Affiliate marketing refers to performance-based marketing, where affiliates earn commissions for driving traffic and generating revenue for a company.
The practice has been around for almost as long as the internet. But the increasing prominence of digital solutions has made it ubiquitous.
Back in the day, companies paid commissions for every click or impression. These methods often placed companies at a disadvantage because fraudsters would use software to generate inauthentic clicks and impressions. That’s why most affiliate marketing programs now focus on making leads or sales.
How Do Affiliates Earn Commissions?
Affiliate marketers don’t always have to sell products or services to earn commissions. Depending on the terms and conditions, they can also receive compensation for every click and lead they convert.
Most affiliate marketing programs revolve around the sale of a product or service. That means affiliate marketers won’t be compensated until a consumer makes a purchase.
In a pay-per-click system, affiliate marketers earn based on web traffic. They must come up with engaging content that will redirect prospective buyers to a company’s e-commerce store. Each time a prospect clicks on an ad or a link, they will receive compensation.
Affiliate marketers may also receive a commission for every lead they manage to convert. In a pay-per-lead program, affiliates must not only drive prospects to a company’s e-commerce store but also motivate them to complete a desired action. Whether it’s filling out a form, subscribing to a newsletter, or downloading free guides, affiliates earn every time prospects perform the desired action.
How Does Affiliate Marketing Work?
Three different parties are involved in affiliate marketing: merchants, affiliates, and consumers.
- The Merchant
Businesses of all sizes can utilize affiliate marketing. Whether they sell services or products, they can run affiliate programs. Even solo entrepreneurs like freelance graphic designers or course creators can use this approach.
The merchants are usually responsible for setting the terms. To eliminate fraud, they must outline clear and strict conditions. They might, for example, prohibit methods like the installation of adware or spyware. They might also indicate how affiliates should discuss products or services.
Moreover, the merchants specify how affiliates can earn commissions and how much they can earn. It could be anywhere from 5% to 10% of a product or service’s sales price.
- The Affiliate
Affiliates usually own several websites, social media channels, or email lists. They can be companies or influencers. They select products or services from companies they are affiliated with. Then, they will run promotional material through banner ads, text ads, or links. They may also send these promotions to their network via email.
By sending engaging promotional content such as videos or graphics, affiliates can encourage prospects to click on the ads. This will redirect them to the company’s website. Depending on the agreed-upon terms, affiliates could earn from every click, impression, or sale. They could earn a few hundred dollars per month to millions.
- The Consumer
Consumers don’t always know that they are part of an affiliate marketing program. It’s mostly up to the affiliate to decide if they want to be transparent about it.
However, in the US, the Federal Trade Commission requires full disclosure of affiliate links. That includes links to Amazon product pages and other brand deals that may result in commissions. No matter the value of the compensation, affiliate marketers are required to tell their audience that they may receive a commission from a sale.
The Advantages of Affiliate Marketing
As with other online ventures, affiliate marketing is nuanced. It comes with a few risks. However, these can be easily avoided with proper planning. As long as the affiliate marketers and the company agree on certain terms and conditions, it can be a low-risk and profitable venture.
Affiliate marketing can help your business:
- Increase your reach
- Boost your reputation
- Increase website traffic faster
- Generate valuable leads
- Increase sales
Affiliate marketing can be profitable for both the merchant and the affiliate. While brands can generate more traffic and sales from the partnership, affiliates can gain an additional source of income. At first, they will have to invest their time and energy into creating content with affiliate links. A resulting outcome is they can then receive continuous returns long after they ran the promotional material.