What Is Affiliate Marketing, How Does It Work, & 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, and Microsoft.

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.

Creative Market_altAffiliate marketing is a performance-based marketing activity. An affiliate promotes a product/service online and receives compensation for achieving a specific objective or action. A merchant or advertiser specifies the goal, which is usually a valid sale. For example, a merchant will pay the affiliate a 30 percent sales commission. Some merchants have pay per lead programs that pay for getting prospects and signups.

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, that’s up to merchants. If selling is more to your liking, then e-commerce, 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. They can hire an affiliate manager internally or outsource duties to an agency. They can self-host and host their 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 any bonus 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 program, 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 might recruit top content creators to join and spread the word.

  • Cookies & Tracking

Cookie length, conversion window, or action referral period is the period in which merchants allow their cookies to remain active to credit publishers for their sales. Thirty to sixty days is standard. 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 link activities and sales attribution. For example, a cookie will store the date and time of a click to credit or discredit a sale.

  • 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 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 deep link to an article that relates to my post. Most affiliate tracking applications offer deep linking, and 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 payment cycle 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 money is released. Payment options often include PayPal, direct deposit, and cheque. An affiliate’s profile must be complete and payment settings correct to receive earnings.

How Affiliate Marketing Works

BoomHost Affiliate Program (Example)

A fictitious company called BoomHost sells web hosting. They have sales people but want another business development channel to acquire customers. They launch 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 manage their affiliate program in-house with affiliate tracking software, but they decide to use the ShareASale affiliate network.

BoomHost wants its program to be efficient and profitable for affiliates and themselves. They stipulate that affiliates can’t use the following keywords in SEM; “BoomHost,” “Boom Bee,” “BoomHost.com,” “BoomHost hosting.” By disallowing these 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 their program. Lastly, cookie stuffing and website redirects are not permitted.

Jane wants to promote BoomHost. She searches and finds their program in 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. These 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 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 an online marketer, advisor, and writer. At Digital Fodder, he covers affiliate marketing, digital marketing, working online, e-commerce, WordPress, and more. Chad’s primary goals are to help businesses and individuals achieve growth and success.

 
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