What is Affiliate Marketing? How Does It Work?

28 October 2021
10min
Marketing
What is Affiliate Marketing? How Does It Work?

Hi, my name is Jonas. I would like to introduce you to a business opportunity, one where you can make money even while you sleep. This is a system that will generate money for you, while you are at your nine to five. You can have another source of income or one where you do not have to go to work at all. It requires little or no capital. The best thing is, you can work remotely from anywhere, just from your PC or mobile phone.

Above sound familiar? If yes, there’s a chance affiliate marketing has been pitched to you.

If you have helped someone make sales through referral and got rewarded a portion of their sales income, you have also worked as an affiliate marketer!

It is an e-commerce marketing system of making sales online through a third party while generating income for the third party in the process.

According to a rakuten report, over eighty percent of brands employ affiliate marketing today, and this figure is expected to grow in the coming years.

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How Exactly Does Affiliate Marketing Work?

Affiliate Marketing is not rocket science. It is a marketing model in which a company/merchant (herein the seller) compensates a third party (herein the affiliate) for generating traffic through which sales are made by the company. Celebrities, social media influencers make money from affiliate marketing. Affiliate marketing uses social media platforms like Instagram, Facebook, and Twitter to make money.

Affiliate marketing involves three individuals;

The Seller

The seller is an entrepreneur or large company with a product to sell to the public. These products could be in the form of goods, objects that can be seen and touched or services to be rendered.

The seller is otherwise known as the brand, the creator, the merchant, the vendor, or the retailer. These terms will be used interchangeably in the rest of this article.

A seller cannot reach all the potential consumers of his product. Therefore, he has to employ the services of an affiliate marketer.

The Affiliate

Traditionally, buying and selling involve just the seller and the buyer. However, there is now a new addition of a third party to the equation, the affiliate.

The affiliate also known as the publisher or the marketer is an individual or establishment that helps the seller to market and advertise their product in an appealing way to potential customers. The affiliate is saddled with the responsibility to promote the seller’s products to generate revenue for the seller. The affiliate then receives a portion of the proceeds from sales if the consumer ends up buying the product.

The Consumer

The consumer is simply the one that makes a purchase from the seller through the publisher.

The consumer is the driver of affiliate marketing.

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Product sellers usually would generate custom links for their affiliate marketers. This link is unique to each marketer as it contains a special ID code. The affiliate marketer then decides to share this link on their website, social media pages, or any platform they decide to use as a hyperlink.

An affiliate marketing link will look like this. The link can also be embedded in a hypertext.

When any user who visits their blog or page clicks on the link, the system algorithm recognizes their link and records every activity performed with that link. If a potential consumer eventually makes a purchase with the link, the software records and pays the affiliate a percentage of the sale.

The system can be designed to accumulate your earnings and pay you after a period of time or pay you per purchase.

Critically looking at it, affiliate marketing has always existed. Although, in modern times it involves the use of internet traffic to generate sales. A simple example of basic affiliate marketing is “word of mouth” promotion where an individual refers potential customers to a seller and gets paid a certain percentage as commission whenever a customer referred by him makes a purchase. Only in modern marketing, the internet ads have taken over “word of mouth” referrals.

The goal of affiliate marketing is to make sales, not just draw traffic to the seller’s page. This is why most sellers or companies pay per sale and not just per click. That is, if a potential consumer clicks on your affiliate link but does not eventually complete a purchase, you do not get a commission.

Factors That Affect Affiliate Marketing

The Size of the Affiliates Network

The number of audiences the affiliate has. A very large audience equals more traffic.

The Type of Product

Products move vary from product to product. Some products move faster and will generate revenue faster than other products.

Marketing Platform

The choice of a platform to advertise products will influence the performance of the product.

Facebook has over four billion users, which means a larger audience for any product that is marketed on the platform.

Affiliate Marketing Channels

Bloggers

E-mail lists might be an old-school model way of marketing for the younger generation but email listing is still a very valid affiliate marketing channel.

How does an email list work?

Affiliates collect the email addresses of people over time from campaigns and then create a mailing list. They then send emails in form of newsletters, promotional emails, that contain hyperlinks to products enabling them to earn a percentage commitment from sales generated from their link.

Social Media Influencers

An influencer is one who influences or impacts the lifestyle decision of others. These lifestyle decisions include clothing, appearance, occupation, and financial decisions like purchases. Influencers are usually celebrities and model figures in society.

They have a large audience on social media and their endorsements of certain brands and products influence people’s opinions about the brand. Influencers engage the use of social media posts, blogs to direct consumers to the product sellers and receive a commission of the sales the merchant makes through their influence.

Brands partner with influencers to promote their products.

