Affiliate Marketing Explained in Fewer than 800 Words

What Is Affiliate Marketing?

Affiliate marketing is the process by which an affiliate earns a commission for marketing another person’s or company’s products/services. The affiliate simply searches for a product they enjoy, then advertise that product and earns a piece of the profit/revenue from each sale they make. The sales are tracked via affiliate links from one website to another.

How Does Affiliate Marketing Work?

Because affiliate works by spreading the responsibilities of product/services marketing and creation across parties, it manages to leverage the abilities of a variety of individuals for a more effective marketing strategy while providing contributors with a share of the profit. To make this work, three different parties must be involved:

1. Seller and product creators.

The seller, whether a solo entrepreneur or enterprise, is a vendor, merchant, product creator, or retailer with a product to market. The product can be a physical object, like household goods, or a service, like makeup tutorials. Also known as the brand, the seller does not need to be actively involved in the marketing, but they may also be the advertiser and profit from the revenue sharing associated with affiliate.

2. The affiliate or publisher.

Also known as a publisher, the affiliate can be either an individual or a company that markets the seller’s product in an appealing way to potential consumers. In other words, the affiliate promotes the product to persuade consumers that it is valuable or beneficial to them and convince them to purchase the product. If the consumer does end up buying the product, the affiliate receives a portion of the revenue made.

Affiliates often have a very specific audience to whom they market, generally adhering to that audience’s interests. This creates a defined niche or personal brand that helps the affiliate attract consumers who will be most likely to act on the promotion.

3. The consumer.

Whether the consumer knows it or not, they (and their purchases) are the drivers of affiliate. Affiliates share these products with them on social media, blogs, and websites.

When consumers buy the product, the seller and the affiliate share the profits. Sometimes the affiliate will choose to be upfront with the consumer by disclosing that they are receiving commission for the sales they make. Other times the consumer may be completely oblivious to the affiliate marketing infrastructure behind their purchase.

Either way, they will rarely pay more for the product purchased through affiliate marketing; the affiliate’s share of the profit is included in the retail price. The consumer will complete the purchase process and receive the product as normal, unaffected by the affiliate marketing system in which they are a significant part.

Advantages and Disadvantages of Affiliate Marketing

The advertising company sets the terms of an affiliate marketing program. Early on, companies largely paid the cost per click (traffic) or cost per mile (impressions) on banner advertisements. A technology evolved, the focus turned to commissions on actual sales or qualified leads. The early affiliate programs were vulnerable to fraud because clicks could be generated by software, as could impressions.

Now, most affiliate programs have strict terms and conditions on how to generate leads. There are also certain banned methods, such as installing adware or spyware that redirect all search queries for a product to an affiliate’s page. Some affiliate marketing programs go as far as to lay out how a product or service is to be discussed in the content before an affiliate link can be validated.

So an effective affiliate marketing program requires some forethought. The terms and conditions must be tight, especially if the contract agreement pays for traffic rather than sales. The potential for fraud in affiliate marketing is possible.

Unscrupulous affiliates can squat on domain names with misspellings and get a commission for the redirect. They can populate online registration forms with fake or stolen information, and they can purchase AdWords on search terms the company already ranks high on, and so on. Even if the terms and conditions are clear, an affiliate/online marketing program requires that someone monitor affiliates and enforce rules.

In exchange, however, a company can access motivated, creative people to help sell their product or services to the world.

KEY TAKEAWAYS

• Affiliate marketing is a marketing scheme in which a company compensates affiliate partners for business created from the affiliate’s marketing tactics.
• Firms typically pay per sale and less frequently by click or impression.
• As technology evolves, it is becoming increasingly easier for fraudsters to generate multiple clicks and impressions via software.
• Firms use innovative ways to circumvent fraudulent attempts to drive business.

Fast Fact

According to Business Insider, 15% of e-commerce revenue can be attributed to affiliate marketing.