What is Affiliate Marketing?

Affiliate marketing is essentially a referral program, where you market the products or services of a company in order to refer people to that company and earn a commission when the referral takes a particular action, usually based on a sale. This explanation is obviously very simplistic, but it provides a high-level explanation of what affiliate marketing is. In this article, we will explore this concept even more and discover some of the intricacies that this exciting, and lucrative field of marketing involves.

The Birth of Internet Affiliate Marketing

Before the internet came about, one of the biggest challenges for marketers and the companies they worked for, was to track and measure the performance of their marketing efforts. Overall, they could see if sales increased, but knowing exactly what worked, which marketing messages had the most impact, and optimizing campaigns was tedious, took extended periods of time, and was never perfectly accurate. The internet brought about a revolution in marketing, not just because it opened up companies to new and bigger markets, but with the aid of technology, these companies could now start tracking their campaigns and optimizing their efforts almost instantly. The ability to track the entire customer journey from the very first click till post-sale was groundbreaking and it opened up the opportunity for companies to allow 3rd parties to refer customers and compensate them for their efforts. 

And so, internet affiliate marketing was born…

There are typically 4 key parties involved in the affiliate marketing process:

Product Owner / Merchant / Retailer or Brand – This is the company that provides a product or service. The merchant may be the manufacturer or producer of the product or service, but they could also simply be a reseller or supplier of existing products. 

Affiliate Program or Network – This is the organization that is responsible for managing the affiliate (referral) program. Their role is to provide the technology and marketing materials for the affiliate marketers, as well as handle things like payments and performance metrics. The affiliate program can sometimes be managed internally by the merchant, but in most cases today, it is outsourced to affiliate networks that specialize in the setup and management of the affiliate program and the affiliates. 

Affiliate Marketers or Publishers – These are the 3rd party marketers who promote the merchant’s products or services, via the affiliate program in exchange for a commission for their efforts. The affiliate can use a range of marketing channels and techniques to attract potential customers and refer them. 

Consumers – These are the customers i.e., the people or businesses that will purchase the merchant’s products. In most cases, the consumer doesn’t even know that he may have been referred by an affiliate, as the entire process is seamless. Also, the price he pays is typically exactly what he would have paid if he were buying directly from the merchant. 

How Does it All Work? A Practical Example…

To understand how affiliate marketing works, let’s take a deeper look at how all the pieces fit together to ultimately provide the consumer with their desired product. The best way to create a clear picture is to use an example. (Take note all names and companies mentioned in the example below are fictitious): 

Our merchant, for this example, will be TastiCoffee, a company that sells coffee pods (capsules for coffee machines) to consumers. TastiCoffee has salespeople that sell to stores as well as a website where retail customers can purchase coffee and get it shipped to them. 

One day, Joe, the owner of TastiCoffee realizes that he can scale up his business if he can get more visitors to his website. Joe doesn’t have the time, budget, or expertise to expand his current marketing efforts, so he reaches out to MegaAffs, an affiliate network, and describes his situation. MegaAffs explains to Joe that they will take responsibility for setting up and managing an affiliate program for him, and best of all because it’s based on performance, Joe only has to pay them when sales happen. This means the more sales they bring him, the more they all make. 

MegaAffs then go about setting up the program for TastiCoffee. For this, they use an affiliate tracking platform. This technology is a type of software that will provide affiliates with unique web links that link to TastiCoffee’s website and track exactly where the visitor originally came from, what they purchase, how much they spend, and most importantly, which affiliate sent that visitor. This ability to track this performance is vital and the heart of the affiliate program. 

Be Cautious of Scams in the Crypto Affiliate Marketing Industry

Let’s assume for example, that Joe’s website address is www.TastiCoffee.com, whereas an affiliate will use a link that looks something like www.TastiCoffee.com/?aff=xyz.This means that when someone clicks on the affiliate link, they will be sent to TastiCoffee but every action they take thereafter will be tracked to the whoever the affiliate is with the ID “xyz”. MegaAffs also put together a range of marketing materials for the affiliates to use, such as banners, landing pages, videos, and more. Each of these marketing assets has a unique tracking too, which means that the affiliate can know exactly which assets are performing. MegaAffs also set up the relevant reporting and analytics for affiliates to be able to report on their performance. MegaAffs set up the commission structure with Joe so that everyone, from the program to the affiliates and Joe, all know how much they stand to make with each sale. Finally, with everything in place, MegaAffs notifies its existing pool of affiliates about the amazing and lucrative opportunity to promote TastiCoffee. 

With the program live, affiliates at MegaAffs log into the MegaAffs platform and get their promotional links and whatever promotional materials they plan on using to promote TastiCoffee. The affiliates then go about marketing TastiCoffee. For this example, let’s assume one of the affiliates is Max. Max is a blogger who loves coffee and has a blog all about coffee. Max writes a review about some of the TastiCoffee products, and he puts his unique tracking links into the blog post, and he puts some banners up too. Then, when visitors to Max’s blog click on one of the links or banners, they automatically get redirected to the TastiCoffee website. What the visitor doesn’t see is that the tracking link has now assigned them to Max’s affiliate account. When the visitor makes a purchase on the TastiCoffee site, that sale is then attributed to Max and he is awarded a commission. Depending on the terms of the MegaAffs program, Max might also earn a commission in the future, every time that same customer he referred makes more purchases. The commission could be a fixed value or a percentage of the total sale amount. 

