What is Affiliate Marketing and How Does It Work?

Whether you are aware of it or not, almost every blogger, celebrity, website, and business on the internet today is an affiliate marketer. They all make money every day from this largely passive source of additional income.

Have you seen the ad on your favorite actor’s blog? If you click on it, your star will be compensated if it is a pay-per-click ad. Did you notice the link at the end of the recommendation? If you click on it and buy something, the star will be compensated. There are also campaigns that are distributed via email or social media.

If you click on an ad or make a purchase, someone is usually compensated for it. Have you ever come across these links on a Facebook or other social media page? Believe us when we say that someone is getting paid for it, and you might as well join the crowd and learn how to earn your share.

This article gives you an overview of affiliate marketing: how it works, how the internet plays a role, and how to get started.

What is Affiliate Marketing?

Affiliate marketing is one of the oldest forms of marketing. Affiliates recommend products and when someone purchases those products, affiliates earn a portion of the sale.

You have probably seen this business model in the real-estate business. In today’s era, where almost everything is digital, the same form of business conducted online is called “affiliate marketing”.

Affiliate marketing is a performance-based marketing system. It basically means that if and only if a sale is made or a specific action is taken the referring affiliate marketer gets paid.

You don’t get a fixed compensation for your marketing efforts. Companies have no cost but share the profit with you when you make a sale for them.

It’s simple and fair. But the next question is, why people are willing to be an affiliate? Is affiliate marketing a lucrative business model?

How Does Affiliate Marketing Work?

When you join an affiliate program in your chosen niche, you will be given an affiliate link. That link has your specific ID attached for tracking referrals from you.

You can then place these links on your website. When someone clicks that link and buys, you’ll earn a commission from the product supplier.

The amount of commission is usually a percentage of the product price. And customers do not pay extra because of this.  If the product you promote is high-ticket, you can earn a lot of commission. If the product is on a subscription basis, you can even earn a recurring commission for every sale.

It’s true that many affiliate marketers can make 6 or 7 figures per year through affiliate marketing.

According to Business Insider Intelligence, around 15% of all digital media industry’s revenue comes from affiliate marketing.

Here are the four steps for starting an affiliate marketing business:

  1. Set up a website (read our guide on how to build an affiliate website)
  2. Select a product and join its affiliate program
  3. Write some content about the product on your website
  4. Promote your website to get visitors and convert them into customers

Affiliate marketing is a simple and highly profitable business model. But it requires knowledge, work, and time to succeed.

If you want to learn affiliate marketing and build an affiliate business from scratch, Wealthy Affiliate is my #1 recommendation.  It’s an all-in-one platform that takes you by hand.

The following are the parties involved in affiliate marketing:

Seller and Product Creators

Whether a sole proprietor or a large corporation, a seller is a vendor, distributor, product manufacturer, or retailer. An item can be a physical object, such as household goods, or a service, such as makeup tutorials.

A lot of sellers have their own affiliate program that they operate themselves. They bring out an amount of money that is under their marketing budget for the program. Some other merchants may decide to outsource it to an affiliate network that does all the work for them.

The seller is the one that pays the affiliate network, if it outsources it, or the affiliate if it is an in-house process. The merchant usually writes out the task that has to be done by the visitors that were referred by the affiliate. The major task is to purchase.

If a purchase is made, the seller pays the affiliate that referred to the customer. A lot of sellers make the payments once, meaning that if the client visits the site again after the initial purchase to make another one, the seller won’t pay the affiliate. Some merchants may decide not to make it a one-off thing.

The affiliate or publisher

The affiliate can also be called the publisher. As the merchant, the affiliate can be either an individual or a company. The amount of money an affiliate earns depends on the niche, and how much it has put in place. Some affiliates earn as little as a couple of hundred monthly. There are tens of millions of dollars monthly. Yes, you read that right. Before you earn those millions, you have to invest a lot of time and effort into the business. Many affiliates achieve this by posting engaging content.

What an affiliate does is promote the products of a merchant in a manner to get prospects to see the products as worthy of their money. It can be done by you running a blog with engaging content that attracts traffic, then promoting products that are related to your niche. Let’s say that you have a tech blog, where you speak of cool tech gadgets. You can easily promote the gadgets of a company and get your readers to make purchases. Once they are made, you are paid.