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There however is a disadvantage for affiliate marketing via influencers, only consumers that follow the influencer may get an opportunity to purchase products.

The most common social media used by influencers for affiliate marketing is Instagram. Affiliate links are usually embedded in swipe-ups, stickers, and reels.

In social media language, nano, and micro-influencers have between a thousand to a hundred thousand followers.

Websites

Affiliate marketing started with websites and blogs before it moved to social media.

Affiliate marketing uses SEO optimization to market products on websites and blogs.

Vendors and marketers study the pattern of people’s search requests for certain products on search engines. They then infuse these keywords into their website or blog posts so that the next time people search for these products, their websites or blogs will come up as suggestions and this will drive potential consumers to their blogs or websites. When the merchant makes a sale from any of these site visits, the affiliate then gets a percentage commission.

Other channels of making money from affiliate marketing are video marketing and microsites.

Tracking Performance in Affiliate Marketing

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To measure the effectiveness of affiliate marketing in your business, below are a couple of metrics to track your performance.

Clicks

The number of clicks your affiliate marketing generates reveals the exposure level of your products.

Earnings Per Click

It’s not enough that you get traffic on your e-commerce page. The essence of affiliate marketing is to generate revenue through sales. How many of your affiliate marketing clicks end up in sales?

Return on Ad Spend

To calculate this, you divide the total earned revenue from affiliate marketing by the total sum of costs such as affiliate commissions, affiliate management, affiliate system usage, or affiliate program software.

It is also referred to as Return on investment (ROI).

When your total cost on affiliate marketing is lesser than the revenue generated from affiliate marketing, then you have made a profit from affiliate marketing. When your ROI is lesser than the total costs incurred in affiliate marketing, then you have run at a loss.

When your ROI is equal to the total cost of affiliate marketing, you have neither gained nor lost.

Conversion Rate

A conversion rate is one of the best ways to assess the performance of your affiliate(s). It is one of the Key performance indicators (KPI’s) in affiliate marketing. You can compare the conversion rates of all your affiliates and pick the top best.

To calculate your conversion rate divide the number of conversions by the number of clicks per product or link.

One of the ways to increase the conversion rate is by offering discounts, or special deals. Your purchase process should also be straightforward as possible as this can be responsible for a low conversion rate.

Number of Sales

How many sales do you make through your affiliate links? The number of sales your product makes during an average period of time is an indicator of how well your affiliate marketing is doing. According to a Forbes report, affiliate marketing generates sixteen percent of e-commerce sales right behind social media marketing. Your affiliate marketing plan, therefore, has to be reviewed if you are not making sales from it or you are making sales below the expected.

Total Purchase Through Affiliate Links

Total purchase through affiliate links reveals how much of your purchase comes from affiliate marketing. This will reveal to you if your investment in affiliate marketing is yielding returns.

Sales Per Affiliate

Because each affiliate has a unique ID, you can determine which of your affiliates brought in the most sales.

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Advantages Of Affiliate Marketing

It is a Way to Make Passive Income

Unlike conventional jobs that require you to be on-site to make money, affiliate marketing is a way to generate passive income. It is a type of income source that gives continuous returns. For example, a salary earner only earns salary at the end of the month for work done, which means you cannot work in May and get paid, then expect to receive payment in June and July simply because you have worked in May.

Even when you are not actively working, your skills will generate a steady flow of income for you through your affiliate links.

Work Flexibility

Affiliate marketing affords some flexibility that “regular” old-school marketing does not. One does not need to move from one place to another to market or get customers for a product.

It saves you from the endless cycle of waking at 5 am, driving to work sleepy-eyed amidst annoying traffic, only to get to work to sit behind a desk all day, leave when it’s 5 pm. This convenience allows you to work from the comfort of your home while you stay in bed, on your laptop at a coffee shop, or on your phone at the salon. The flexibility is endless.

No Customer Support

As an affiliate marketer, you are not responsible for providing customer satisfaction. Your job is to link the consumer to the merchant in order to generate sales for the merchant. What’s more interesting is your payment is not in any way hindered or disrupted by any concerns or differences between the merchant and consumer as long as the purchase was successful.

It is Performance-Based

With affiliate marketing, your earnings are proportional to your performance. In contrast with regular office jobs, you can work overtime and still earn the same salary you’d earn for working your normal hours. When you create engaging and captivating ads, it will drive traffic to your link which ultimately means more money for you. This way you control what you earn a hundred percent.

Disadvantages of Affiliate Marketing

It is Strictly Commission Based

Although some merchants pay affiliates per lead and per click, the standard affiliate payment is by sale. Therefore in a pay-per-sale, if an affiliate or publisher does not successfully make sales for the vendor, he or she would not get paid irrespective of the number of times visitors visit the merchant’s e-commerce page with the affiliates link.

