What is Affiliate Marketing and How Does It Work?

Whether you realize it or not, practically every blogger, every celebrity, every website, and every company on the internet today is an affiliate marketer. They are all making money day after day from this largely passive means of earning extra income. 

See that ad on your favorite movie star’s blog? Click on it, and if it’s a pay-per-click ad, your star gets paid. See that link at the end of their recommendation? Click on it, and if you make a purchase, they get paid. There are also campaigns that are sent via email or social media. 

Click on the ad or make the purchase, and in most cases someone gets paid. See those links on someone’s Facebook or other social media page? Trust us; someone is getting paid, and you may as well join the crowd and start discovering 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.

In affiliate marketing, also called partnership marketing, the seller does not have to be actively involved in marketing, but can also act as an advertiser and benefit from revenue sharing.

The sellers may be eCommerce merchants who have built a dropshipping business and want to reach a new audience by paying affiliate websites to advertise their products. The seller could be a SaaS company that sells its marketing software through partners.

The affiliate or publisher

Affiliates can be either individuals or companies that market a seller’s product in an appealing way to potential consumers. An affiliate’s goal is to convince consumers that the product is valuable or beneficial to them so they will buy it. Affiliates receive a portion of the revenue generated when the customer purchases the product.

It is not uncommon for affiliates to target a very specific audience and generally stick to the interests of that audience. This helps affiliates attract consumers who will most likely respond to their advertising because they have a specific niche or personal brand they are promoting.

The consumer

For the affiliate system to work, there must be sales, and the consumer or customer enables those sales. 

Affiliates market the product or service through the appropriate channels such as social media, blogs, or YouTube videos, and if consumers find it valuable, they simply follow the affiliate link and complete the purchase on the merchant’s website. The affiliates receive a portion of the revenue when the customer purchases the item.

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’re shopping for affiliate programs, you run into words or phrases associated with the affiliate process. Some you may recognize, and others are probably new to you. Become familiar with these concepts so that you can understand what’s involved in participating 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 is no barrier to your success. To market your clients’ products, you should have your own affiliate website. However, you do not need a website to be an affiliate marketer. It is simply a matter of joining an affiliate program and promoting one product niche.

No Special Expertise

You don’t need marketing expertise to join affiliate programs. As you work, test, and practice various AM techniques, you’ll gradually learn it. It is important to note that there are a number of ways to run affiliate marketing programs, and you can pick one that is right for 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 persistence are the keys to success, so you just need 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. This also means that anyone can join your affiliate programs and claim market share, and you won’t be able to control competitors. You would face tough competition in the market from established affiliate marketers, and their growth would impact 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 equal. You can add different types of links or offers to your website, and each translates into a different level of payment. In other words, some actions are worth more money to advertisers. Here is a breakdown of the common affiliate payment types:

  • CPA (cost per action): Just like it sounds, CPAs are determined by some sort of predetermined action that a visitor takes in relation to the affiliate promotions you offer on your website.
  • CPC (cost per click): This payment is based on the amount of traffic you send to the advertiser’s or merchant’s website after the visitors clicked a link on your site.
  • CPL (cost per lead): Often associated with product trials, you are paid when someone completes a form and becomes a lead for the merchant. Leads are particularly important for B2B (business-to-business) companies and, depending on the type of offer, CPLs can have a high payout.
  • CPS (cost per sale): You are paid when someone purchases a product or service after clicking a link or an ad from your website. 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.

For now, just remember that the types of affiliate marketing products that you can sell will depend on the niche market you choose to participate in. If you want to sell only high ticket items, for instance, you need to make sure that the niche market you’ve chosen has high-ticket 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 equally good, and not every affiliate program makes sense for your customer base. In addition to these factors, there are other considerations you should make:

  • Choosing quality over money. You can probably make a higher commission if you sell an inferior product, but most people won’t buy it because they know what they want from cheap products. Besides, selling junk can do a lot of damage to 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. If your landing pages have an outdated design, are full of ads, contain way too much text and spelling and grammar 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), you should reconsider your partnership. Remember that a site that puts you off will also put your visitors off.
  • 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: Plenty of traditional retailers offer bona fide affiliate programs. Among some of the bigger names are Target, The Container Store, Nordstrom’s, and Lowe’s. Of course, each one is using an affiliate program to drive sales of its online business, not its bricks-and-mortar version. One way to locate stores with affiliate programs is simply to make a list of your favorites and do the research. The process takes time, but it’s worth it. Alternatively, you can search for your favorite retailers in an affiliate network (which manages affiliate programs for many different businesses). Most major retailers use an affiliate network to manage their program.
  • 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.

