Affiliate Marketing Agreement: What To Tell Customers Before They Buy

Affiliate marketing is a powerful tool for US startups and small businesses to expand their reach and increase sales. However, using affiliate marketing agreements comes with legal responsibilities, especially regarding what you must tell customers before they buy. Many founders make mistakes by not providing clear disclosures, miscommunicating refund policies, or failing to clarify who is responsible for customer support. These oversights can lead to customer complaints, disputes, or even regulatory action. This guide walks you through what an affiliate marketing agreement is, what information you need to provide to customers, and how to avoid common pitfalls. We will also cover federal and state law requirements, practical examples, and what to include in your contracts to protect your business and your customers.

What Is an Affiliate Marketing Agreement?

An affiliate marketing agreement is a contract between a business (the merchant) and an individual or company (the affiliate) who promotes the merchant's products or services in exchange for a commission. The affiliate typically uses links, banners, or content to refer customers to the merchant's website. When a customer makes a purchase after clicking an affiliate link, the affiliate earns a fee or a percentage of the sale.

Affiliate marketing is common in industries like e-commerce, SaaS, online education, and digital products. It allows businesses to reach new audiences without paying upfront advertising costs. However, it also creates legal obligations for both parties, particularly around what customers are told before making a purchase.

• Merchant: The business that owns the product or service being sold.
• Affiliate: The person or entity promoting the product or service for a commission.
• Customer: The end user who makes a purchase, often after clicking an affiliate link.

The affiliate marketing agreement outlines the terms of the relationship, including commission structure, promotion guidelines, intellectual property rules, and legal responsibilities. But it also has a direct impact on what customers see, what they are promised, and what rights they have.

Example: A startup selling online courses partners with bloggers as affiliates. The bloggers write reviews and include affiliate links. When a reader clicks the link and buys a course, the blogger receives a 20% commission. The agreement between the startup and each blogger sets out the rules for how the courses can be promoted, what disclosures must be made, and how disputes will be handled.

Federal Requirements: FTC Rules on Affiliate Disclosures

The Federal Trade Commission (FTC) sets the baseline for what must be disclosed to customers in affiliate marketing. The FTC's Endorsement Guides require anyone who endorses a product and receives compensation to clearly and conspicuously disclose that relationship. This applies to both affiliates and merchants.

• Material connection: If there is a relationship between the affiliate and the merchant that could affect the credibility of the endorsement (such as payment, free products, or other incentives), it must be disclosed.
• Clear and conspicuous: Disclosures must be easy for customers to notice and understand. They should be placed close to the endorsement or affiliate link, not buried in a footer or on a separate page.
• No misleading claims: Affiliates and merchants cannot make false, unsubstantiated, or exaggerated claims about the product or service.

Example: An Instagram influencer posts a photo using a skincare product and includes an affiliate link. The influencer must include a disclosure such as "Paid partnership" or "I may earn a commission if you buy through my link" in the post itself, not just in their profile bio or a separate disclosure page.

Merchants are responsible for making sure their affiliates follow these rules. Your affiliate marketing agreement should require affiliates to make proper disclosures and give you the right to review their content. The FTC expects merchants to monitor affiliate activity and take action if affiliates do not comply.

Failure to follow FTC rules can result in enforcement actions, fines, and damage to your reputation. Both the affiliate and the merchant can be held liable for non-compliance.

State Law and Industry-Specific Requirements

While the FTC provides the federal baseline, state laws can add additional requirements for affiliate marketing agreements and customer disclosures. Some states have stricter rules about advertising, refunds, or endorsements, and certain industries (like health, finance, or products for children) may have their own regulations.

• California: The California Business and Professions Code prohibits false or misleading advertising and requires clear disclosure of material terms. If you sell to California consumers, your affiliate program must comply with these rules.
• New York: New York's General Business Law requires clear advertising and may impose additional requirements for certain products or services.
• Health and finance: If your product is a supplement, health device, or financial service, you may need to comply with FDA, SEC, or state-specific advertising rules in addition to FTC guidelines.

Always check if your state or industry has extra rules about advertising, endorsements, or customer disclosures. Your affiliate marketing agreement should reference compliance with all applicable laws, not just federal rules.

Example: A business selling dietary supplements through affiliates must comply with both FTC disclosure rules and FDA regulations about health claims. Affiliates should be prohibited from making unapproved health claims, and the agreement should require all marketing to be truthful and substantiated.