It is advisable that as an affiliate you only sell those things related to your blog’s niche. Selling baby items to readers of a dirt bike blog is a waste of time. Few readers that have kids may be interested, but they will be minute. The baby items will succeed if they were promoted on a parenthood blog.

The consumer

This party is one of the most important in the system. We can say that it is the sun, while the other parties revolve around it and we won’t be wrong. If no sales are made, then there is no commission. If no sales are made, revenue is not made. This means that the merchant, affiliate network, and affiliate are wasting their time.

The client determines if sales, revenue, and commission will be made. What the affiliate does is convince the client to try out the merchant’s product. They make use of a lot of channels to reach prospective clients. 

It could be through their website or social media pages. Some take it up a notch by using digital billboards. Whatever way is used, as long as the sale is made by the client, the affiliate and the merchant benefit.

Please remember that the customer needs to know that you, as an affiliate, will receive a commission for the sale. 

The Federal Trade Commission requires affiliate marketers to clearly disclose their relationship with retailers so consumers know how much weight to give your referral. 

By including a disclaimer such as “The products used in this video were provided by Company X,” you give your viewers the information they need to make an informed decision about whether or not to purchase the affiliate product.

Types of Affiliate Marketing

Affiliate marketing can be divided into three types: unattached affiliate marketing, related affiliate marketing, and involved affiliate marketing.

1. Unattached Affiliate Marketing

This is an advertising model where the affiliate has no connection to the product or service they are promoting. They do not have expertise or skills related to this topic, and do not claim to be an expert on it. Affiliate marketing of this type is the least involved. Affiliates are absolved of their responsibility to recommend or advise potential customers due to their lack of attachment to them.

2. Related Affiliate Marketing

According to its name, related affiliate marketing involves the promotion of products or services by affiliates with some sort of connection to the offering. In most cases, there is a connection between the affiliate’s niche and the product or service. Affiliates have enough influence and expertise to drive traffic, and their level of authority makes them a trustworthy source. The affiliate does not make any claims about the product or service, however.

3. Involved Affiliate Marketing

Affiliate marketing establishes a stronger connection between the affiliate and the product or service being promoted. They have used or are using the product and believe that their positive experiences can benefit others. The experiences are the advertisements, and they are trusted sources of information. On the other hand, since they are making recommendations, their reputation may be damaged if problems arise.

Understanding Some Affiliate Terms

When you search for affiliate programs, you may come across words or phrases related to the partnership process. Some of these will sound familiar, while others are probably unfamiliar. Learn about these terms so you understand what is required to participate in a successful affiliate program:

  • Advertiser: A company or site that wants other sites (affiliates) to sell its merchandise
  • Affiliate: An individual, a company, or a site that’s paid money to promote another company’s products or services
  • Affiliate network: A single company that oversees affiliate programs for multiple vendors and then recruits and approves affiliates on behalf of the companies it represents
  • AutoRenew: A feature that automatically renews an affiliate’s account upon expiration of the original term or length of time
  • Cookies: Technology used in coordination with web browsers to store information about a specific user
  • Cost per click (CPC): An amount of money an advertiser pays a site each time a visitor responds to an ad (specifically, by clicking a link or an ad)
  • Creatives: Advertising material (usually such items as banner ads, links, email content, and pop-up ads) that you, the affiliate, use to promote items to visitors
  • Merchant: Another term for advertiser
  • Pay-for-performance: The process of rewarding a company or website (usually with money) for driving traffic to another site
  • Publisher: The company or site that wants to be an affiliate
  • Qualifying link: An approved link given to an affiliate to place on a website to earn commissions
  • Required URL: The specific website address where affiliate links must point to earn commissions for referred traffic, or visitors
  • Subaffiliate: Another site that’s managed under a single affiliate account; anything other than your primary website that’s added to your account
  • Tracking tag (or tag): A device, usually a link, given to an affiliate to keep up with the success of a campaign; allows visits to be tracked
  • Unique visitors: A specific number of individuals who visit a site within a certain period, usually counted in a daily or monthly time frame

Advantages of Affiliate Marketing

Some of the main advantages of affiliate marketing are as follows;

Low-Cost Business

Affiliate marketing is a very simple and easy business to start, and there are no barriers to your success. To market your clients’ products, you should have your own affiliate website. However, you do not need a website to become an affiliate marketer. You just need to join an affiliate program and promote a product niche.

