Disclaimer: The content of this article is provided for informational purposes only and shouldn’t be construed as legal advice. The information below doesn’t establish a professional relationship between Phonexa and the reader and should not be used as a substitute for professional consultation. We encourage you to seek qualified attorneys and financial advisors whenever you need assistance in legal matters.
Whether you’re a solopreneur, super affiliate, or advertiser, you need accurate accounting to manage three critical areas of your business: decision-making, financial health, and compliance. Often left with no attention, the right accounting algorithm can help track your financial performance and ensure that all inbound and outbound payments are made on time, with no delays.
Advanced accounting software for affiliate marketing, like Phonexa’s Books360, can automatically track all cash flows within your business – no penny slips unnoticed. With accounting and bookkeeping in check, you can be sure your business decisions are based on accurate numbers, not guesswork.
Take a product tour to explore Books360 for accounting and bookkeeping.
What Is Accounting for Affiliate Marketing?
Affiliate marketing accounting is no different from accounting in other business avenues. For the most part, publishers use it to track commissions and pay taxes, while advertisers – to track the effectiveness of their affiliate programs and validate payments.
No matter the niche – construction, HVAC, or even home improvement – accounting gives you actionable insights into your cash flows so you can turn your business in the right direction.
Benefits of Accounting for Affiliate Marketing
| Advertisers | Publishers |
| Calculate ROI based on profits, commissions, and network feesForecast scaling based on expensesBuild a fraud detection framework | Focus on the most profitable marketing channels and affiliate programs to maximize profitAnticipate payouts and cover expenses on timeStore accurate cash flow records to provide tax reports and prevent legal issues |
Accounting For Affiliate Marketing: Step-by-Step
1. Choose an Accounting Method
There are two primary methods of accounting for affiliate marketing:
- Cash-based (cash-basis) accounting – recording income when it’s actually received and expenses when paid. Because it overlooks what you owe or what others owe you, cash-basis accounting isn’t best for enterprise-level businesses that manage many invoices and obligations.
- Accrual-based (accrual-basis) accounting – recording revenues when earned and expenses when incurred, regardless of when the money actually changes hands. It provides a more accurate view of finances while requiring meticulous monitoring of invoices, receivables, and payables.
2. Acquire Accounting Tools
Google Spreadsheets is a bare minimum for affiliate marketing accounting. They are free, include out-of-the-box accounting templates, and allow you to share documents between employees.
For bigger companies, though, you need more advanced finance and accounting software.
Books360 pulls data from Phonexa’s lead and phone call management systems LMS Sync and Call Logic, as well as our other solutions like, for example, E-Delivery for email marketing campaigns or Lynx for clicks.
Books360 is fully customizable, offers quick-to-share financial reports, and supports all major payment methods, including bank transfers, e-wallets, and credit cards. Likewise, in the performance dashboard, you can choose to display only the metrics that matter without being distracted by unnecessary details that might hamper the decision-making process. Once you have the right accounting software in place, setting up online business banking is the next logical step. A dedicated business account keeps affiliate payouts separate from personal income, simplifies tax prep, and gives you digital tools to track cash flow in real time.
Book a demo to learn how Books360 can streamline your business accounting, automatically pulling all crucial data to a single panel.
3. Conduct Regular Bookkeeping
Chaotic data recording won’t allow you to analyze finances accurately, so you have to categorize everything. As an affiliate, begin by sorting commissions into types and specifying payment processing times, transfer methods, fees, and other details for each transaction.
Here are expenses to cover:
- Website launch and maintenance: Domain registration, hosting, content management systems (CMS) plugins, and SSL certifications
- Advertising: Paid ads and tools for email, website, or social media marketing
- Software: Tools for graphic design, video editing, and project management
- Professional services: Hiring marketers, managers, and content creators
- Office expenses: Computer devices, stationery, and other miscellaneous office supplies
As an advertiser, track outgoing commissions, affiliate network fees, costs of managing publishers and programs, and expenses for creating promotional assets.
4. Reconcile & Report
At the end of the month, verify that your records match your bank statement. Compare the balance in your books with the balance shown by the bank. If they match, everything is fine. If there’s a discrepancy, you’ll need to review your documents and identify the error.
You should also create an income statement, a document with your total income and expenses, and a balance sheet that contains your assets and liabilities. This way, you track your company’s financial health and net revenue.
Cash Flows Analytics for Smooth Affiliate Marketing
Without a doubt, financial KPIs are the most important when it comes to business performance. In addition to ROI, your primary financial metric, affiliate accounting software also helps you track more granular metrics, such as CPA, AOV, EPC, and others.
KPIs for Advertisers
| KPI | Definition | Formula |
| Return on investment | Profitability of your affiliate programs | Net income / investments |
| Cost per acquisition | Cost-effectiveness of your programs | Program costs / conversions |
| Average order value | Retention potential of affiliate traffic | Total revenue / number of orders |
KPIs for Publishers
| KPI | Definition | Formula |
| Earning per visitor | Your average revenue per website visitor | Total revenue / total website visitors |
| Earnings per click | An average revenue from banner or link clicks | Total revenue / total clicks |
| Average payout time | Anticipated time before you receive a payout | Sum of “days to payment” / number of payments |
Taxes for Affiliate Marketing
Proper accounting for affiliate marketing provides you with all the information required to report and pay taxes, preventing you from civil and criminal penalties.
Any form of income, including affiliate marketing, is taxable at federal rates. Affiliates use Form 1099-NEC, along with Schedule C and Schedule SE, to declare income and self-employment tax.
