The term affiliate marketing refers to the scheme through which companies or individuals can earn commissions by promoting other companies’ products or services. You can think of it as a marketing program that delivers rewards based on performance.
How does affiliate marketing work?
In this type of marketing program, the affiliate or marketer enters an agreement with a company (the advertiser) and agrees to promote products or services, usually through online means. The company agrees to pay a commission for each referral brought in by the affiliate. For example, a marketer may have a travel blog. As part of an affiliate marketing scheme, they may write a blog post that features a link to a holiday lettings company. If a blog reader clicks on that link and books a stay with the lettings company, the marketer would receive a commission on the value of the transaction.
However, it is important to note that referrals do not only mean completed sales. Affiliate programs vary in terms of their objective and of what they consider a conversion. We will look in detail into this in the next section.
Affiliate programs function according to different payment models. Each model has been created to suit the advertiser’s goals, which may range from the sale of a product to newsletters or event sign-ups. The most common payment models are:
- Pay per sale: Under this model, the affiliate receives compensation for each sale they generate for the advertiser.
- Pay per click: Pay per click (often abbreviated to PPC) means that the affiliate receives compensation when a potential customer clicks on a link to the advertiser’s page.
- Pay per lead: Under this marketing model, the affiliate gets paid a commission for each lead or referral they generate for the advertiser. There is no standard action that qualifies someone as a lead, but common options include booking an appointment, requesting a callback, registering for an event, requesting a demo, asking for an estimate, or creating an account.
- Pay per sign up: This type of program can be seen as a more specific version of the pay per lead marketing model. Under a pay per sign up program, the affiliate is paid a commission for each referral that results in new sign-ups, whether they are for a newsletter, a webinar, a free trial, a course, etc.
- Pay per view: Pay per view means that the affiliate's commission depends on the number of banner or link impressions.
- Pay per lifetime: This scheme is also known as “recurring commissions”. An example would be a marketer who promotes a monthly subscription product on behalf of the advertiser. Under this marketing model, the affiliate would continue to receive a commission for as long as the referrals stayed subscribed.
Affiliate marketing is performance-based and therefore highly contingent on tracking. For the affiliate to receive payment, clicks, sales, views, and leads must be quantified and accurately traced back to their point of origin.
To determine where a referral came from, many of these online marketing programs use tracking technology that can trace the origin of a transaction and how website traffic is generated. Tracking platforms can be custom-built, but this is costly. Ready-made tracking solutions are a more affordable option. These include anything from client-based tracking systems like unique identifiers and cookies to consent-based adware.
There are many affiliate marketing programs that come with built-in dashboards and reporting ability. This makes accurate tracking easy, even for those without experience.
Types of affiliate marketing
There are two types of affiliate marketing models: direct contract and affiliate networks. In a direct affiliate program, the advertiser – affiliate relationship goes ahead without intermediaries. Under this model, companies manage their affiliate programs in house and may or may not allow product promotion through third parties.
On the other hand, affiliate marketing networks are third-party organizations that offer access to a range of affiliate programs. To do this, an affiliate needs to create an account. Once this is done, they can view and browse programs, which are usually organized by keyword or vertical (a synonymous for category).
These marketing programs offer multiple advantages both for the advertiser and for the marketer. Some of the key benefits include:
- Cost-effectiveness: Unlike in traditional advertising, the advertiser is only required to pay if the affiliate achieves a specific result (e.g. a link has been clicked, a product was purchased, a referral signed up for a demo, etc.).
- Hyper-targeted exposure: Affiliate links and product ads are placed on those websites that are most frequently visited by the target customer base.
- Low initial investment and passive income: Most affiliate programs cost nothing to join, so the initial expenses are usually limited to those involved in running a website. Moreover, this online marketing scheme can be a great source of passive income if the affiliate chooses the right products and keywords and can thus attract a steady stream of visitors to the advertiser’s site.
- Ease of use: Marketers do not need to have previous experience to start promoting products. The technical set up is also simple, and in most cases, it is easy to find quick starter guides for your chosen program.
An example of affiliate marketing can be found on the website "shopzilla.com". Visitors can select the desired products from various categories and then compare prices from different providers. Each offer contains a link that leads to the shop of the corresponding provider.
Screenshot with price comparison of shopzilla.com
Another good example is the website "thewirecutter.com", which deals with different types of various products and carries out product tests for them. The results of these tests are presented in the form of articles and tables, which contain a link to the respective Amazon page or other providers for each item listed.
Screenshot with price comparison of thewirecutter.com