No Special Expertise

You do not need marketing knowledge to join affiliate programs. As you work with, test, and practice different AM techniques, you will gradually learn them. It is important to note that there are a number of ways to run affiliate marketing programs, and you can choose one that suits your marketing requirements and needs.

Performance-Based Salary

You can earn well based on your performance if you are good at promoting products/services and running marketing campaigns. People who work hard are more likely to succeed. Practice and perseverance are the keys to success, so you just have to keep working unceasingly.

Flexibility & Convenience

To promote the affiliate link you can run various campaigns on different websites. This will enable you to focus on the well-performing links and leave the rest. You can run affiliate programs on different product categories instead of sticking to one affiliate product.

Disadvantages of Affiliate Marketing

Affiliate marketing has a number of disadvantages, including the following:

No Control

You don’t own an affiliate marketing program; you are only a participant in it. The regulations of a Retail Company must be followed, and you rely on them. Initially, it seems attractive, but it becomes less competitive after a while. The client must adjust the new rate and implement the changes before the changes can be implemented. You cannot do much other than communicate.

Uncontrolled Competition

Affiliate marketing is good for beginners in online business because they are easy to start, low cost and very profitable. However, it also means that anyone can join your affiliate programs and claim market share and you will not be able to control your competitors. You would face stiff competition in the market from established affiliate marketers and their growth would affect your business.

Unguaranteed Income

An income-based system can offer you benefits, but can also leave you with no income at all if your performance plummets. In order to maximize growth and profitability, you have to keep on working consistently with affiliate programs. No one knows how much income you’ll earn each month.

Types of Affiliate Payments

Not all affiliate income is the same. You can include different types of links or offers on your website, each corresponding to a different level of compensation. In other words, some promotions are more valuable to advertisers than others. Below is a list of the most common affiliate payment methods:

  • CPA (cost per action): CPAs are determined by some sort of predetermined action a visitor takes in relation to the affiliate promotions you offer on your website, just like it sounds.
  • CPC (cost per click): This payment is calculated based on the traffic you send to the advertiser’s or merchant’s website after visitors click on a link on your website.
  • CPL (cost per lead): You get paid when someone fills out a form and becomes a lead for the merchant, which is often associated with product testing. Leads are especially important for B2B (business-to-business) companies, and CPLs can have a high payout depending on the type of offer.
  • CPS (cost per sale): When someone buys a product or service after clicking on a link or ad on your website, you get paid. CPS Payments are also usually higher because they result in a sale.

Examples of Affiliate Marketing

Amazon Affiliate Marketing

Amazon Associates, Amazon’s affiliate marketing program, is one of the largest affiliate marketing programs in the world.

Amazon partners with creators, publishers, and bloggers who offer Amazon products and services on their websites in exchange for a commission on sales.

The types of websites and applications that Amazon allows for its advertising are strictly controlled. For example, the sites must not contain duplicate content from other sites or creators and must be publicly accessible. The sites must be active, contain new content, and meet Amazon’s standards. Content must not be obscene or offensive, promote violence or illegal acts, or harm others.

To be approved, Amazon employees must conduct a thorough review and meet a qualifying sales quota within 180 days of application. A rejected application cannot be reconsidered. Once approved, site visitors receive commissions when they purchase products or services from Amazon.

Commissions for qualified sales are up to 10% for Amazon Associates. There is a fixed rate for each product category. Amazon also offers a bonus for certain events.

Etsy Affiliate Marketing

Etsy is an online marketplace for vintage goods and other unique items. Etsy markets its products through a variety of channels, including affiliate marketing partners. The affiliate program portal is where you can apply for the program. Etsy affiliate marketing partners must meet certain criteria, including a minimum age of 18, an active, unique website, and brand identity.