How to report affiliate income and determine your taxes:
- Provide your gross income through Form 1099-NEC
- Move to Schedule C to deduct your expenses and, again, indicate income
- Calculate your self-employment tax in Schedule SE
Though you don’t have to submit forms and schedules repeatedly, tax payments must be made every quarter – April 15, June 15, September 15, and January 15.
How To Pay Taxes as an Affiliate Marketer
You can choose between three options:
- Internal Revenue Service (IRS) direct pay: Visit the IRS website, verify your identity, and pay via bank transfer
- Electronic Federal Tax Payment System: Enroll, receive your unique PIN, schedule payments, and complete transactions
- Mail: Provide a payment voucher and mail the check to the IRS address in your state
LLC for Affiliate Marketing
As a performance marketer, you may want to protect yourself from going bankrupt, which you can do by registering a Limited Liability Company (LLC) to separate your personal assets from your business assets. It’s a common practice, even among small businesses, with 64% of all LLCs in the US consisting of a single member and 23% consisting of two members.
Here’s how your accounting and taxation change as an LLC:
- LLCs must open a separate bank account for business purposes
- If LLC adopts a C-Corp format, it pays double taxes and uses different forms
- Hiring an accountant may get more expensive, especially for corporations
Affiliate Marketing Accounting Tips & Tricks
Use Waterfall Charts To Visualize Data
Waterfall charts provide an intuitive representation of your total revenue and how it’s affected by your expenses over time, resulting in a net income. With their help, you can track cash flow tendencies, highlighting efficient or inefficient spending.
Source: Coupler
Save Invoices & Receipts
Invoices and receipts contain crucial information about purchases, including parties, amounts, and dates. Having this data at your fingertips gives you legal protection from potential disputes, which is a mandatory business practice.
When it comes to storing invoices and receipts, it’s best to refuse to use paper documents in favor of digital files, better in the cloud. It protects invoices and receipts from physical damage and makes them more accessible.
Conduct Accounting Audits
Accounting audits – verifying the accuracy and trustworthiness of financial statements – offer several benefits, including enhancing credibility with stakeholders and identifying fraud; however, avoiding penalties associated with incorrect taxation is the primary benefit.
Here’s how to conduct accounting audits for affiliates:
- Define a goal: It might be the preparation of documents for your partners or detecting fraud
- Collect data: Trace transactions back to the document sources and discuss the accounting processes with your personnel
- Form a report: Include financial statements, highlight issues during the auditing, and determine if the goal is reached
Hire Marketing Accountant
If you’re only starting out as an affiliate marketer, you probably can handle your financial affairs by yourself. However, as soon as you begin to scale, hiring an accountant becomes essential to bookkeep, analyze, and report your finances to the IRS.
There are three classifications of financial assistants:
- Bookkeepers: An entry-level option for handling data records
- Accountants: On top of recording data, they plan taxes and develop financial strategies
- Certified public accountants: Licensed professionals who, besides the basics, conduct comprehensive audits and legally represent you before the IRS
Manage Leads & Handle Accounting in an All-in-One System
A constant need to transfer information between systems slows down the affiliate business, including accounting. However, you can be up to ten times faster if all your lead management systems are coordinated with each other, with real-time data exchange.
This is what Phonexa does, consolidating lead management, marketing analytics, and accounting into a single panel to streamline your workflows and unlock new revenue opportunities.
Here are some of our affiliate software solutions that work hand-in-hand with Books360:
- LMS Sync: Track and distribute leads in real time, while receiving analytics to make informed decisions
- Call Logic: Track calls, analyze them, and optimize your interactive voice response for effective caller journeys
- Lynx: Get granular insights into links within your campaigns, tracking conversions and revenues
Books360 gives you full control over your cash flows. Like our other tools, it’s a part of an intuitive dashboard that covers your top marketing channels.
| “One of the things that stood out to me was the billing aspect of it. For over a decade, we struggled with these different lead generation platforms, where even if they had that feature, it wasn’t particularly effective. It didn’t connect to third-party APIs – it was just fragmented, so you need to have the accounting log in here and then download a spreadsheet from here; somewhere in between, things fall through. So having it in one place makes it much more compelling for any publisher or advertiser.” – Alex Oliveira, the Founder and CEO of Prediq, from the Revolutionizing B2B Marketing webinar |
Get Phonexa’s all-in-one performance marketing software suite at a single price:
| LMS Sync | Lead tracking & distribution software |
| Call Logic | Call tracking & distribution software |
| E-Delivery | Email & SMS marketing software |
| Cloud PBX | Cloud phone system |
| Lynx | Click tracking software |
| Opt-Intel | Suppression list management software |
| HitMetrix | User behavior recording & analytics software |
| Books360 | Automated accounting software |
Build your plan now, or take a product tour to explore Phonexa’s innovative solutions.
Frequently Asked Questions
What is affiliate income?
Affiliate marketing income is your total earnings, including commissions for publishers and revenue from programs for advertisers. There’s also a concept of profit, or net income, which is your total earnings after deducting expenses such as marketing, office supplies, software, and other costs.
How do taxes work with affiliate marketing?
Affiliate marketing profit is subject to income and self-employment taxes. To pay them, you must fill out Form 1099-NEC, Schedule C, and Schedule SE – both schedules are included in the Form 1040.
Is there an affiliate commission tracking software?
Yes, and Books360 is a great example. It pulls data from your lead management software, presenting not only the commissions you owe to publishers but also the revenue they generate.
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