What Is Affiliate Marketing?

Affiliate marketing is an advertising model in which a company compensates third-party publishers to generate traffic or leads to the company’s products and services. The third-party publishers are affiliates, and the commission fee incentivizes them to find ways to promote the company.

KEY TAKEAWAYS

  • Affiliate marketing is a marketing scheme in which a company compensates partners for business created from the affiliate's marketing tactics.
  • Digital marketing, analytics, and cookies have made affiliate marketing a billion-dollar industry.
  • Firms typically pay affiliates per sale and less frequently by clicks or impressions.
  • The three main types of affiliate marketing are unattached affiliate marketing, involved affiliate marketing, and related affiliate marketing.

Understanding Affiliate Marketing

The internet has increased the prominence of affiliate marketing. Amazon (AMZN) popularized the practice by creating an affiliate marketing program whereby websites and bloggers put links to the Amazon page for a reviewed or discussed product to receive advertising fees when a purchase is made. In this sense, affiliate marketing is essentially a pay-for-performance marketing program where the act of selling is outsourced across a vast network.

Affiliate marketing predates the Internet, but in the world of digital marketing, analytics, and cookies made it a billion-dollar industry. A company running an affiliate marketing program can track the links that bring in leads and, through internal analytics, see how many convert to sales.

An e-commerce merchant wanting to reach a wider base of internet users and shoppers may hire an affiliate. An affiliate could be the owner of multiple websites or email marketing lists; the more websites or email lists that an affiliate has, the wider its network. The hired affiliate then communicates and promotes the products offered on the e-commerce platform to their network. The affiliate does this by running banner ads, text ads, posting links on its websites, or sending emails to clientele. Firms use advertisements in the form of articles, videos, and images to draw an audience’s attention to a service or product.

Visitors who click the ads or links are redirected to the e-commerce site. If they purchase the product or service, the e-commerce merchant credits the affiliate’s account with the agreed-upon commission, which could be 5% to 10% of the sales price.

According to Business Insider, 15% of e-commerce revenue can be attributed to affiliate marketing.1

Special Considerations

The goal of this model is to increase sales and create a win-win solution for both merchant and affiliate. The system is unique and profitable and becoming increasingly popular.

The internet and improving technologies are making the model easier to implement. Companies have improved how they track and pay commissions on qualified leads. Being better able to track leads and sales contributes to how they can improve or better position their products.

Those interested in pursuing affiliate marketing will benefit from understanding what's involved, as well as its advantages and disadvantages. Companies seeking affiliates will benefit from properly vetting and qualifying their partners. Overall, it is a low-cost, effective way of advertising products and services, increasing brand awareness, and expanding a consumer base.

Types of Affiliate Marketing

There are three main types of affiliate marketing: unattached affiliate marketing, related affiliate marketing, and involved affiliate marketing.

  1. Unattached Affiliate Marketing: This is an advertising model in which the affiliate has no connection to the product or service they are promoting. They have no known related skills or expertise and do not serve as an authority on or make claims about its use. This is the most uninvolved form of affiliate marketing. The lack of attachment to the potential customer and product absolves the affiliate from the duty to recommend or advise.
  2. Related Affiliate Marketing: As the name suggests, related affiliate marketing involves the promotion of products or services by an affiliate with some type of relationship to the offering. Generally, the connection is between the affiliate's niche and the product or service. The affiliate has enough influence and expertise to generate traffic, and their level of authority makes them a trusted source. The affiliate, however, makes no claims about the use of the product or service.
  3. Involved Affiliate Marketing: This type of marketing establishes a deeper connection between the affiliate and the product or service they're promoting. They have used or currently use the product and are confident that their positive experiences can be shared by others. Their experiences are the advertisements, and they serve as trusted sources of information. On the other hand, because they're providing recommendations, their reputation may be compromised by any problems arising from the offering.

Advantages and Disadvantages of Affiliate Marketing

Affiliate marketing can yield great rewards for the advertising company and the affiliate marketer. The company benefits from low-cost advertising and the creative marketing efforts of its affiliates, and the affiliate benefits by earning additional income and incentives. The return on investment for affiliate marketing is high as the company only pays on traffic converted to sales. The cost of advertising, if any, is borne by the affiliate.

The advertising company sets the terms of an affiliate marketing program. Early on, companies largely paid the cost per click (traffic) or cost per mile (impressions) on banner advertisements. As technology evolved, the focus turned to commissions on actual sales or qualified leads. The early affiliate marketing programs were vulnerable to fraud because clicks could be generated by software, as could impressions.

Now, most affiliate programs have strict terms and conditions on how to generate leads. There are also certain banned methods, such as installing adware or spyware that redirect all search queries for a product to an affiliate's page. Some affiliate marketing programs go as far as to lay out how a product or service is to be discussed in the content before an affiliate link can be validated.

So an effective affiliate marketing program requires some forethought. The terms and conditions must be clearly spelled out, especially if the contract agreement pays for traffic rather than sales. The potential for fraud in affiliate marketing is possible.

Unscrupulous affiliates can squat on domain names with misspellings and get a commission for the redirect. They can populate online registration forms with fake or stolen information, and they can purchase AdWords on search terms the company already ranks high on, and so on. Even if the terms and conditions are clear, an affiliate marketing program requires that someone monitor affiliates and enforce rules.

