A Practical Introduction to Affiliate Marketing


Posted in Concepts & Fundamentals on September 21, 2017

In this article, we take a straightforward look at affiliate marketing as an online monetization method. We cover what it is, how it works, how to do it well, and some real-world examples to help guide you.

Non-marketers may have never heard of it. Digital marketers with little experience might think it is the key to 'passive income'.

While the premise of earning commissions for sales is straightforward on the surface, this method of making money online is often misunderstood and even stigmatized.

I have been in the affiliate space for many years. I've experienced the good and bad. I've done things well, and I've done things poorly. In the end, I have earned a decent amount of money via affiliate and learned a ton in the process.

This post is the introduction that I wish I could go back and give myself when I first discovered this method of earning a living online.

What is Affiliate Marketing?

This method of performance-based marketing enables revenue sharing between a merchant providing a product or service, and an affiliate. Over 80 percent of programs use pay-per-sale (PPS) compensation.

In action, affiliate marketing rewards each affiliate a commission when they refer a paying customer to a merchant. Commonly as an affiliate, you'll receive a percentage of the total sale that you helped generate.

This type of compensation is attractive to merchants because no marketing costs are incurred unless a sale is made.

History

The idea of paying a commission for new customer referrals has long been a common business practice. The introduction of the world wide web brought a new level of possibilities through global reach and tracking technology.

During the mid-1990's several online affiliate marketing programs launched from the likes of PC Flowers and Gifts, CDNOW, and Amazon. All of these companies implemented systems through which affiliates would link to their respective websites and earn a commission on their referred sales.

This technology and its popularity have grown rapidly since these early days. Today affiliate marketing pays out billions of dollars in commissions each year. Amazon still continues as the largest affiliate network in the world.

How Does Affiliate Tracking Work?

In order for a sale to be properly attributed, the merchant needs to know which affiliate link a visiting customer clicked. In order to do this, affiliates most often format links to the merchant's site with a unique ID or code, IE:

https://www.merchant.com/product-name/?aff-id=1234

Today there is a wide range of methods for applying the proper attribution to an affiliate link. The most common are cookie tracking. This method places a cookie on the customer when they click through your affiliate link.

As an affiliate, you should investigate the tracking methodology for the merchants and/or networks you work with. This knowledge can go a long way if something goes wrong, or changes come along.

Parties Involved

To better understand the ecosystem around affiliate marketing, let's talk about the players involved in each transaction. There are 3 or 4 players in each transaction, depending on the merchant's implementation.

Merchant (Advertiser)

The merchant is the company or individual providing the product or service that the end consumer purchases. The merchant must choose how to implement the tracking of sales. This can be done in one of two ways:

  1. In-house using a custom tracking system, extension, or plugin managed by the merchant.
  2. Using a 3rd party affiliate network to handle tracking and affiliate management.

The merchant must also decide what the commission rate(s) and payout structure will be. This rate will vary greatly depending on the type of product sold. Physical products commonly range from 1-10% of the total sale. Digital products can be up in the 50-75% range.

Affiliate Network

A merchant may choose to go with a 3rd party affiliate network. The job of these networks is to handle affiliate tracking, management, and recruitment.

In exchange, merchants pay several fees. Normal fees include a setup fee, a percentage of commission, and possibly ongoing fees. An industry standard fee is 30% of the commission paid to affiliates.

For example, if a merchant pays out a 10% commission to an affiliate, they would also pay out 30% of that commission (3% of the sale) for a total of a 13% commission per sale.

Affiliate networks are attractive for advertisers for the following reasons:

  • The network handles the technical implementation and ongoing tracking maintenance.
  • The merchant can tap into the affiliate network's pool of existing affiliates.
  • Low upfront implementation costs.
  • The network pre-qualifies and monitors the activities of affiliates.
  • The network can monitor and handle any issues with poor affiliates.

Affiliate (Publisher)

The publisher or the affiliate generate traffic or interest on a topic, often through the creation of content. They then link off to the merchant and work to drive traffic through those links.

In exchange for this work, affiliates are financially rewarded for each sale, most often using a percentage commission of the total. The affiliate does have a responsibility to disclose their relationship with the advertiser. The guidelines are laid out by the FTC.

Consumer

The consumer is the end user who clicks an affiliate link, proceeds to a merchant's website, and makes a purchase. The consumer may have little awareness of the process going on behind the scenes.