What To Tell Customers Before They Buy

Clear communication with customers is essential for building trust and avoiding disputes. Whether you are the merchant or the affiliate, you should make sure customers know the following before they make a purchase:

• Who is selling the product or service? Customers should know if they are buying directly from the merchant or through an affiliate. This affects who is responsible for order fulfillment, refunds, and support.
• What is included in the purchase? Be specific about what the customer will receive, any limitations, and any recurring costs (such as subscriptions or renewals).
• How to get support or request a refund? Provide clear contact details and instructions for customer service, returns, and complaints.
• Any material connection or incentive: Disclose if the affiliate is compensated for the referral, as required by the FTC.
• Key terms and conditions: Give customers access to the full terms of sale, privacy policy, and any other important documents before they buy.

Common mistakes:

• Not making it clear who the seller is (affiliate vs. merchant), leading to confusion about who is responsible for the transaction.
• Failing to disclose affiliate relationships or commissions, risking FTC enforcement and customer distrust.
• Using vague or misleading language about what is included in the offer, resulting in customer complaints and refund requests.
• Hiding refund or cancellation terms in fine print, which can violate state consumer protection laws.
• Not providing a way for customers to contact support, making it difficult to resolve issues quickly.

Checklist for customer disclosures:

• State clearly who the seller is and who is responsible for fulfillment and support.
• Describe exactly what the customer is buying and any ongoing costs.
• Include a clear, conspicuous affiliate disclosure near any endorsement or referral link.
• Make refund and cancellation policies easy to find and understand.
• Provide customer service contact details and response times.
• Link to all relevant terms, privacy policies, and legal notices.

Example: An affiliate website promoting a SaaS tool should have a statement near the call-to-action button such as "As an affiliate, I may earn a commission if you sign up through my link. See our refund policy and terms of service for details."

What To Include In Your Affiliate Marketing Agreement

Your affiliate marketing agreement should do more than just outline payment terms. It should set clear expectations for both affiliates and merchants and help protect your business from legal risk. Here are key clauses to include:

• Disclosure requirements: Affiliates must comply with all FTC and state disclosure rules. Spell out what disclosures are required and where they must appear (for example, "above the fold" or before the purchase button).
• Content approval: The merchant should have the right to review and approve affiliate content, especially if it uses the merchant's brand, trademarks, or proprietary information.
• Prohibited practices: Ban misleading claims, spam, false advertising, or any behavior that could create legal problems for your business.
• Intellectual property: Set rules for how affiliates can use your logos, images, or other intellectual property, and require them to remove content upon request.
• Payment terms: Explain how commissions are calculated, when they are paid, and what happens if a customer requests a refund or cancels a subscription.
• Termination: Allow either party to end the agreement if rules are broken, with or without cause, and specify what happens to unpaid commissions.
• Indemnification: Require affiliates to cover your losses if their actions cause legal problems, such as regulatory fines or lawsuits.
• Governing law: Specify which state's law applies to the agreement. Remember, state contract law can vary, so choose a state that makes sense for your business.
• Recordkeeping: Require affiliates to keep records of their promotional activities and disclosures, and allow you to audit their compliance.

Example clause: "Affiliate agrees to include the following disclosure in all promotional materials: 'I may receive a commission for purchases made through links in this post.' Affiliate must place this disclosure immediately above any affiliate link or call to action."

If you operate in a regulated industry (such as health, finance, or education), you may need additional contract terms to comply with industry-specific laws. For example, you might prohibit affiliates from making medical claims or require them to use only approved marketing language.

Checklist for your agreement:

• Disclosure requirements and sample language
• Content approval and monitoring rights
• Prohibited practices and compliance with laws
• Payment and refund terms
• Termination and dispute resolution
• Indemnification and liability limits
• Governing law and jurisdiction
• Recordkeeping and audit rights

Handling Refunds, Complaints, and Customer Support

One of the most common sources of confusion in affiliate marketing is who handles refunds, complaints, and customer support. Customers may not know whether to contact the affiliate or the merchant, especially if the affiliate's website looks like the main seller.

To avoid disputes and regulatory issues, your affiliate marketing agreement and customer-facing materials should:

• Clearly state who is responsible for support and refunds. If you are the merchant, require affiliates to direct all customer service requests to you. If affiliates handle some support, provide clear rules and training.
• Provide easy-to-find contact details and instructions for customers. This includes phone numbers, email addresses, and response times.
• Explain refund and return policies up front. Make sure both affiliates and customers know the terms, including any exceptions or deadlines.
• Ensure affiliates do not promise things you cannot deliver. Affiliates should not offer guarantees, discounts, or bonuses that you have not approved.

Example: If your business offers a 30-day money-back guarantee, your affiliate marketing agreement should require affiliates to use only your approved language when describing the policy. If the product is non-refundable (such as a digital download), make this clear in all marketing materials.