In exchange, however, a company can access motivated, creative people, to help sell their products or services to the world.

Pros

  • Access to a broader market

  • Better accounting of qualified leads

  • Low-cost advertising

Cons

  • Subject to fraud

  • Less creative control

  • Vulnerable to theft

Examples of Affiliate Marketing

Amazon Affiliate Marketing

Amazon's affiliate marketing program, Amazon Associates, is one of the world's largest affiliate marketing programs.2 Creators, publishers, and bloggers sign up to have Amazon products and services shared on their websites or apps, and in return, receive compensation for the sales their sites generate.

Amazon sets strict criteria for the types of sites and apps that host its ads. For example, sites must not contain replicated content from another site or creator and be available to the public. Websites must be active with fresh content and suitable according to Amazon's standards. For example, they must not contain obscene or offensive content, promote violence or illegal acts, or contain any content deemed harmful to others.

Approval is contingent on a thorough review by Amazon staff and meeting a qualified sales quota (three within 180 days of the application). If an application is rejected, it will not be eligible for reconsideration. Once approved, commissions are earned as site visitors purchase products or services from Amazon.

Amazon Associates can earn up to 20% in commissions for qualified sales. Rates are fixed and based on product and program categories. As a bonus, Amazon offers special commissions on certain events.

Etsy Affiliate Marketing

Etsy (ETSY) — a global, online marketplace for vintage goods and other unique items—promotes its products through various channels, including affiliate marketing partners. To apply, applicants must submit an online application through its affiliate program portal. To qualify as an Etsy affiliate marketing partner, eligible candidates must be at least 18, have an active, unique website, have a brand identity, and meet other criteria.3

If approved, Etsy pays a commission to the affiliate for sales they procure—sales resulting from their site's promotion of the product. Commission rates vary and are paid on the order price. Etsy sellers can be affiliates, but they cannot earn commissions on their products without special permission. Etsy declares that it has the right to terminate an agreement at any time for any reason and that it can withhold compensation for any legitimate reason.

eBay Affiliate Marketing

eBay's Partner Network is eBay's affiliate marketing program that pays partners for sharing their personal listings outside of eBay Inc. (EBAY). The affiliate earns a commission and may earn credit towards their final merchant fees.4 eBay partners can also earn commissions on other sellers' items.

Commissions are earned when a buyer bids on or immediately purchases an item within 24 hours of clicking the eBay purchase link on the affiliate's site. For submitted bids, the commission is paid if the buyer wins the auction within 10 days of the bid.

Commission rates depend on the category of items sold and range from 1%-4%. No more than $550 will be paid on any one qualifying sale. Gift cards, items sold by charities, and special promotions are generally excluded as qualifying sales because of their low revenue streams.

Buzzfeed

Buzzfeed is a New York-based digital media company known for viral news and entertainment stories, quizzes, and product reviews. Its Buzzfeed Shopping segment features and reviews different partners' products and services. Visitors can read Buzzfeed's product reviews and select affiliate links to purchase. Buzzfeed earns a commission from each sale generated from its website.

How Do Affiliate Marketers Get Paid?

Affiliate marketers get paid a commission for referring customers to companies where they make purchases. These commissions can range from less than 1% to 20% or more, depending on the product and level of referral volume. For online campaigns, a customized link or referral code is used to track sales. In this sense, it is a source or passive income since the affiliate can continue to earn money once they have set up their campaign.

How Much Money Can You Make As an Affiliate Marketer?

Incomes for affiliate marketers vary, with some making a few hundred dollars and some making six figures. It depends on what is being marketed, how much influence the marketer has, the affiliate's reach, and how much time is invested in marketing products. Often, those spending more time marketing the company's products will earn more money.

Can Beginners Do Affiliate Marketing?

Becoming successful through affiliate marketing takes time, skill, and experience. However, it may suit beginners a bit better than alternative platforms since you do not have to invest in physical merchandise or inventory at the start.

Can You Start Affiliate Marketing With No Money?

Yes, there are several free platforms and affiliate networks available for little or no money. Instead, you will need to big a large online following through efforts such as blogging, social media posting, and so on.

How Do I Become an Affiliate Marketer?

To become an affiliate marketer, consider what platform you will use to promote products and/or services. Blogs are an effective channel for advertising and promoting as it allows the blogger, serving as an expert, to express an opinion about the offering.

After identifying a platform, find a specific category that you are comfortable with or interested in. A focused segment can better help you attract a dedicated consumer base. Research affiliate programs and choose one or more based on your needs, whether it be earning high commissions or generating more traffic. Lastly, develop solid and interesting content around the offerings and work to increase traffic to your site.

Discover The World of CFD Trading
Capital.com is an award-winning* broker offering AI-powered analysis. Join over 500,000 clients worldwide who are enjoying a seamless trading experience. Real-time alerts, daily market news, top risk-management tools and a choice of 6,000+ markets. 84.19% of retail investor accounts lose money when trading spread bets and/or CFDs with this provider.*Includes Best Online Trading Platform 2020, Shares Awards.