This article provides a practical explanation of the Affiliate Marketing. After reading, you’ll understand the basics of this powerful marketing tool.
What is Affiliate Marketing?
Affiliate marketing is a marketing model in which external parties receive a commission to promote products or services for a company. These external parties — bloggers, for example — generate internet traffic for the products or services of a company paying for that service.
The affiliate marketing process consists of several parties. First, there are the external parties — referred to as affiliates. The affiliate generates internet traffic for the second party: the advertiser. He or she uses an affiliate network using traceable cookies and links. When the consumer proceeds to purchase the product, a fee is paid via this network.
Although affiliate marketing already existed before the internet age, it significantly increased in popularity after Amazon started implementing large-scale, affiliate marketing campaigns, with websites and bloggers posting internet links on their website forwarding to Amazon pages. These blogs often discuss or review a product, and the writer receives advertising costs after a purchase is made. Affiliate marketing is especially popular in the digital age, partly because it has become possible to use analysis and cookies to identify which particular links create leads and sales.
How it works
This scenario describes a simple example of affiliate marketing. Let’s say Jonathan is a fan of gadgets and starts his own website. The website is all about gadgets and Jonathan writes his own blogs, demonstrates how the gadgets work in videos, and discusses their pros and cons. Every time a new gadget is launched, Jonathan is one of the first to test it on his website. This makes Jonathan the affiliate.
The blogs in which Jonathan discusses the gadgets include a link to the page where the product is available for purchase, the advertiser. This is not a regular link such as www.gadgetshop123.com/nieuwegadget1 , but instead a link that looks more like www.gadgetshop123.com/nieuwegadget1/affiliateID123.
If after reading Jonathan’s blog, a visitor becomes enthusiastic and decides to buy a product through this link, Jonathan — the affiliate — receives a commission for referring the consumer to the advertiser’s website. The exact structure of this fee depends on the compensation method used.
Naturally, there may be cases in which consumers end up on the advertiser’s website, yet decide to purchase the product at a later time. They might want to wait until they receive their pay and close the browser. Thanks to cookies, the affiliate will still receive the commission when the consumer returns to the website and purchases the product. As long as the cookies aren’t removed in the meantime, of course.
One important link in affiliate marketing is the affiliate network. Affiliate networks offer solutions for traceable links, reports on both the affiliate and advertiser, creative banners, and support in case of problems. Because many affiliates and advertisers are members of these networks, these networks often have many partners. As a result, they serve as a source for recruiting affiliates for companies that want to promote their products in different ways.
To ensure tracking solutions work effectively, affiliate networks will often ask affiliates for a start-up fee. Depending on the type of package, a monthly management fee may also be charged. In addition, affiliate networks usually ask a percentage of the commission earned by the external partner. This is referred to as a commission override and is usually around 30 percent.
Naturally, there’s always a chance that visitors decide not to purchase a product or service. This doesn’t necessarily mean the affiliate will not receive compensation for the internet traffic he has generated. The affiliate and advertiser will agree in advance about how the compensation is provided and amount thereof. There are a number of different compensation models. Depending on the affiliate network, the affiliate often has some choice in terms of the compensation model.
Pay Per Mile (PPM)
This is the least popular type of compensation model. Nevertheless, it is still being offered by several affiliate networks. In this model, an amount is paid based on the number of views, per 1,000 views. In other words, after 1,000 views via the affiliate’s link or other forwarded traffic, the affiliate is awarded a certain amount.
Pay Per Click (PPC)
This compensation model is common for search engine marketing (SEM), but is also widely used in affiliate marketing. Every time a user clicks the affiliate’s link, the affiliate receives a compensation. This compensation model is purely about generating clicks, and therefore not necessarily about what happens after the click or whether sales are generated or not.
Pay Per Sale (PPS)
About 80% of affiliate networks use the PPS compensation model, making it the most popular model. The goal of this compensation model is to increase sales through traceable links. For example, the affiliate shares a link the consumer may click, after which he is directly forwarded to the product page. Following purchase of the product, the affiliate will receive a fee. This is also the compensation model used in the example above.
Affiliate Marketing Strategy
Whether or not affiliate marketing will be successful for your company depends on a large number of aspects. The same applies if you want to start earning money as an affiliate. It is therefore highly recommended to consider these in advance. Below are several tips and points of interest that are important when creating an affiliate marketing strategy.
Know the audience
Like any other marketing strategy, in affiliate marketing it is important to address the right target group. This applies to both the advertiser and affiliate. In case of the affiliate, it is important to promote products or services that provide solutions to the target group’s problems. For instance, if affiliate A has a sports blog, it is not wise to display partner ads for cars or coffee machines.
The more relevant the ads are to the target group, the greater the chance that they will be successful. Knowing one’s audience is also data-driven. The data users leave behind provide a lot of demographic, psychographic, and other relevant information.
Choose the right products
After the target group has been established, it is time to assess the various options available for promoting products or services. What products or services do the readers enjoy? What products or services actively benefit them? Do the products or services provide solutions? These are crucial questions when deciding on specific products or services.
Also opt for the right category of products in terms of price. Consider offering more expensive products for higher commissions or even an ongoing monthly commission. Cheaper products that sell easily often provide a good base income.
Create content that the competition cannot compete with
They key towards success in affiliate marketing is attracting and maintaining new visitors. One way of doing so is to publish timeless content. Even older content — e.g. a blog written 5 years ago — can still be relevant without being on the front page. However, if visitors find a blog with outdated information, they’ll leave quickly. Therefore always consider writing relevant, timeless content. It is also recommended to update older articles or blogs with links to newer blogs. This way, the findability of the articles and blogs remains strong thanks to a high position in the results.
Now it’s your turn
What do you think? Are you familiar with the explanation of affiliate marketing? Are you responsible for your company’s affiliate marketing and has this article helped you in any way? What compensation model do you think is most profitable for the affiliate party? Do you have any tips or additional comments?
Share your experience and knowledge in the comments box below.
- Duffy, D. L. (2005). Affiliate marketing and its impact on e-commerce. Journal of Consumer Marketing, 22(3), 161-163.
- Goldschmidt, S., Junghagen, S., & Harris, U. (2003). Strategic affiliate marketing. Edward Elgar Publishing.
- Fiore, F., Collins, S., & Foreword By-Marciano, J. L. (2001). Successful affiliate marketing for merchants. Que Corp.
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