Referral Marketing vs Affiliate Marketing

Though the terms are often interchanged, affiliate and referral marketing are fundamentally different. The main difference is the motivation behind each.

  • Referral marketing is really just 'word of mouth'. The motivation is to share something with personal contacts like friends or family without compensation. Things like great customer service, superior products, and fantastic branding all help build referral marketing.
  • Affiliate marketing is monetarily incentivized. The motivation is to earn a commission for a sale by sending potential customers to a merchant.
Referral vs Affiliate Marketing: What's the difference? [Infographic]

Infographic via ReferralCandy

New to Internet Marketing? Watch out for Snake Oil.

When you set out to learn affiliate marketing, and internet marketing in general, you need to have your guard up. There are many books and courses out there that promise the world: Live a life of freedom. Work from anywhere. Earn a 6-figure passive income etc...

In the online marketing space, 'passive income', 'work less earn more', and 'get rich quick' claims are almost always used as marketing hooks to draw more customers.

These types of sales pitches push you to imagine the fantasy of passive 7-figure income, opulent mansion, and part-time work schedule. Once you're dreaming big, the $99.95 for the e-book with 'the secret' seems cheap - why not shell out the money?!

Man on an endless vacation at the beach.

I haven't worked in a month, the checks keep coming, and there is no end in sight!

Unfortunately, this is a proven marketing strategy that is too often used. The physical separation of guru and customer that the internet affords almost encourages this morally questionable type of sales.

That being said, there are many great products out there offering solid information. My advice is: do your research before you pull your wallet out. One great way to do this is look up the person selling the information and see if they practice what they preach - the best always do.

With that out of the way, let's continue...

The Attractive Upsides to Affiliate Marketing

There is no doubt that affiliate marketing is a highly attractive means of generating revenue online. The benefits of this monetization method include:

  • No or low barrier to entry. While some programs have a strict pre-screening process, many are open to anyone.
  • Unlimited earning potential. For obvious reasons, this is one of the most attractive things about affiliate marketing. This type of monetization scales very well. The more people you send through your links, the more you can potentially earn.
  • You'll find programs in most industries. Chances are, whatever niche you create content around, there are related affiliate programs.
  • You don't have to run an eCommerce business. You simply send a visitor off to the service provider through your link and they handle the rest. Inventory management, order taking, shipping, customer support, returns etc... It's all out of your hands.
  • Location independent. Most affiliate marketers are content creators working entirely online. This makes you free to live anywhere with an internet connection.
  • Massive potential ROI. If you're a marketing wizard, the potential for massive ROI is out there. There are some in the space that are extremely effective and bring in some truly staggering numbers.

When the right content creators are paired with the right companies, these positives really can shine and create a big win-win situation.

Now that we've got all the warm and fuzzy stuff out of the way, let's take a look at the other side of things.

The Less Talked About Realities of Affiliate Marketing

After covering all those positives, everything sounds rosy, doesn't it? The upsides are real, but that doesn't mean everything is easy street.

The following points are less talked about. They aren't usually found in the advertisement for a new affiliate course, but they are real.

If you intend to jump into affiliate marketing, these are realities that you will almost certainly face at some point. I urge you to place just as much focus on these points as you do the positives above.

  • Time and effort required. This concept is what sucks people into the idea of 'passive income'. It's a commonly sold fantasy: just have your VA throw some low quality outsourced content up on a web page, add some affiliate links, do minimal marketing - if any, and start earning a steady income. This sales pitch has duped many would-be affiliates. In today's market, you'll need to put forth a mature level of effort and time investment if you want to earn a living.
  • Shady affiliate networks and/or service providers. Ask any seasoned affiliate about this and you're sure to hear a horror story or two. 'Tracking issues', lost payments, non-payment etc. These are all things to watch out for as an affiliate. Nobody is looking out for your best interest except you. It's not to say that all networks or companies are bad, but in the end, as an affiliate, you have little to no leverage even if things do go south.
  • No customer retention. Repeat customers are the lifeblood of a business. As an affiliate, you're working in the top of the purchase funnel. You attract, educate and inform your visitors and then pass them off through your affiliate links. You may earn a commission, but you won't collect customer information from those purchasers. This means you'll need a constant stream of visitors to your content. What you should do is capture visitor information from those who enjoy your content. You can continue to send them related materials and hope to generate additional sales.
  • Lack of revenue security. As an affiliate, you're at the mercy of the network or company you're working with. You might wake up one day to find your commission have been slashed. The company you're sending traffic to might decide that they want to shut off the program altogether. You're not going to be consulted, you might not see it coming, but you have to deal with it. It can literally mean you're earning tens of thousands of dollars one day, to zero the next. This can be especially devastating if your industry is super niched down and you don't have other monetization options.

