What is Affiliate Marketing and How It Works?

While most of the people know what is affiliate marketing and how it works but if you are planning to make money with affiliate marketing, you have to look at it from a different perspective.

What is Affiliate Marketing

According to Wikipedia, it is a performance-based marketing where the business rewards (monetary) to its affiliate for every sale (or a specific action taken by the visitor).

In simple words, affiliate marketing is the process of earning commission by promoting other people’s products.

For instance, you purchased a fish finder from Amazon and liked it. You told your friend about it, its features and all the stuff. Your friend was convinced and he visited the Amazon and purchased a fish finder from the same seller. This is what we call ‘word of mouth’ marketing. Though you convinced your friend (and did all the marketing, unintentionally) but you were not paid for your efforts.

Alternately, if you share a unique link to your friend and tell him to purchase fish finder from your link, you will be paid for your efforts because all the sales that are recorded through your unique link are tracked by Amazon. This is known as ‘affiliate marketing’.

It is just like traditional affiliation or licensing business model. The business owner gives legal right to its affiliates to market and sell the product(s).

With online affiliate marketing, affiliates don’t have to create anything rather they get the product, the landing page, and even advertising material from the business.

 

Affiliate Marketing Types

Affiliate marketing has different types but the two most famous ones are:

  • Pay Per Sale
  • Cost Per Action

Pay Per Sale (PPS)

PPS is also known as Revenue Sharing affiliate model. You are paid per sale, as the name shows it all. It doesn’t matter how much you invest in the marketing and how many visitors you send to the landing page, all that matters is the number of sales.

Almost 80% of the affiliate programs on the internet use PPS model which makes it the most famous and most used affiliate marketing model.

Cost Per Action (CPA)

Around 19% of the affiliate programs on the internet use CPA model which makes it the second most used affiliate business model.

As an affiliate, you are paid when a visitor completes a specific action on the merchant’s website. This action can include downloading a file, submitting an email address, filling a form etc. In this case, you will be paid if the action is taken.

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You don’t have to make a sale in this case which makes CPA a bit easier as compared to PPS. Of course, it is easy to convince someone to submit one’s email address as compared to convincing someone to purchase a product.

The remaining one percent affiliate programs use other affiliate marketing types like Cost Per Click (CPC) and Cost Per Mile (CPM).

Note: When we talk about affiliate marketing, we generally mean PPS unless specified.

PPS VS CPA

PPS affiliate programs pay you more while CPA programs pay less.

It is obvious since, in the case of PPS, you have to make a sale while in the case of CPA, you don’t have to make a sale.

When you make a sale, you get the commission on the basis of the price of the product. Expensive products will pay you more while low-priced products will pay less.

On the other hand, CPA marketing pays you a few bucks (in most cases). However, there are merchants that pay you $100 or as high as $200 for generating leads only. That is, if the visitor fills the form and submits his/her information, you get paid as high as $200 or even more.

But generally, CPA offers pay you no more than a few bucks (under $10).

 

Key Players in Affiliate Marketing and their Roles

The affiliate industry has four key players:

  1. The merchant or the business or the product owner.
  2. The affiliate network that controls all the offers for the affiliates to choose from. Affiliate networks connect affiliates with merchants.
  3. The affiliates or affiliate marketers.
  4. The customer or the buyer.

Merchants

Merchants are the businesses that own the product. Instead of investing in marketing and promoting their products themselves, businesses recruit affiliates who do all the marketing for them.

For merchants, affiliate marketing happens to be an easy route since they just have to sit back and pay their affiliates on the number of sales. No sales, no commission. This is what makes affiliate marketing ideal for businesses.

Affiliate Network

Not every merchant runs and manages its own affiliate program as it tends to be an expensive as well as technical task. Most of the merchants sign up with affiliate networks where they list products in the marketplace.

An affiliate network connects merchants to affiliate marketers. All the transactions are handled by the network, it manages payments, affiliate links, tracks and monitors, and is responsible for all the activities.

ClickBank, Amazon and Commission Junction are affiliate networks.

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Affiliates or Affiliate Marketers

Affiliates choose affiliate products from the affiliate network. For instance, being an Amazon affiliate you can choose any product from Amazon marketplace and promote it.

Affiliates promote products and get the commission on every sale they generate.

Customers

Customers are the buyers who purchase affiliate products.

 

How Affiliate Marketing Works

Let’s break down the entire affiliate marketing process into steps.

  1. Merchants sign up with the affiliate network and list their products in the marketplace.
  2. Affiliates also register with affiliate networks to find and choose right affiliate products.
  3. An affiliate selects an affiliate product.
  4. The affiliate network creates a unique URL (link) for the affiliate. This link is used to track visitors and sales.
  5. Affiliate promotes the link on the internet through different marketing methods.
  6. All the people clicking on the unique link land on the official website (or sales page) of the merchant.
  7. All the visits and sales are recorded by the affiliate network.
  8. In case of a successful sale, the affiliate network disburses the payment. Merchant and affiliate both get their due share.
  9. Affiliate can withdraw commission after a certain period of time.

Affiliate network plays the central role in the entire process. This is the reason you have to be very careful when choosing an affiliate network so that you can get the commission on time.

As an affiliate, your job is to choose an affiliate product, promote it by sharing the link with people via your blog, website, social media account or other ways, and get your share. Everything else is handled by the affiliate network (and the merchant). You get everything readymade on a plate, all you have to do is promote the product.

The affiliate network attaches a cookie with the browser of all the people who click on your affiliate link. This cookie tracks the information and monitors user activity. Even if the user doesn’t buy the product at first visit, you will still get paid if he purchases the same product after a few days.

Based on the life of the cookie (which could be 30 days or 60 days or a year), if the user visits the website again within this duration and purchases the product, you get your commission.

The good news is that you don’t have to do any of this technical stuff. You just have to do the marketing and that’s all.

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