What Is Affiliate Marketing, How Does It Work, and FAQs



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Affiliate marketing is a fantastic way to make money online. It’s been around since the mid-nineties and US affiliate marketing spend is expected to increase to $6.8 billion by 2020. Tens of thousands of companies have affiliate programs including household names like Amazon, Apple, eBay, Microsoft, and Walmart.

What Is Affiliate Marketing?

Affiliate marketing: any revenue-sharing program in which a publisher receives a commission for generating an online action (such as a sale or lead) for an advertiser; also called performance-based marketing, partner marketing, CPA, associate program, or pay-for-performance program.

Here’s my definition:

Affiliate marketing is a performance-based advertising model. An affiliate (publisher) promotes a product/service online and receives compensation for achieving a specific objective or action. A merchant (advertiser) specifies the goal, which is usually a valid sale. For example, a merchant will pay an affiliate a 30 percent sales commission. A merchant may use one or multiple advertising pricing models, for instance, cost-per-action/acquisition (CPA), cost per sale (CPS), cost per lead (CPL), or pay per lead (PPL).

Affiliate marketing is about marketing goods and services, not selling them. Marketing is the act of creating awareness for products, services, and brands whereas selling is about converting awareness and prospects into customers. Affiliates spend most of their time building awareness and may do some soft selling. They’re not responsible for transacting sales or closing deals, merchants must do that. If selling is more to your liking, then ecommerce, drop shipping, or freelancing might be a better fit.

Affiliate marketing differs from network marketing, also known as referral marketing and multilevel marketing, in that activities are conducted only online. Secondly, it doesn’t seek to leverage a person’s network, and affiliates don’t need to sell directly to anyone. Ninety-nine percent of affiliate programs are free to join and don’t require an investment or startup fee.

How Does Affiliate Marketing Work?

Affiliate marketing consists of a series of steps from program development to creating links for affiliates to use.

Program Development, Terms, & Recruitment

Suppose a company wants to offer an affiliate program. It can hire an affiliate manager internally or outsource duties to an agency. It can self-host and host its program with affiliate marketing tracking software. There are pros and cons to each approach, which companies assess before proceeding.

Program terms form the agreement and relationship between parties and specify commission rates, cookie or conversion/referral period, search and marketing policies, and volume sales incentives. A common practice of companies is to protect/restrict keywords for search engine marketing (SEM). Also, they may disqualify certain types of websites from joining their programs, for example, sites promoting racism and hate speech.

The merchant must consider how it will recruit affiliates, for example, adding an “Affiliate Program” menu option to its website and a sign-up page containing program details. An affiliate manager could contact top content creators weekly to join its program.

Cookies & Tracking

A cookie is a small file stored on a consumer’s computer that records information about that consumer. In affiliate marketing, cookies are used to track clicks, conversions, and sales. For example, a cookie will store the date and time of a click to credit or discredit a sale. Although cookies are used by many software applications, other tracking methods include device identification, digital fingerprint, IP address, and server-to-server.

Cookie length, conversion window, and action referral period is the duration in which merchants allow publishers to get credit for leads and sales. Thirty to sixty days is standard.

Affiliate URLs, Links, & Creative Assets

Affiliate programs provide URLs, links, and creative assets such as banners and images to affiliates. URLs are unique to each marketer and typically include an identification or tag, for instance, shopify.com?aff/chadtennant3u43b. Publishers can retrieve links and assets from the advertiser.

Deep linking is available. Deep linking is the practice by which an affiliate creates a link to a specific page on the merchant’s site. For example, instead of using a generic homepage affiliate link, I can link to an article that relates to my post. Most affiliate tracking applications offer deep linking, but it’s up to advertisers to enable.

Commissions & Payments

When all is said and done, affiliates want to get paid. A program’s terms will include commission and payout information. If the program is on an affiliate network, the network will influence the flow of funds. Advertisers and networks typically set minimum payment thresholds before funds are released. Payment options often include PayPal, direct deposit, and cheque. An affiliate’s profile must be complete and payment settings correct to receive earnings.

Affiliate Marketing Example

A fictitious company called BoomHost sells web hosting. It has salespeople but wants another way to acquire customers. It launches an affiliate program and will pay publishers $50 for each customer who purchases an annual hosting plan (which is much cheaper than training and hiring more salespeople). BoomHost could self-host its program with affiliate tracking software, but it decides to host and use the ShareASale affiliate network.

BoomHost wants its program to be efficient and profitable for affiliates and itself. It stipulates that affiliates can’t use the following keywords in SEM; “BoomHost,” “Boom Bee,” “BoomHost.com,” “BoomHost hosting.” By disallowing those keywords, BoomHost avoids competing with affiliates and potentially paying more for bids. BoomHost sets a cookie window of 30 days. Websites featuring porn, rebates, and hate speech are ineligible to join its program. Lastly, cookie stuffing and website redirects are not permitted.

Jane wants to promote BoomHost. She searches and finds the program on ShareASale in which she is already a member. She clicks on “Join Program” and two days later is approved. Jane publishes a post about different types of hosting plans and adds her BoomHost affiliate link, which she retrieved from ShareASale. Two months later, Jane has received 157 clicks on her BoomHost link and one sales conversion. BoomHost will issue a payment of $50 to Jane. The money will be directly deposited into Jane’s bank account through ShareASale.

Frequently Asked Questions

How do affiliates make money?

Affiliates promote products and services. When their marketing activities convert to sales and leads, they’ll be eligible to receive commissions. Commissions are usually one-time payments, but many recurring affiliate programs exist.

How much can affiliates earn?

Most affiliate programs don’t limit how much publishers can earn. In fact, most managers incentivize affiliates, with higher commissions and bonuses, to achieve more sales. Unlike most jobs, an affiliate’s earning potential is unlimited.

Is affiliate marketing profitable?

Yes! Offering an affiliate marketing program should be a no-brainer for many businesses. It’s a cost-efficient, zero overhead way to recruit marketers and pay them for performance. For affiliates, it’s cost-efficient too since no direct investment or inventory is required. An affiliate marketing business—primarily a website—and a few marketing/business tools will cost less than $50 a month to operate.

Is affiliate marketing legit?

Yes. Affiliate marketing is perfectly legal and an excellent way for businesses and individuals to work toward common goals. However, affiliate marketing is not without its share of bad actors and tricksters. Those folks attempt to game the system like schemers in other areas of business and life. The Federal Trade Commission (FTC), a United States government agency, provides guidelines for affiliates to follow. The FTC’s guidelines support transparency, consumer education, and fair dealings. If you play by the rules, act in good faith, and implement proper disclosures, you’ll be fine.

Are affiliate marketing courses and training available?

Yes, but be wise. There are hundreds of overpriced affiliate marketing courses available. Some instructors claim that they have a “surefire system” for success, which is nonsense. Plenty of free resources are available online and on YouTube. Finally, I write about affiliate marketing frequently, so visit my site often for tips and insights.


Chad Tennant

Chad is a digital marketer, consultant, and publisher. At Digital Fodder, he offers insights and strategies concerning online marketing, ecommerce, working online, YouTube, and more. At Partnercade, he helps companies grow their affiliate program revenues and partnerships. Connect or start a conversation with Chad on LinkedIn.


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