What Is Affiliate Marketing, How Does It Work, & FAQs

Affiliate marketing is a fantastic way to make money online. It’s been around since the mid-nineties and US affiliate marketing spend is expected to increase to $6.8 billion by 2020. Tens of thousands of companies have affiliate programs including household names like Amazon, Apple, eBay, and Microsoft.

What Is Affiliate Marketing?

Affiliate marketing: any revenue-sharing program in which a publisher receives a commission for generating an online action (such as a sale or lead) for an advertiser; also called performance-based marketing, partner marketing, CPA, associate program, or pay-for-performance program.

Affiliate marketing is a performance-based marketing activity. An affiliate or publisher promotes a product or service online and is compensated for achieving a specific objective or action. A merchant or advertiser specifies the action, which is usually a valid sale. For example, a merchant will pay an affiliate a 30 percent sales commission. Some merchants have pay per lead programs that pay affiliates for getting prospects. For instance, an advertiser pays one Hand-clickdollar for each person who establishes an account.

Affiliate marketing differs from network marketing, also known as referral marketing and multilevel marketing, in that activities are conducted only online. Secondly, it doesn’t seek to leverage a person’s network, and affiliates don’t need to sell directly to anyone. Ninety-nine percent of affiliate programs are free to join and don’t require an investment or startup fee.

How Does Affiliate Marketing Work?

Affiliate marketing consists of a series of steps from program development to creating links for affiliates to use.

  • Program Development, Terms, & Recruitment

Suppose a company wants to offer an affiliate program. They can create and fill an affiliate manager position or outsource duties to a third-party. They can manage their program in-house, through an affiliate network, or both. There are pros and cons to each approach, which is why most companies choose one or the other.

Program terms form the agreement and relationship between parties and specify commission rates, search and marketing policies, and any bonus incentives. A common practice of companies is to protect/restrict keywords for search engine marketing (SEM). Also, they may disqualify certain types of websites from joining their program, for example, sites promoting racism and hate speech.

The merchant must consider how it will recruit affiliates, for example, adding an “Affiliate Program” menu option to its website and a sign-up page containing program details. An affiliate manager might recruit top content creators to join and spread the word.

  • Cookies & Tracking

Cookie window, conversion window, or action referral period is the period during which merchants allow their cookies to remain active to credit publishers for their referrals. Thirty to sixty days is standard. A cookie is a small file stored on a consumer’s computer that records information about that consumer. In affiliate marketing, cookies are used to track the link or ad the consumer clicks from a publisher’s site to an advertiser’s. A cookie will store the date and time of a click to credit or discredit a conversion.

  • Affiliate URLs, Links, & Creative Assets

Affiliate programs provide URLs, links, and creative assets such as banners and images to affiliates. URLs are unique to each marketer and typically include an identification or tag, for instance, amazon.com?aff/chadtennant3u43b. Publishers can retrieve their links and assets from a company’s affiliate portal and affiliate network.

How Affiliate Marketing Works

BoomHost Affiliate Program (Example)

A fictitious company called BoomHost sells web hosting. They have sales people but want another business development channel to acquire customers. They launch an affiliate program and will pay publishers $50 for each customer who purchases an annual hosting plan (which is much cheaper than training and hiring more salespeople). BoomHost could manage their affiliate program in-house with affiliate tracking software, but they decide to use the ShareASale affiliate network.

BoomHost wants its program to be efficient and profitable for affiliates and themselves. They stipulate that affiliates can’t use the following keywords in SEM; “BoomHost,” “Boom Bee,” “BoomHost.com,” “BoomHost hosting.” By disallowing these keywords, BoomHost avoids competing with affiliates and potentially paying more for bids. BoomHost sets a cookie window of 30 days. Websites featuring porn, rebates, and hate speech are ineligible to join their program. Lastly, cookie stuffing and website redirects are not permitted.

Jane wants to promote BoomHost. She searches and finds their program in ShareASale in which she is already a member. She clicks on “Join Program” and two days later is approved. Jane publishes a post about different types of hosting plans and adds her BoomHost affiliate link, which she retrieved from ShareASale. Two months later, Jane has received 157 clicks on her BoomHost link and one sales conversion. BoomHost will issue a payment of $50 to Jane. The money will be directly deposited into Jane’s bank account through ShareASale.

Frequently Asked Questions
  • Is affiliate marketing profitable?

Yes. Offering an affiliate marketing program should be a no-brainer for many businesses. It’s a cost-efficient, zero overhead way to recruit marketers and pay them for their performance. For affiliates, it’s cost-efficient too since no direct investment or inventory is required. An affiliate marketing business—primarily a website—and a few marketing/business tools will cost less than $50 a month to operate.

  • Is affiliate marketing legit?

Yes. Affiliate marketing is perfectly legal and an excellent way for businesses and individuals to work toward common goals. However, affiliate marketing is not without its share of bad actors and tricksters. These folks attempt to game the system like schemers in other areas of business and life. The Federal Trade Commission (FTC), a United States government agency, provides guidelines for affiliates to follow. The FTC’s guidelines support transparency, consumer education, and fair dealings. If you play by the rules, act in good faith, and implement proper disclosures, you’ll be fine.

  • Are affiliate marketing courses and training available?

Yes, but be wise. There are hundreds of overpriced affiliate marketing courses available. Owners of these programs claim to teach a “system” for success, but their goals are to attract suckers who believe in the “surefire system” fairytale.

LeadPages and Shopify (within their affiliate portal) offer free training. Plenty of free resources are available online and on YouTube. Finally, I write about affiliate marketing frequently, so visit my site often for tips and insights.

 

About this Post

I use affiliate links on my website, but my opinion isn’t for sale. I may earn a commission if you click on an affiliate link, but it won’t cost you extra. I only recommend what I use, have used, or vetted in the best interest of my readers. For more details, see chadtennant.com/privacy-policy.

 
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