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What Is Affiliate Marketing And How Does It Work?

What is Affiliate Marketing?

Beginners Guide: What is Affiliate Marketing?

Affiliate Marketing is an internet marketing channel in which advertisers (or companies who offer a product or service) pay publishers on a pay-for-performance basis. So unlike Google AdSense you don’t earn anything for clicks. You’re only paid for results which could be a sale or a lead (user fill a form and complete registration). In Affiliate Marketing as advertisers pays only for results its a win-win situation as they don’t have to shell out large amount of money in Banner Advertising or Pay-Per-Click Networks like Google AdWords, Microsoft adCenter or Yahoo! Search Marketing where the results are not guaranteed.

Affiliate Marketing Definition & Terms

Affiliate Marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate’s own marketing efforts. The industry has four core players: the merchant (also known as ‘retailer’ or ‘brand’), the network (that contains offers for the affiliate to choose from and also takes care of the payments), the publisher (also known as ‘the affiliate’), and the customer.

Source: Wikipedia

Affiliate Marketing Diagram

Publisher (Affiliate Marketer)

Publisher (also known as an Affiliate, Associate, Partner) is an individual who advertise the products and services of a business (advertiser) in exchange for a commission on all qualified clicks/sales/leads. Publishers promotes the advertiser by displaying ads which can be in the form of banner ads (most common), text links (most effective), search box etc. Whenever a qualified lead/sale is generated the advertiser pays the publisher a commission which is often a percentage of the sale amount or can be a fixed amount.

Advertiser (Merchant)

Advertiser (also known as a Brand, Retailer, Merchant) is a company that sells a product or offers a service. They partner with publishers so as to generate more sales and leads. Advertisers prefer affiliates to market their products as they need to pay only for conversions – Clicks (Pay Per Click – PPC), Leads (Pay Per Lead or Action – PPL or PPA), Sales (Pay Per Sale – PPS) etc.

  • Pay Per Click (PPC) – In Pay Per Click programs you get paid for all valid clicks that you generate regardless of leads/sales.
  • Pay Per Lead (PPL) – In Pay Per Lead programs the advertiser pays you a commission (a fixed amount) for a qualified action which can be a short survey, free trial, install, sign up, online form submission etc. A perfect example of Pay Per Lead programs would be dating websites which usually pays for a free trial.
  • Pay Per Sale (PPS) – In Pay Per Sale programs the advertiser pays you a percentage of all qualified sales. The most popular Pay Per Sale affiliate program is Amazon Associates where you can earn up to 15% depending upon the category of products.

Affiliate Network

An Affiliate Network (Commission Junction, ClickBank, Google Affiliate Network etc.) is a hub which connects the Advertisers and Publishers. The affiliate network have the tracking technology, reporting tools and manages the payments. Advertisers may choose an Affiliate Network(s) to manage their affiliate program or may use their own in-house affiliate network/platform.

How Does Affiliate Marketing Work?

How Does Affiliate Marketing Work?

You (affiliate) sign up for an advertiser’s affiliate program, so that you get an affiliate link (a special URL which contains the username/id of the affiliate).

Whenever you mention the advertiser on your website you uses the affiliate link.

A customer visit your website and clicks on affiliate link to visit advertiser’s website.

The advertiser drops a cookie to your customer’s computer.

The customer orders something from the advertiser’s website.

As the customer completes the checkout process, the advertiser checks the cookie on his/her computer.

The advertiser finds an affiliate cookie that belongs to you and credits you for the sale.

The advertiser updates the reports to shows all the clicks (traffic) and sales generated from your affiliate link.

Commissions are paid out – usually on a monthly basis – for all the leads/sales referred in the previous month depending upon advertiser’s payment policy.