UK businesses spent £814 million – over a billion US dollars – on affiliate marketing and lead generation activities in 2012, according to a new report from the Internet Advertising Bureau UK (IAB) conducted by PwC.

The report says that these activities generated £9 billion in sales and that consumers conducted around 100 million direct transactions. The research points to a need for businesses to ensure they have their online marketing organised.

The research showed that 5-6% of all UK e-commerce retail sales were driven by online performance marketing (OPM), where advertisers pay someone once when a defined action takes place, like making a purchase through affiliate marketing or submitting contract details to create leads, because of an advertisement.

Although this method is used frequently, by brands including USwitch, Compare the Market, Nectar and Quidco, the IAB says that it is still considered to be an insiders’ tool. Tim Elkington, Director of Research & Strategy at the Internet Advertising Bureau, says:

“Despite around 3,500 advertisers and 10,000 publishers engaging in Online Performance Marketing it still has the air of a ‘best-kept secret’. This is particularly surprising, considering each year it drives more than two online purchases for every UK adult and causes the equivalent of every UK person to fill out a form showing interest in a product – generating £11 of revenue for every £1 spent.”

Biggest spenders

The biggest spenders in OPM are in the financial sector with insurance and credit card advertisers taking the lead with 45% of expenditure. This is followed with 20% by clothing, accessories and electrical and computing advertisers. The top five are rounded out with telecoms and media, travel and leisure and gaming.

The amount spent on OPM is different in each sector. Although finance is the biggest spender overall, the IAB report says that this equates to around 2-10% of online marketing budgets whereas telecoms and media typically allocate 20-30% to this method.

The use of OPM appears to be growing according to this research. Between 2008 and 2012, OPM expenditure grew by 57%. Suppliers of OPM services and technology estimate that their revenue will grow by 25% this year.

The survey was based on 27 detailed submissions from 23 companies with two different submission forms. One based on affiliate marketing and the other on lead generation. Some companies provided information based on both. IAB says that the survey captures revenue from major players in the OPM market which represent thousands of websites.

Anna Bartz, Senior Manager at PwC, says that the current economic climate has seen businesses tightening their belts and seeking alternative methods for advertising. She notes:

“Economically challenging times have seen marketing budgets squeezed and greater evidence required of return on investment. As a result, we expect that the attractiveness of paying for advertising based on an extremely measurable and specific consumer action will see more advertisers using Online Performance Marketing as a key channel for driving sales.”

The rest of the report is available to IAB members on the company’s website. Though many Internet consumers will be aware that these methods for advertising are around us as we browse, it seems that we can expect more of a presence in the coming months.

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