By now you should be feeling nice and sober about the realities surrounding affiliate marketing. The short of it all is that it can be a great way to earn a living, but it's not a get rich quick scheme.

How do Affiliates Generate Traffic?

The difficult part of affiliate marketing (or content creation in general) is gaining and keeping an audience. Affiliates employ a wide variety of internet marketing practices to generate traffic and eventually sales. Let's dive into some of the most common methods.

SEO (Organic Search Traffic)

Affiliate marketing is most commonly mentioned in tandem with SEO. Building and ranking a website and sending the traffic off through affiliate links has been proven. Intent-based searches allow you to target buyers at key decision points along their path to purchase.

Affiliates often work to rank the following types of content:

  • Product / Service Reviews
  • Comparison Lists
  • Guides and How To's
  • Shopping Lists
  • And Much More...

This is the most common starting point for new affiliates. Creating and optimizing websites for search is an activity that can be done with very little financial investment. The big factor in SEO is time. Especially these days, it can take 6-12 months before the needle starts really moving.

Email Marketing

Internet marketers know that the "money is in the list". Collecting emails from website visitors creates the opportunity to re-market to them later. This is a great way to generate affiliate sales and should be employed on every website.

Depending on the program, affiliates might place links in their email content, or link back to pages on their website which contain links.

Social Media

By creating a social gathering around a specific topic, an affiliate has a pool of potential visitors to market to. They may provide direct affiliate links from their social profiles or posts. They may also link from their social media pages off to their websites which contain links.

Like an email list, this is a great way to grow a permission-based marketing list. It allows you to market to the same people over and over. The downside is that the platform is ultimately in control of your user data.

Paid Search Advertising

This method of traffic generation is most successfully employed by mature affiliates. Unlike SEO, paid search carries immediate and potentially severe monetary risks. The upside is that you'll be able to see results much quicker.

Like SEO this method carries the benefit of being able to gauge the intent of your searchers by sponsoring specific keywords.

Paid Social Advertising

Social advertising is a different beast than search. This method is the ultimate form of interruption marketing. Social platforms work hard to show only the most interesting posts to their users. Throwing your ad in the mix means you need to stand out and make an impact.

This is a very advanced form of advertising an not for the faint of heart. Doing things right in social advertising can create some immense returns.

Fundamentals of a Good Affiliate Marketer

The following fundamentals are the key to long-lasting success as an affiliate. These ideas aren't the easiest route, but they are the most rewarding in the long term. These traits are also what companies want when they look for affiliates to represent their product or service.

By following these guidelines as a new affiliate marketer you will find things to be much easier as you gain momentum. You'll prevent many, many issues down the line and have a much higher chance of lasting success.

Read & Follow the Terms of Service

Every affiliate program worth its while has an agreement you enter in when signing on as an affiliate. I know you're used to skipping over these types of documents - we all are. Read this one.

The information outlined in an affiliate agreement will define what you can and can't-do as a representative: Are there terms you can't rank for/sponsor in paid search? Can you share your link via social media? Can you market via email?

There is nothing worse than building a project and marketing strategy around something you didn't know you couldn't do. At best you'll have to redirect your efforts. At worst you could end up banned from the program or have to scrap your whole project and start over.

Focus on Adding Value

As you start your journey as an affiliate marketer, this idea should be burned into your brain. As an affiliate, you have an amazing opportunity to influence people. Use this influence for good and always focus on helping others.

By providing advice, insight, or information not found anywhere else, you add value. Doing this makes you a huge asset for the merchant, improves the win-win relationship, and leads to bigger and better things in the future.

Focus on Incremental Sales and New Customers

If you can reach an audience that a brand doesn't have access to, and that brand can pay you a small kickback to send those people their way, it's a BIG win on both sides.

Don't go jack a companies' existing customers. Don't try to 'get in the way' of a sale that was going to happen anyways. Most programs have some non-compete terms in the agreement that combat this anyways.

