What is Affiliate Marketing and How Does it Work?

What is Affiliate Marketing and How Does it Work?
what if affiliate marketing

It all started in 1989, when the world’s first internet marketer, William J. Tobin launched his first affiliate program on the Prodigy Network.

He was the founder of PC Flower & Gifts and paid the Prodigy Network a commission on every sale that was generated for him.

Just a few years later, the Prodigy Network was pulling in $6 million dollars yearly from promoting PC Flower & Gifts.

Just imagine what the advertiser, PC Flower & Gifts, was making.

The initial concept of affiliate marketing was so successful it led William to patent the idea.

Thanks William!

So what is affiliate marketing?

In its essence:

Affiliate Marketing is the art of promoting someone else’s product or service and receiving a commission when someone takes a desired action (like a sale, form submission, etc.)

I say art because your success very much depends on your creativity.

Now before we dive into how affiliate marketing works, here are a few key terms you should know:

What is an affiliate?

An “Affiliate”, also known as a publisher, is the marketer who is doing the promoting.

You can also think of the affiliate as an online salesperson. Their sole job is to promote other people’s products and services and receive a commission for it.

What is an advertiser?

The “Advertiser” is the one offering the product or service that is being promoted. These are the brands who pay out fees to affiliates and affiliate networks in exchange for being promoted.

What is an affiliate program?

An affiliate program, also known as an associate program, is an online platform used by both the affiliates and the advertisers to manage the affiliate agreement they’ve both committed to.

The affiliate program is where the affiliate will find the product links and creative material, and where the advertiser will define the payout rules and conversion goals for which it will reward the affiliates.

For example, like when an affiliate refers sales to the advertiser.

Once you join an affiliate program, you’ll get access to the marketing material, reports, statistics of your performances, and other resources needed to help you succeed.

One of the most important aspect of affiliate marketing is for the parties to be able to track the performance of the promotions.

Clicks, sales, registrations, revenues, etc.

And it all starts with your affiliate links!

Related reading: https://anytrack.io/blog/best-affiliate-programs/

What is an affiliate link?

An affiliate link looks similar to a regular link with some modifications to it. An affiliate link contains the affiliate’s ID or any other identification to make sure whenever their link is clicked and the user makes a purchase, the affiliate will be the one to receive the credit.

What is an affiliate network?

The affiliate network houses the entire process for both affiliates and advertisers and acts as an intermediary.

The advertiser hosts their affiliate program on the affiliate network, and the affiliate joins the advertisers affiliate program on the affiliate network.

The affiliate network offers a ton of convenience to both parties.

The advertisers get access to a large number of affiliates, and the affiliates get all of their payments and relationships with advertisers centralized in one platform.

By the way, you don’t always need to join an affiliate network to begin working with an advertiser. Some advertisers host their own affiliate programs which you can directly apply to join.

For example, Amazon has their own associate program, and many others do too.

How does affiliate marketing work?

Since everybody loves infographics, here’s one that puts it all together for you:

what is affiliate marketing and how it works infographic

Affiliate marketing is a straightforward process.

  1. You have the affiliate who promotes a product or service and receives a fee for doing so
  2. You have the advertiser who pays fees in exchange for being promoted
  3. And you have the affiliate network facilitating the entire thing

All the action you see in the infographic that happens behind the scenes is the more technical stuff.

I think it’s important to understand the technical stuff from a macro perspective, but you don’t really need to concern yourself with it more than that if you’re using the right affiliate tracking tools.

A good affiliate tracking tool will make your life a lot easier.

Related reading: https://anytrack.io/blog/best-affiliate-tracking-software/

Does affiliate marketing still work today?

Affiliate Marketing is still very popular today, and for good reason.

It’s a legitimate career where the top affiliates are earning hundreds of millions of dollars a year.

For example, The Wirecutter is a high traffic publisher that does in-depth product reviews and product comparisons and receives affiliate fees whenever a user purchases.

The New York Times bought them for ~$30 million dollars!

Anyone who says affiliate marketing doesn’t work anymore simply doesn’t know what they are talking about. With over 80% of brands using affiliate marketing to grow their businesses, affiliate marketing is more alive than ever.

Think about it from the advertisers perspective. When an advertiser uses affiliate marketing, the advertiser enjoys a ton of leverage from thousands of ‘traffic sources’ (thousands of affiliates referring traffic to the advertisers website) and only pay when it works.

That’s a sweet deal.

From an affiliates perspective, they get to promote as many products & services as they’d like. Affiliates can focus exclusively on marketing & making money.

Everybody wins to some degree.

Note: While affiliate marketing is simple, it’s not as easy as it used to be. As the industry continues to mature, the most successful affiliates will continue to be the ones who regularly add value for their audience.

A great monetization strategy

I think of affiliate marketing as one of many monetization strategies.

Look at every for profit business in the world, and you’ll see they deploy any single or combination of these monetization strategies:

  • eCommerce – selling a product or service
  • Advertising – Display Ads, Native Ads, Sponsored posts, etc.
  • Affiliate Marketing – promoting other people’s products & services and receiving commissions
  • Lead Generation – Collecting user information and selling the leads

Certain types of businesses would do well to combine monetization strategies, while others would be better off just focusing on one.

For example, a SaaS (Software as a Service) company shouldn’t be using affiliate marketing as it would compete with their primary offering (unless they used affiliate marketing AFTER a customer signs up and upsold their customers)

Whereas a publisher has the most flexibility in their monetization options. You’ll often find publishers deploying multiple monetization strategies like advertising & affiliate marketing because it makes sense for their business model. These sites receive a lot of monthly traffic and need to monetize their traffic somehow.

Their content is the “product” and the advertising & affiliate marketing generates the real revenue.

Affiliate Marketing is a powerful monetization strategy and one of my favorites because the more you sell the more you earn.

Some companies pay their affiliates upwards of 50% commission recurring monthly.

Ask any competent businessperson and they’ll tell you that recurring revenue is the holy grail of revenue models.

Recurring commissions for an affiliate is an amazing deal.

What are the advantages & disadvantages of affiliate marketing?

Like anything in life, there’s advantages and disadvantages to affiliate marketing.

I’m going to focus on the affiliate’s perspective here because, frankly, I don’t see any real downside to it for advertisers.

Advantages

  • Great learning experience
  • Be their own boss
  • Leverage someone else’s business to make money
  • Focus exclusively on marketing without having to worry about product development or service fulfillment
  • Earn while they sleep

Disadvantages

  • Lack of control. Your income is controlled by other entities like your advertiser and the affiliate network
  • Zero barrier to entry. Anyone with an internet connection can start doing affiliate marketing (lots of competition)
  • You only get paid a % of the sale, not the full profit

Affiliate marketing can be very profitable for some affiliates.

Profitable to the point where some affiliates make more than regular businesses will ever dream of.

Affiliate marketing is also perfect for beginners who are only dipping their toes in the business world. Being an affiliate will teach you REAL world marketing skills because you only have one job to do, promote.

And if you’re good? It’s a skill that will pay you dividends for life whether you continue doing affiliate marketing or you decide to start your own business.

That’s how I got started.

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