Affiliates who successfully promote a product on their website will be rewarded by Etsy with a commission if those sales lead to sales. Commissions are based on order value. Affiliates on Etsy can receive commissions for their products, but they need special permission to do so. Etsy states that it has the right to terminate a contract at any time, without giving any reason, and to withhold compensation for any reason.

eBay Affiliate Marketing

The eBay Partner Network is a program that pays affiliates for sharing their personal listings outside of eBay Inc. The affiliate receives a commission that can be applied to the merchant’s final fees. Affiliates can also receive commissions on items from other eBay sellers.

Within 24 hours of clicking the eBay buy link on the affiliate’s site, a buyer can either bid on the item or buy it outright. If this happens, commissions are earned. If the buyer wins the auction within ten days of placing a bid, the commission is paid.

Depending on the item category, commission rates range from 1% to 4%. A qualifying sale may not earn more than $550 in commissions. Gift cards, items sold by charities, and special offers are generally not recognized as qualifying sales because they generate little revenue.

How To Become An Affiliate Marketer

To become an affiliate marketer, you only need to become a member of a good affiliate marketing program and start spreading the affiliate link. To make money consistently, however, you need to be smart in your approach in the business. Here are the things you will need to start with this business:

1. A Website

Most affiliate programs require that you have a website before you are accepted. Advertisers check the website to see what kind of content you have. Some advertisers are extremely selective when choosing their affiliates.

They only accept those whose websites can bring in huge amounts of traffic. Don’t worry though, because there are also beginner-level affiliate marketing programs that will accept even publishers with new websites.

You can do affiliate marketing without a website, but it isn’t something you can do long-term

2. A Profitable niche

You cannot just create any type of website if you want to become a successful affiliate marketer. In particular, you need to be careful in choosing the niche market. You can read our guide on how you can choose the right niche for affiliate marketing.

Remember that the type of affiliate marketing products you can sell depends on the market niche you want to operate in. For example, if you want to sell only high-priced products, make sure that your chosen niche market has high-priced affiliate marketing programs.

3. Sources of Traffic

In general, paid traffic is not recommended for beginners because of the financial risks. The priority for beginners should be organic traffic. Generating organic traffic may sound easy, but it is a lot of hard work. However, work is often worth it.

Organic Search (SEO Traffic): Search engine optimization allows you to appear at the top of search engine results. SEO takes into account the hundreds of variables on which your ranking depends. If you optimize your web content to meet the search engine algorithm, you can get lots of nice, (essentially) free, targeted traffic.

Social Media: Maintaining an engaging presence on Facebook, Instagram, Twitter, and other social media platforms can increase organic traffic to your affiliate website. If your content is remarkable and engaging, you will easily convince people to click on your links. Social media campaigns increase brand awareness and consumer motivation.

Email Marketing: Email marketing can be another useful free traffic source. Start building an email list and send out weekly newsletters with integrated links to your affiliate website and other elements to promote your affiliate offers.

Learn more about the best traffic sources for affiliate marketing.

4. Choose Affiliate Marketing Programs

Not every affiliate program is the same, and not every affiliate program is appropriate for your customer base. In addition to these considerations, keep the following points in mind:

  • Choosing quality over money. You will most likely earn a higher commission if you sell an inferior product, but most people will not buy it because they know what to expect from cheap products. Besides, selling junk can seriously damage your reputation.
  • Consider promoting digital products. Some of the best affiliate programs for making money are available online. These often have high conversion rates because they provide instant access and gratification to buyers.
  • Consider promoting products that renew monthly. While promoting products or services that earn a one-time commission is acceptable, promoting products or services that earn a recurring monthly commission improves the predictability and stability of your affiliate business.
  • Choose vendors with a good landing page. You should reconsider your partnership if your landing pages have an outdated design, are full of advertisements, contain way too much text and spelling and grammatical errors, have too many calls to action or include a phone number (you probably will not get a commission if orders are placed by phone). Remember that a website that irritates you will also irritate your visitors.
  • Look for programs with lifetime payouts. With these affiliate campaigns, you make money when a visitor continues to buy from the affiliate, even if they never return to your site! Affiliate marketing programs are broken into three common sources, or places where they originate:
  • Retail sites: Many traditional retailers have legitimate affiliate programs. Target, The Container Store, Nordstrom’s and Lowe’s are among the better-known retailers. Of course, each of them uses an affiliate program to drive sales to their online store, rather than their physical location. One way to find stores with affiliate programs is to create a list of your favorites and research them. This takes time, but it’s worth it. You can also search an affiliate network (which manages affiliate programs for many different companies) to find your favorite retailers. Most major retailers manage their affiliate programs through an affiliate network.
  • Established online vendors: Many branded names that are best known for delivering products through their Internet presence cater to affiliates. Topping the list are e-commerce giants Apple iTunes and Dell (computers).
  • Pay-for-performance networks: In addition to searching independent sites, all-in-one sites can save you time. Pay-for-performance networks have assembled hundreds or thousands of affiliate-marketing programs under one roof.

