What is Affiliate Marketing?

Defining Affiliate Marketing

At its most fundamental, affiliate marketing is a way to pay partners... it's a framework that rewards partners—affiliates—who bring business to the brands they work with (Bob Glazer, CEO & Founder of Acceleration Partners)

Simply put, affiliate marketing is the process where businesses reward third-party publishers, or ‘affiliates’, for referrals to the business’s website or products. Affiliates earn commissions when their affiliate links are used for clicks, signups, or sales, among other things.

Components of Affiliate Marketing:

• The Merchant/Advertiser: This is the business who is outsourcing part of their marketing to third party affiliates to reach a wider audience
• The Affiliate/Publisher: This is the individual or group who promote the service or product offered by the business to their audiences. They have affiliate links to the merchant’s website or product, and earn a commission for successful referrals. Examples include blogs and social media influencers.
• The Customer: This is the individual who clicks on an affiliate link from the publisher and completes an action, like buying a product.

An Example Affiliate Marketing Process:

1. The affiliate displays the promotional materials given by the merchant, such as tracking links, to endorse the merchant’s products and services on their online platforms, like blogs or Youtube
2. The customer who is on the affiliate’s platform clicks on the affiliate link and completes some specific action, which is tracked by the affiliate link
3. The merchant pays the affiliate the agreed upon commission

Compensation in affiliate marketing varies by the brand (this is not an exhaustive list):

• Pay per sale (PPS): The affiliate is paid a commission, usually a percentage of the price of the product being sold, based on the number of sales they can generate through their referrals
• Cost per action (CPA): A more general form of PPS, where affiliates are paid a commission when a visitor, sent by their affiliate link, completes an action, such as registering for a free trial
• Cost per click (CPC): The affiliate is paid a commission whenever a visitor clicks on their affiliate link
• Cost per lead (CPL): The affiliate is paid for every ‘lead’ or interested user they generate, which usually involves collecting user information through actions such as filling out a form

Each method has its own pros and cons. For CPC and CPM, the affiliate is not incentivized to ‘convert’ visitors and turn them into customers, so their marketing will not be targeted to a specific audience that the merchant is trying to attract. While, for PPS and CPL, the affiliate is only paid when the visitors are converted, so they will try to send the most targeted audience members, who are the most likely to be converted.

Benefits and Risks of Affiliate Marketing

While affiliate marketing has a lot of upside, there are some pitfalls to be wary of.

Benefits

For merchants/brands, affiliate marketing is an appealing marketing strategy for businesses because it mostly uses a pay for performance model. This means that outside of the costs of setting up an affiliate program, merchants will only pay for actual results, such as a sale or a registration. Essentially, you only pay when you actually get a customer, making affiliate marketing a highly profitable marketing strategy for businesses.

For affiliates, joining an affiliate program offers publishers to earn largely passive income, once their affiliate links are set up, and is a flexible way for influencers, bloggers and others to make money.

Downsides

As with any form of marketing, this channel comes with its own set of risks:

• Fraud: Some affiliates use spam, forced clicks and other fraudulent methods to generate clicks for and drive traffic to their sponsors
• Lack of control over offers: Affiliates don’t have control over the products and services they promote, putting them in a vulnerable position to the advertiser, who can change the offer or discontinue the product, among other things
• Competition: Due to affiliate marketing’s popularity, it can be hard for affiliates to catch the attention of site visitors and stand out, especially if they are in saturated niches

How To Get Started With Affiliate Marketing

As a brand, affiliate marketing should only require you to pay partners when they drive actionable results. Therefore, if done properly, it's silly to not use affiliate as an online marketing strategy. Here are some ways to get started:

1. Get set up with an in-house tracking software or get set up on one of the major networks
2. Pick a specific affiliate payment model that aligns with your marketing goals; for example, if you are looking to boost sales, then a PPS/CPA model would make a lot more sense than CPC or CPL
3. Decide who is your target audience
4. Begin onboarding affiliates who are involved in niches that interest your target audience

As a content creator or publisher, becoming an affiliate nowadays is also pretty simple:

1. Look for businesses and affiliate programs offer products or services that are relevant to your niche via networks or directly on the brand's website
2. Sign up as an affiliate
3. Optimize your content through SEO and other methods that drive traffic to your pages and affiliate content

Conclusion

Affiliate marketing is a both powerful tool for businesses seeking to advertise to a specific audience and a great chance for content creators to earn commissions by promoting on their platforms. Through just a link and a few clicks, a business can simultaneously get more sales and exposure while content creators can easily leverage and monetize their content, while pursuing their interests and passions.

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