% commissions on the backend with no problems. Skies the limit, here.
• JV Partner Commission Rate: Give partners or special JV partners a different rate on different products. Reward your best affiliates with ease.
• In-Your-Face Affiliates: You’ll have each affiliate’s conversions rates, sales, names and emails. You have full control of the affiliate program.
• Easy to Setup: Everyone has a Paypal account, right? Also, Zaxaa is easy to setup. Some other scripts such as DLGUard can be more complicated to set up, but obviously offers more control.
• Tax-Free Worries: With Zaxaa, you won’t have to worry about 1099’s at tax time. These various scripts will pay you and your affiliates directly so there aren’t any 1099 concerns. Tax time is ridiculously easy and pain-free.
• Low Refund Rates: Most customers will never bother contacting you for a refund unless your product truly sucks. And in those cases, it’ll probably be Paypal contacting you via a dispute.
• No Affiliate Theft: Since you get paid on the first referral, commission theft is virtually eliminated.
• Lifestyle: You can experience the same hands-off affiliate/vendor payment lifestyle with Paypal.

Paypal Instant Commission Programs: The Disadvantages

Here are several reasons why you might not choose Paypal Instant Commission Programs.

• No Affiliate Base: You personally need to hunt down, recruit and motivate affiliates.
• You Are Not Trusted: Until they get that first instant commission, affiliates will be wary of promoting a small business.
• Administration: You handle your refunds…affiliates handle their refunds. You need to login to an admin area and process them yourself. So this can get manual.
• Paypal Limited Accounts: Paypal can shut you down or limit your account at any time for any reason.  This is especially important to anyone that runs “events” or webinars. Paypal hates “events” and they tend to trigger limited access warnings. By building your business on Paypal or Paypal Instant Commissions, you are essentially buying into the reality that your entire income can disappear overnight since none of the existing Instant Commission programs offer fallback protection for vendors. Affiliates will continue to get paid…but you won’t. This is very important to consider.
• One-Click Upsells: There aren’t any true One-Click Upsell solutions that work with Instant Commissions. For that, you’ll need an approved Clickbank account or your own Merchant account.
• No Spam/Blacklist Protection: Since affiliates are using your website’s affiliate links, your site can get blacklisted for spammy affiliate emails.
• Trademarks: No one can tell you to avoid Trademarks. You definitely should…but at least no one can tell you.

Overall, Paypal Instant Commission networks offer a lot of control…but also a lot of risk.

Who Will Benefit Most from Paypal Instant Commission Networks?

• Vendors that don’t want to deal with 1099 tax issues at year’s end.
• Vendors that need significant control over affiliates, sales and commission rates.
• Vendors in any niche including Internet Marketing.
• Vendors that are extremely “hands on” with their businesses.
• Vendors that aren’t scared of Paypal “limiting” their accounts.

In-House Affiliate Programs: An Overview

I’m throwing together two  ideas here. These include an In-House Affiliate Program that uses Paypal…and one that uses a merchant account. The only real difference here is merchant fees and trust (Paypal is very well trusted). Both function with similar design and contain the same pros and cons.

Let’s look at the advantages and disadvantages of this setup.

In-House Affiliate Programs: The Advantages

Here are several reasons why you might choose an in-house affiliate program.

• If You’re Using Paypal. Customers and affiliates trust Paypal. When I briefly tried processing with a Merchant account, many customers kept asking for Paypal. And yes, conversions suffered. It’s also easier to Mass-Pay affiliates using Paypal by uploading a CSV file.
• Lower Fees: The #1 reason for running an in-house affiliate program is lower fees. Paypal’s fees are on-par with owning your own Merchant Account until you get to higher transaction amounts. At that point, using a Merchant account excels in savings.
• Multiple Payment Options: Customers can pay via credit card or their Paypal account balance if you decide to use both.
• Digital Products or Memberships: Both will let you sell one-time products and memberships.
• Approval: Promote or sell anything. No one tells you what to do.
• Backlink Explosion: You’re benefiting from affiliate backlinks (with your domain) that can propel your site higher in the search engines.
• Multiple Tier Programs: You can run a 2 tier affiliate program with Paypal.  You can run an MLM program with a Merchant Account.
• Flexible Affiliate Commission Rates: You can offer 75% on the frontend and 50% commissions on the backend with no problems. Skies the limit, here.
• JV Partner Commission Rate: Give partners or special JV partners a different rate on different products. Reward your best affiliates with ease.
• In-Your-Face Affiliates: You’ll have each affiliate’s conversions rates, sales, names and emails. You have full control of the affiliate program, who gets paid and when.
• Low Refund Rates: Again, most customers will never bother contacting you for a refund unless your product truly sucks. And in those cases, it’ll probably be Paypal contacting you via a dispute or it’ll be the Chargeback department of the merchant processor.
• Clawbacks: If an affiliate referral gets refunded, you can “pull” the money from the affiliate’s next payout.
• Payment Fallback Protection: Paypal can shut you down or limit your account at any time for any reason.  This is especially important to anyone that runs “events” or webinars. Paypal hates “events” and they tend to trigger limited access warnings. If you run your own in-house program, you can switch processors and payout methods on-the-fly without fear of having operations or income impacted.
• No Affiliate Theft: Since you completely control the program, commission theft is virtually eliminated.
• Lifestyle: You can experience the same hands-off affiliate/vendor payment lifestyle with Paypal if you hire staff to handle the financial aspects of your business. Otherwise…

In-House Affiliate Programs: The Disadvantages

Here are several reasons why you might not choose Paypal Instant Commission Programs.

• No Affiliate Base: You personally need to hunt down, recruit and motivate affiliates.
• You Are Not Trusted: Until they get that first payment, affiliates will be wary of promoting a small business.
• Administration: You handle all your refunds but you can also clawback affiliates for refunded transactions. You need to login to an admin area and process them yourself. So this can get manual.
• One-Click Upsells: Go nuts. You can do One-Click Upsells with a Merchant Account only.
• No Spam/Blacklist Protection: Since affiliates are using your website’s affiliate links, your site can get blacklisted for spammy affiliate emails.
• Trademarks: No one can tell you to avoid Trademarks. You definitely should…but at least no one can tell you.
• Harder to Setup: You’ll be setting up Post Affiliate Pro, JRox or iDevAffiliate. So make sure you have extra money to pay the techies.
• Tax Drama: You are directly responsible for collecting W9 forms for any affiliate that earns more than $600 in a year, keeping them on file for 7 years and sending out 1099’s by Jan 31st of each year. Ouch….it hurt just writing that! As of this writing, not a single affiliate script does this for you. Only PayPeopleOnline does this for a fee.
• Lifestyle: If you don’t have staff to handle the administration, refunds and payouts, you’re in for some serious paperwork every pay period.

Overall, an In-House affiliate network offers` a lot of control…but also a lot of tax implications and administrative duties.

Who Will Benefit Most from an In-House Affiliate Program?

• Vendors that don’t mind dealing with constant W9 and 1099 tax issues at year’s end.
• Vendors that need significant control over affiliates, sales and commission rates.
• Vendors in any niche including Internet Marketing.
• Vendors that are extremely “hands on” with their businesses.
• Vendors that want “payment processor protection” in case a merchant account or Paypal shuts them down.

Final Words

There you have it. If you find something erroneous or inaccurate, please let me know in the comments below. Hopefully this will open your eyes to the world of affiliate programs and help you pick a proper solution for your online business.

Got questions? Post them below.