One advantage of using a network is that you can sign up for multiple programs at once and manage an unlimited number of affiliate accounts in one place. Since large retailers often manage their affiliate programs through networks, you have access to exclusive promotions that are only available to network partners.

Networks are also useful for finding category-specific programs, such as security software or gardening supplies, as well as lesser-known products and services, such as e-books for small businesses or coupon offers for pregnant women.

The networks on this list offer affiliate programs for just about everything under the sun

  • ClickBooth
  • CJ Affiliate
  • Pepperjam
  • Amazon Associates
  • Rakuten Marketing

When you’re signing up as an affiliate, visit any community message boards set up for affiliates. Find out what tools other affiliates found successful. If you’re assigned to an affiliate-marketing manager, don’t hesitate to drop an email and ask for suggestions based on your site’s core audience.

How To Sign Up for an Affiliate Network

You can sign up as soon as you find a program or affiliate network that interests you. The entire process usually takes less than 5 minutes. For example, to sign up for the ClickBank program, follow these steps:

You can sign up as soon as you find a program or affiliate network that interests you. The whole process usually takes less than 5 minutes. For example, to sign up for the ClickBank program, do the following:

  • Go to the site’s home page.
  • Toward the bottom of the page, click the I’m A Publisher Or Influencer link. You see information and resources helping you learn more about affiliate marketing.
  • Near the bottom of the page, click the Become a Partner link. You see a page with a form to set up an account.
  • Provide your company, personal, and payment information, as well as required advertising methods and social media accounts. The form asks for standard information such as name, address, and website name. To receive future payments, you need to create a password and have a PayPal account. You also need to read the partner agreement, confirm your agreement with the terms, and check the box to accept the contract.
  • Click the Submit button. 
  • Watch for an email message from the company and follow its instructions. The email also contains information about your new affiliate account.

Your approval for participating in an affiliate program may not come quickly because every legitimate program has criteria for eligibility, although some are more lenient than others. For example, many affiliate programs don’t process your application unless you have an active, or live, site. Other programs also require a minimum number of unique visitors. Completing an application also doesn’t guarantee you’ll be accepted into the program. Plan to apply to more than one affiliate program.

When you’re perusing an affiliate-marketing program that interests you, notes the following before signing up to participate.

Commission structure: Check the program’s payout system. Usually, the commission is calculated as a percentage of sales or as a flat dollar rate. However, the amounts may be based on minimum sales, which is not necessarily the best case. Programs where you receive higher commissions as sales increase, on the other hand, are beneficial. If a product has a recurring fee (such as a monthly subscription), you may receive a one-time payment instead of residual amounts. Knowing payout rates is useful when comparing programs.

Method for payment: You may be able to choose how and when you want to be paid. Pay attention to details such as the currency in which the payout is made, a specific dollar amount that must be reached before the payout (often a minimum of $25), monthly or quarterly distributions, and the ability to deposit money directly into your account.

Refunds: Find the program’s policy for handling customer returns or refunds. Understand how and when that money is taken out of your account.

Recordkeeping: Established affiliate programs usually offer a simple but sophisticated billing system. You can view your entire commission history as well as the status of your account. Always make sure that the program offers this type of account summary, and inquire how often it is updated (real-time, daily, or only at the end of the month).

Tracking: One frustration occurs when an affiliate program doesn’t provide an effective way to track statistics for your affiliate link. The best programs make it easy to understand how many click-throughs you get in addition to final purchases.