At the end of the month, MegaAffs checks the total sales that Max the affiliate generated in order to send him his commission (referral fee). However, before they finalize the commission payment to Max, they check to see if there were any returns (refunds) or chargebacks. A chargeback is when a customer cancels the payment through their credit card company, which essentially means the sale gets canceled and Max won’t earn a commission for any chargebacks. If all is in order, Max receives his commission. 

From the example above, it should be fairly clear how affiliate marketing works, but obviously, there is a whole lot more that goes into all of this for all the parties involved. 

So, let’s explore a little more about what it involves to be an affiliate marketer. 

How Much Can You Earn as an Affiliate Marketer?

There is no definitive answer to this question. Some affiliates earn a few hundred dollars a month and there are many super affiliates that earn millions of dollars a month. The factors that affect how much you earn include which niches or products you promote, how much time and effort you put into your marketing, the amount of budget you spend, the marketing techniques you use, the size of the target market, and much more. If for example, you intend to promote coffee pods, you probably won’t make a million dollars a year, whereas if you are an affiliate for a financial product or gambling, then the possibility of taking home 6-7 figures is a possibility. This doesn’t mean you should go looking to only promote niches that can produce insane commissions, because the general rule of thumb when it comes to affiliate commissions is that the higher the rewards, the bigger the competition and the more difficult it is to generate sales. 

In the case of gambling products where your referrals could spend thousands of dollars with the merchant, there are thousands of affiliates all competing for their slice of the pie too, which means the costs involved to acquire new customers are also much higher. Just remember, you will have costs like any other business to get those new referrals to the door of the merchant, whether it is hard costs like buying advertising or your own time, which needs to be accounted for. It’s also important to note that today, many multi-million-dollar corporations specialize in affiliate marketing and employ hundreds of employees and have deep pockets to fund their activities. Don’t let the thought of competition put you off pursuing a dream of being an affiliate because many affiliate marketers are individuals like you, who make a particularly good living working online from home. 

The potential to make huge affiliate commissions exist but developing the right strategy and taking the necessary steps and putting in the effort are just part of the puzzle. 

Here are some of the other considerations that determine how much you can earn as an affiliate:

Niche – As mentioned briefly, the niche or products you choose are one of the factors. Choosing the right niche is probably one of the most crucial decisions an affiliate needs to make. There is no shortage of products to choose from and there are literally hundreds of thousands, if not millions of options out there. If you are just getting started as an affiliate, you will do your best to select 1-2 products that you have an interest in, as this makes it far more enjoyable and easier to get going while you gain experience. Do not try to take on too many products in the beginning. Also, don’t be discouraged if you aren’t successful with every option you choose. Low-cost products may not seem like they will generate huge commissions, but when you master your marketing techniques, you may find that you can apply your formula to many low-cost products which all contribute to your bottom line. 

Competition – We already spoke a little about competition, but this doesn’t mean you should try to find niches where no competition exists, in fact, you want there to be some competition. When there is competition, it means there is money to be made. Choosing the niche you plan to promote must take into consideration how much competition there is. 

Commission Model – There are many different types of commission structures that affiliate programs offer which will impact your earnings potential. Some of the most common ones include: 

  • CPA (Cost per Action /Acquisition) – This type of commission will pay you a fixed amount when the referral takes a particular action, typically when they make a purchase. Usually, the commission is a once-off payment. Always be sure to check the commission qualifying criteria of the affiliate program/network. 
  • Revenue Share – As the name implies, the merchant shares with you a percentage of the sale. Commissions can range from as little as 5% up to 60%+, it all depends on the niche, the network, and more. Revenue share can be a once-off or it can be for any sales during a particular period and in some verticals, it can even be for the lifetime of the customer. Lifetime commissions are a great way to build a passive income. 
  • CPL (Cost per Lead) – This commission model pays you a commission for new leads, which means your referrals don’t need to make a purchase and only need to supply specific information so that the merchant can market their products to them and try to convert them into paying customers. CPL commissions can often be less than a dollar up to tens of dollars.

Affiliate Network / Program

Probably the most vital component to being a successful affiliate is the affiliate network you choose to work with. First and foremost, you need to work with a trustworthy and reputable network. This means that their tracking and reporting is accurate and reliable because you certainly don’t want to put time, effort, and money into referring visitors and not getting compensated. A quality network also makes sure their affiliates get paid on time, every time because the last thing you want is to be waiting endlessly for your commissions. Some of the other factors to consider are the tools, marketing materials, and support the network offers. Building a relationship with your assigned affiliate manager is crucial for success, especially when you need assistance. 

Traffic Source

The people you attract and refer to with your marketing are called traffic. Where and how you get your traffic is the biggest cost and factor when it comes to how much you will earn as an affiliate. There are many ways to generate traffic and each source of traffic will produce different quality and quantity of traffic. Some of the most popular ways that affiliate marketers generate traffic are SEO (Search Engine Optimization), SEM (Search Engine Marketing), Paid Media, PPC (Pay Per Click), Social Media, Blogging, Vlogging, and much more.  

Final Thoughts

We have covered the basics of what affiliate marketing is, the parties involved, how it works, earnings potential, and more. We touched on a few details of each of these components, but there is much more to each element. Affiliate marketing is an exciting and dynamic way to make money online and this flourishing, multi-billion industry is constantly growing and presenting new opportunities for entrepreneurs. Start your affiliate marketing journey today and get on the path to becoming the next super affiliate.

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