It Takes A While To Get Established

Contrary to the image many companies have painted for you about affiliate marketing, making money as an affiliate marketer is a long process and is not as easy as they mentioned.

First, you have to decide on products to market, find affiliate partnerships, get a platform for publishing, build an audience and gain the trust of your readers. This process sometimes takes people years, however, there are exceptions. Affiliate marketing is not a get-rich-quick scheme.

Highly Competitive

A merchant is using affiliate marketing to make sales because of high competition in the market. This in turn makes it a very competitive job for you because many other vendors selling the same products have also employed the services of an affiliate marketer. Now there’s a whole lot of affiliate marketers marketing the same product which makes sales very competitive.

Payment Methods of Affiliate Marketing

After connecting the seller to the consumer, there are three major ways through which the affiliate can get paid

Pay Per Sale

This payment structure is the one in which an affiliate gets paid a commission or percentage cut of the product’s sale price after the consumer makes a purchase using the affiliate’s unique ID link. This is the most common payment structure in affiliate marketing. It is also the standard payment structure. Because the end goal of affiliate marketing is to make sales, it does not matter if the consumer only clicks the link and views the product or keeps it in a cart. The affiliate only gets rewarded when their effort results in a sale.

Pay Per Click

In this payment structure of affiliate marketing, payment is made whether the merchant makes sales or not. The affiliate gets paid for directing traffic to your e-commerce page.

Pay Per Lead

This payment structure is due to the completion of tasks using affiliate marketing. The generated affiliate link here is not to necessarily make sales, it could be to sign a form of a petition, to partake in an online survey, to subscribe to a newsletter, or to like a profile.

Affiliates’ job in this structure is to get visitors to leave their information like email or telephone. This information in turn is usually used by merchants for promotional purposes.

Examples of Major Affiliate Marketing

Amazon Affiliate Marketing

Amazon runs one of the world’s largest affiliate marketing programs where associates can earn up to ten percent in commission on sales. Becoming an Amazon affiliate marketer is a scrutinous process. To become a marketer, one has to meet Amazon’s requirements. Some of the criteria are;

  • Ad hosting website/blog has to be publicly published
  • It must not contain offensive, violent or obscene content or any content whatsoever that is deemed harmful to others.
  • Content has to be original and not replicated from another creator or site.

Amazon does not give reconsideration to a rejected affiliate application.

eBay Affiliate Marketing

eBay has an affiliate marketing program called the eBay Partner Network where affiliate marketers can share their listings outside of eBay and get paid when a product is purchased via the listing.

Etsy Affiliate Marketing

To be eligible as an Etsy marketing affiliate partner, applicants must be at least eighteen, have a unique website, and meet other requirements.

It is important that one thoroughly reads and understands the terms and conditions of their affiliates.

Frequently Asked Questions

How much money does an affiliate marketer make?

Income as an affiliate marketer is dependent on the efforts, skills, and performance of the affiliate marketer. Earnings range from a couple of hundred dollars to millions. An average income cannot be determined because it is based on performance, the affiliate’s reach, the influence of the affiliate, time invested into marketing, nature of the product, price of the product, location, etc.

Does purchasing through an affiliate link make products more expensive?

No, purchasing a product through an affiliate link does not increase the price of the product. Some companies even give discounts on purchases made through affiliate links.

Commission on sales is made by the merchants and does not in any way affect your purchase price of a product.

Sometimes, affiliate marketers will disclose that they do get a portion of the sales made via their links but this does not affect your purchase.

Will I not run at a loss if I engage affiliate marketing to my online retail?

This is a very tricky question. For affiliate marketing to be productive, the volume has to be involved. It will be quite difficult to part with five or ten percent of a sales total revenue as commission for affiliate sales, the commission might as well be your profit.

Engaging affiliate marketing without enough product volume may not work.

This is why it is advised to seek the counsel of a business expert on the best options for promoting sales in your business.

Can I run my brand’s affiliate marketing?

Absolutely! This is a way to make double money or retain your money because you get to receive the commission you would have paid an affiliate marketer.

Conclusion

Before starting an affiliate marketing program or business, either as a merchant or publisher, it is important to study the market and platform.

As a merchant, there are a couple of questions to ask yourself:

  • Does your business really need affiliate marketing to make sales?
  • Can you afford the sales commission from sales proceeds without running at a loss?
  • Do you have enough product volume to successfully engage affiliate marketing programs for your business?

As an intending affiliate marketer:

  • What product do you want to market?
  • What platform do you want to use in marketing this product(s)?

Socialays have provided many of the answers to these questions on how to successfully run a business and make sales with the aid of social media. Socialays is your best social media assistant. It always takes care of your social media.

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