Cookies: An affiliate cookie tracker is essential for well-known websites that get a lot of traffic on their own. You already know that someone visits a website after clicking on your affiliate link, and then leaves without buying anything. That person may be ready to make a purchase the following week. When affiliate link cookies are present, the website can track the visits and credit you for the original referral. Most cookies have a shelf life of 10 to 14 days.

Limits or exclusions: Larger programs may impose restrictions on the products or services that can be included in an affiliate program. You may also have to adhere to strict guidelines when promoting certain products or using product images. Always read the fine print so you are not caught off guard.

Penalties: Even an unintentional violation can lead to a slap on the wrist (such as a small monetary fine or a scathing letter) or to having your account turned off. Read the terms and conditions document carefully to understand how and when you may be penalized.

Restrictive marketing strategies: Affiliate marketers often specify how their programs can and cannot be promoted by affiliates. Most restrictions relate to email strategies that can get affiliates in trouble as spam violations. Companies take a rigorous approach to this because they are held legally responsible for your (the affiliate’s) actions. Take a close look at what marketing strategies are banned or considered offensive to avoid getting your account shut down for a simple mistake.

Logos, banners, and content: Affiliate programs want you to do well, so they typically provide you with marketing tools. Before signing up for a program, peruse the marketing collateral that’s at your disposal. Is it enough? Is there a variety? Are they quality pieces? Would you, or could you, really use them? This issue is important because you may be restricted from creating your own marketing materials and have to use theirs.

Some affiliates review your site in detail and may take several days before approving your application. Other programs provide immediate electronic approval as long as you meet basic requirements, such as

  • An active website
  • A valid Social Security number or employer identification number
  • Verification that your site doesn’t violate any of the network’s terms and conditions

After your approval with an affiliate network is confirmed, it’s easy to apply for as many individual programs as you like. Typically, the merchants are separated by categories. After you select the boxes of the programs that interest you, your application is submitted automatically. You then receive notification of acceptance (or not) in your email.

You can join multiple affiliate programs as well as programs run by different affiliate networks.

How To Avoid Affiliate Marketing Scams

Participation in illegal affiliate programs is strictly prohibited by the laws of your home country. You must first understand the law and then follow it. Follow these safety precautions to avoid becoming an outlaw:

1. Always read the terms and conditions of the affiliate agreement

Affiliate programs may alert you to legal caveats in easily accessible warnings on their websites, but you are sure to find them in the fine print, too. Read the contracts thoroughly to determine your potential liability for participation.

2. Look for clues to the country of origin

Affiliate programs that operate from abroad or are not based in the U.S. may indicate that activity is not permitted in the United States. You may also be asked to provide your country of origin when you sign up for an affiliate program. After that, look for a message or special notice that serves as a disclaimer for doing business in certain countries.

3. Conduct a search

Although this tip isn’t foolproof, you can start verifying the legitimacy of a program by doing a simple search. Enter in a search engine the name of the company you want to do business with or the type of program (online games, for example). Especially if it’s a hot topic, you quickly find any red flags.

4. Investigate the company

Although certain products or topics may be prohibited, there are blacklisted companies. Participating in an affiliate program with one of these companies may result in you being charged with “aiding and abetting”. If something seems suspicious, don’t be afraid to investigate the company further. Start by visiting the Better Business Bureau’s website at www.bbbonline.org.

5. Check with authorities

The U.S. Department of Justice has information on a handful of questionable Internet activities, including online gambling and selling prescription medication online. Visit the site at www.usdoj.gov. The Federal Trade Commission is another source for validating illegal affiliate operations. You can access it at www.ftc.gov.

Learn more about how to recognize affiliate marketing scams.

3 thoughts on “What is Affiliate Marketing and How Does It Work?”

  1. I joined Wealthy Affiliate and I was amazed by how considerate and detailed their training is. No wonder it’s the most popular platform for affiliate marketing. Newbies can really learn everything and host websites securely there.

    Reply
    • Hi Andy, thanks for your comment. Yes, it’s true that Wealthy Affiliate is the best platform for people to build an online business. It’s particularly good for newbies as the training is step-by-step and the technical stuff has been simplified as well.

      Reply

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