An advantage of using a network is that you can apply for multiple programs at one time, and you can manage an unlimited number of your affiliate accounts in one place. Because major retailers often use networks to handle their affiliate programs, you’re privy to exclusive promotions reserved only for the networks’ affiliates.

Networks are also a good way to locate category-specific programs, such as security software or gardening supplies, or to find lesser known products and services, such as e-books targeted to 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

After you locate a specific program or an affiliate network that appeals to you, you can sign up. The process typically takes less than 5 minutes. For example, follow these steps to sign up for the ClickBank program:

After you locate a specific program or an affiliate network that appeals to you, you can sign up. The process typically takes less than 5 minutes. For example, follow these steps to sign up for the ClickBank program:

  • 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.
  • Fill in your company and personal and payment information, and complete the required information about promotional methods and social media accounts. The form contains standard questions, such as name, address, and website name. You must create a password, and you’ll need a PayPal account to receive future payments. You’re also asked to read the affiliate agreement, ensure that you agree 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, note the following before signing up to participate.

Commission structure: Review the payout system for the program. Commission is usually calculated as a percentage of sales or as a flat dollar rate. However, the amounts may be based on minimum sales levels, which isn’t a best-case scenario. Alternatively, programs that reward you with larger commissions as your volume increases are beneficial. Or if a product requires a recurring fee (such as a monthly subscription), you may receive a one-time payment rather than residuals. Knowing the payout rates comes in handy for comparing programs.

Method for payment: You may get to choose how and when to receive payment. Look for details, including the currency used for payment; a set dollar amount accumulated before being paid (often, a $25 minimum); monthly or quarterly distributions; and the option for direct deposit 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 typically offer a simple but sophisticated accounting system. You can view your complete commission history in addition to what’s in your account. Always confirm that the program provides this type of account review, and find out how frequently it’s updated (in real time, daily, or only at month’s end).

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: For well-known sites that receive plenty of traffic on their own, having a cookie tracker in place for affiliates is important. You know that someone will inevitably go to a site after clicking your affiliate link and then leave without buying anything. The following week, that person might be ready to go back and make a purchase. With affiliate link cookies in place, the site can monitor the visits and offer credit for your original referral. Most cookies are good for 10 to 14 days.

Limits or exclusions: Larger programs may have restrictions on what products or services are included in an affiliate program. Or you may have to follow strict guidelines for promoting certain products or using product images. Always read the fine print so that you’re 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 commonly specify how affiliates can and cannot market their programs. Most restrictions refer to emailing strategies that can lead to trouble for the affiliates as violations of antispam laws. Companies are cracking down on this issue because they’re the ones being held responsible (legally) for your (the affiliate’s) actions. To avoid having your account closed over a simple mistake, look closely at which marketing strategies are prohibited or considered offensive.

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 any illegal affiliate programs is limited by the governing laws of your home state or country. You must know the law and then abide by it. To avoid becoming an outlaw, follow these safety tips:

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

Affiliate programs might disclose legal caveats to you in easy-to-find warnings on their sites, but more than likely you find them in the fine print. Read agreements carefully to determine your potential liabilities for participating.

2. Look for clues to the country of origin

Affiliate programs run from foreign countries, or without a U.S. base of operations, may be a sign that the activity isn’t permitted stateside. Or when you sign up for an affiliate program, you may be asked to enter your country of origin. After doing so, watch for a message or special instruction that serves as a disclaimer about doing business in particular 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 some specific products or subjects may be off-limits, sometimes you run into blacklisted companies. Participating in an affiliate program with one of these companies can label you as “aiding and abetting.” If something seems questionable, don’t hesitate to check out the company further. Start with the Better Business Bureau Online 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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