Some states, such as California and New York, have specific rules about refunds, returns, or cancellations. For example, California requires certain businesses to offer refunds within a set period and to disclose return policies clearly. Check if your state has extra requirements and update your agreement and customer-facing materials as needed.

Checklist for handling refunds and support:

• State who handles customer service and refunds in your agreement and on your website
• Provide clear, accessible contact information
• Spell out refund and return policies, including time frames and exceptions
• Train affiliates on what they can and cannot promise
• Monitor affiliate communications for compliance

Common mistakes:

• Allowing affiliates to handle refunds without clear rules, leading to inconsistent customer experiences
• Not updating refund policies to match state law requirements
• Failing to provide customers with an easy way to contact support

Managing Legal Risks and Common Mistakes

Affiliate marketing can expose your business to legal risks if not managed carefully. Here are some common pitfalls and how to avoid them:

• Failure to monitor affiliates: Merchants are responsible for what affiliates say and do. Regularly review affiliate content for compliance with your agreement and the law.
• Unclear or missing disclosures: As discussed, both federal and state law require clear disclosure of affiliate relationships. Do not rely on affiliates to get this right without guidance and monitoring.
• Overpromising or misleading claims: Affiliates may exaggerate product benefits or make unapproved claims. Your agreement should ban this, and you should monitor for violations.
• Not updating agreements: Laws and FTC guidance change over time. Update your affiliate marketing agreement regularly to reflect new rules or business practices.
• Poor recordkeeping: Keep records of affiliate agreements, disclosures, and communications. This can help defend your business if there is a dispute or regulatory inquiry.
• Ignoring state or industry rules: Some states or industries have stricter requirements. Always check for extra rules if you sell to customers in multiple states or regulated sectors.

Practical checklist for founders and operators:

• Review your affiliate marketing agreement for clear disclosure and content rules
• Train affiliates on what they must tell customers and how to make disclosures
• Monitor affiliate content regularly and address violations quickly
• Make sure refund, support, and contact details are easy for customers to find
• Update your agreement and policies as laws or business practices change
• Keep detailed records of all affiliate activities and communications

Example: A SaaS business discovers that one of its affiliates is making exaggerated claims about the software's capabilities. The business reviews the affiliate's content, issues a warning, and updates its agreement to require pre-approval of all affiliate marketing materials. This proactive approach helps prevent future problems and shows regulators that the business takes compliance seriously.

FAQs

Do I need a written affiliate marketing agreement?

While some businesses run informal affiliate programs, a written agreement is strongly recommended. It sets clear expectations, helps manage legal risk, and makes it easier to resolve disputes. A good agreement covers disclosure rules, payment terms, content standards, and more.

What happens if an affiliate does not make the required disclosures?

If an affiliate fails to disclose their relationship with your business, both the affiliate and the merchant can face FTC enforcement, fines, or lawsuits. Merchants are expected to monitor affiliates and take action if rules are broken. Your agreement should require proper disclosures and allow you to terminate affiliates who do not comply.

Can I use a template affiliate marketing agreement?

Templates can be a good starting point, but they may not cover all the legal requirements for your business, state, or industry. Always review templates carefully and customize them for your needs. Consider consulting a legal professional to ensure your agreement is up to date and compliant with relevant laws.

Are there special rules for affiliate marketing in regulated industries?

Yes. If you operate in a regulated industry (such as health, finance, or products for children), you may face additional federal or state disclosure and advertising rules. Your affiliate marketing agreement should address these requirements, and you may need extra training or monitoring for affiliates in these sectors.

How often should I update my affiliate marketing agreement?

It is a good idea to review and update your affiliate marketing agreement at least once a year or whenever there are significant changes in the law, FTC guidance, or your business practices. Regular updates help ensure ongoing compliance and reduce legal risk.

Key Takeaways

• Affiliate marketing agreements create legal obligations for both merchants and affiliates, especially around customer disclosures and advertising practices.
• Federal law (FTC) requires clear, conspicuous disclosure of affiliate relationships. State and industry rules may add more requirements.
• Tell customers who is selling the product, what is included, how to get support, and any material connections or incentives.
• Your agreement should set out disclosure rules, content approval, payment terms, and responsibilities for refunds and support.
• Monitor affiliates, update agreements regularly, and keep good records to manage legal risk.
• Always check for state-specific or industry-specific rules that may apply to your affiliate program.

If you have questions about affiliate marketing agreements or want help reviewing your contracts, our team can assist. Call (888) 449-8437 or email team@sprintlaw.com to discuss your needs. Where legal services are required, they are delivered by licensed lawyers at trusted US law firms through the Sprintlaw platform.