Affiliate Marketers act like a salesforce for a business.
Marketing can be a costly investment for businesses. Big investments into advertising can be an elevated risk if you do not know the return.
Would it not be great if someone else better at marketing took up that risk and funded the marketing?
You could pay them a small commission fee for each sale. It may sound too good to be true, but it is not. This is called affiliate marketing.
This article explores affiliate marketing, how it works and the benefit it provides to both the seller and the affiliate marketer.
What is Affiliate Marketing?
Affiliate marketing is an endorsement-based advertising strategy, that earns promoters (affiliate) money when internet users act on that marketing.
Based on a model of revenue sharing, vendors (merchant) offer a financial incentive such as a commission, through an affiliate program. Affiliates earn a piece of the profit for each sale through creating marketing content to try redirect customers through a customer URL to the merchant’s product.
Affiliates can make money promoting products and services and make an income, without actually having any of their own.
For the merchant, it employs the help of affiliate to invest time and money into marketing your products or services. to expand their reach on the target (online) audience.
According to Mediakix, affiliate marketing spending increases every year in the USA, with around a 10 percent yearly increase in affiliate marketing spending.
Affiliate marketing refers to an online relationship between the so-called merchant and the affiliate, where the merchant pays the affiliate a commission to redirect potential consumers to the merchant’s website (Libai et al., 2003).
How Affiliate Marketing works
Affiliate marketing involves four different parties:
• The merchant,
• The affiliate,
• The affiliate marketing network, and
• The customer.
From a marketing point of view, there are two components: the merchant who has produced the product or service for sale and the affiliate marketer who promotes it.
With a traditional business model, the seller bears the risk that profit exceeds the overall marketing costs. However, an affiliate takes on the promotion efforts and then earns a piece of the profit from each sale they make. This is usually via a predefined commission, and the sales are tracked via personalised affiliate links.
For the affiliate, they just need to be good at marketing. It works similarly to somebody employed in sales on commission. Such as real estate agents. This incentivises their performance. This is a huge benefit to the merchant having a purely commissioned sales force and predictable marketing costs.
In the other hand, affiliates can create a revenue stream without investing in inventory or infrastructure.
“The key to successful affiliate marketing lies in the construction of a win-win relationship between the advertiser and the affiliate.” (Duffy, 2005)
1. The merchant
The merchant is also known as the seller, vendor, or retailer. They are the party who created the product to market — it could be a physical object or a service. They could be a sole trader or a large corporation. Once the product is created, they are not required to be actively involved in marketing. They have others do the promotion, in exchange for a commission on sales.
2. The affiliate
Also known as the content creator or the publisher, the affiliates try to create appealing marketing to attract customers to the merchant’s website. They create content for the products to share on social media, blogs, and websites.
Affiliates often already have an audience or following on social media, so they choose products in their niche that meet the needs of their audience. For example, If I had built an audience posting content about fitness and health, I would not become an affiliate marketer for a candy company.
“There are thousands of affiliates, working for many different advertisers simultaneously, driving incremental traffic and sales in exchange for commission.” (Duffy, 2005)
3. The network
Many merchant/affiliate relationships are managed through affiliate marketing networks. There are two key relationships: The first is with the affiliate and the second is with the merchant. The network works as an intermediary between the merchant and the affiliate.
Affiliate marketing networks such as Linkshare, Commission Junction, and Clickbank facilitate the tracking of sales transactions, payments and product delivery. Their technology tracks all the activities and manages the commissions and the issuance of payments to affiliates.
These networks also serve as a database of products, out of which the affiliate can choose products or services to promote. The network facilitates the management of applicants, making the process of participation easy for both the merchant and the affiliate.
Amazon also has an affiliate network (Amazon Associates Affiliates Program), to help promote consumer products such as books and toys, sold on their platform.
4. The consumer
The consumer (or customer) make this relationship work. If they do not purchase, there is no revenue and the affiliate will not receive a commission. When consumers buy the product, the seller and the affiliate share in the profits.
There will not be a higher price for consumers purchasing through an affiliate, as the cost of the affiliate network is typically included in the price.