Follow Guidelines and Disclosure

The Federal Trade Commission (FTC) has created regulations that apply to affiliates. Long story short, you need to disclose your involvement as an affiliate. Failing to do so carries significant consequences.

This disclosure helps customers understand the motivation behind a website's content. Done well it can actually be reinforcing and instill confidence in your visitors.

Be Presentable

As the middleman between the customer and a merchant, you are a touch point in the path to purchase. You represent the business, even if in an indirect way. This means you (your website and content) should be presentable. Good design, quality content, clean graphic design, error-free writing, and overall brand presence matter.

The best way to know if you're doing a good job is to put yourself in the shoes of the merchant: If I was Apple, would I want a spammy, error-filled, poorly designed website representing my business? Probably not.

Mirror the big brands. Mirror those doing it well. One of the main advantages of the internet is the ability to control your appearance. Learn to do it better than the rest and back it up with quality content. You'll be setting yourself up for success.

Potential Issues with Affiliate Marketing

Due to its nature, the affiliate system has potential to be manipulated by all the parties involved. Although these issues are not the norm, they have all existed in some form. These issues have also become much less common as the industry has matured.

Potential issues include:

  • Email, Search and Other Spam
  • Trademark Bidding
  • Cookie Stuffing
  • Adware
  • Affiliates Providing No Added Value

At the end of the day, running an affiliate program is not a set it and forget it activity. Merchants need to be prepared to actively manage affiliates, or employ a good network to handle it for them.

Though the issues mentioned in the section above do exist, they are not the prominent way things are. They are worth mentioning simply because knowing both sides provide more perspective for a marketer.

Shining Examples to Model

We've covered a wide range of fundamentals. You're probably starting to envision the major pieces in your mind. To fill in the gaps, I've gathered a short list of examples. This should help fill in the gaps and create clarity across the overall picture.

Note that all of these examples have some serious combination of time, personnel, and/or financial commitment to bring them to this level. Use them as inspiration for your long game.

The Wirecutter

The Wirecutter Homepage Screenshot Consumer Guide Website
http://thewirecutter.com/

This amazing project takes a common affiliate theme ('best products') and takes it to a stratospheric level. The website contains a wealth of thoroughly researched, well-written, human touched articles. The content helps people choose the best product for a specific need.

Each article follows a similar format. Experts help review products and provide a wide range of supporting information on the topic. They then link off to one or more retailers where you can purchase each product.

The website is so well done that the New York Times bought the site and its sister site The Sweethome in 2016 for over $30 million!

NerdWallet

Nerdwallet Homepage Screenshot

Informational Content Site
https://www.nerdwallet.com/

NerdWallet is in the highly lucrative financial sector. They've done a great job at targeting their market of technologically savvy users who need help with their finances.

They employ a wide range of content strategies, database displays, reviews, and even apps to make finding financial advice and products a breeze.

Since the early beginnings in 2009, the site has grown to a valuation of over $500 million and employs close to 300 people.

Casey Neistat

Casey Neistat YouTube Channel Screenshot

YouTube Filmmaker
https://www.youtube.com/user/caseyneistat

Credited as a pioneer of vlogging, Casey Neistat has grown wildly popular on YouTube through his original films and daily videos. Casey's unique personality has influenced countless new video creators.

Due to his dedication to quality filmmaking, Casey often carries a full DLSR camera on a bendy tripod. Casey includes a gear list in the description of each video using affiliate links. This makes it easy for would-be vloggers to mirror his style and find the right gear for the job.

He sets an example through action and then provides the resources to help others with their blogging gear. It's a fantastic example of subtle yet effective monetization through social influence.

PCPartPicker

PCPartPicker Homepage Screenshot

Online Tool
https://pcpartpicker.com/

If you're into building PC's this website is hands down amazing. The site features a database of PC products combined with a build tool that assists you in building a computer from start to finish.

The site contains, guides, user builds, and a thriving community of PC builders. This creates return visitors and brand loyalists because these guys just drive so much value.

Each product page on the site has a comparison chart with prices from all retailers for the specific parts you choose. The site uses affiliate links for all these retailers.

These sites are just a few great examples of affiliates doing a wonderful job and working hard to get there. Hopefully, they help inspire you to start executing on your ideas. Remember - creativity is key!

Conclusion

I hope this article was helpful for you regardless of where you're at in your journey as an affiliate marketer. Feel free to leave feedback or questions in the comments below or via the contact form.


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