What Is Affiliate Marketing and How Does it Work?
Every business desires to make profits by getting as many customers as possible and in the process increasing sales. There are many ways to drive sales, and one that is very convenient and preferable to many entrepreneurs is affiliate marketing.
Some people are familiar with the term because they've heard it thrown around from different quarters. So, what really is this type of marketing and what does it entail?
In simple terms, it is a form of internet marketing where the affiliate (person referring customers), signs up for a merchant's affiliate marketing program. The affiliate then recommends the merchant's products to customers and earns a commission on every sale made. It's like what used to exist before internet marketing became mainstream; where sales representatives would go out and get customers and then be paid a commission for every sale made.
This type of marketing also intertwines with some internet marketing methods because affiliates use conventional advertising methods to create product awareness. Some of these methods include making use of search engine optimization tools, email marketing and pay per click.
Affiliate Marketing vs Referral Marketing
Affiliate marketing should never be confused with referral marketing as is often the case because the two are very different. The main motivation behind affiliate programs is financial gain as a way of driving sales while referral marketing uses personal relationships and trust to increase the amount of sales. By relying on loyal existing customers and business connections, a business can use referrals to increase revenue generation. In affiliate marketing, you only get paid commissions when you bring in customers and they make purchases.
How Does Affiliate Marketing Work?
This marketing program requires the affiliate or publisher to use an affiliate link anytime that they mention the advertiser or merchant on their website. When a potential customer visits the affiliate's website and clicks on the link, he or she is taken to the merchant's website. At the same time, a cookie gets dropped on the customer's computer. The customer then makes a purchase from the merchant's website. As he logs out, the merchant finds a cookie that belongs to a specific affiliate and thereafter makes a credit for the sale in accordance with the initial agreement.
Ensuring Payments and Keeping it Fair
For transparency purposes, the merchant shares reports showing breakdowns of the amount of traffic from the affiliate's link and the sales made. This ensures that the publisher is paid his rightful dues without being taken advantage of by the merchant. The commission payments are usually made by the merchant after certain durations, on most occasions monthly. This allows the merchant to receive enough sales and the affiliate to receive a sufficient amount of money as opposed to the payments going out in small bits.
Commissions: Cost Per Click vs Affiliate Sales
The most common compensation method is the one described above where the affiliate is only paid commissions for actual sales made. The cost per click method of compensation is not favored by many merchants because there is always the danger of the marketing program not resulting into reasonable sales numbers. An affiliate could just sit around and earn money for doing very little. Affiliate marketing is referred to as performance marketing because of this compensation method that requires sales be made prior to receiving a commission.
It Takes Work
Whether you are just starting your own business, already running a business or are looking to become an affiliate marketer for another business, just remember that it takes work to set all of this up and keep it going. On the business side, you need to identify the software you'll be using and ensure it integrates well with your online shopping cart system and payment processor. You will need to promote and advertise your affiliate program to attract affiliates. And you will need to stay on top of making sure all of your payments are processing fairly, accurately, and timely, as your affiliates will demand and deserve this. This can sometimes be a full-time job. So, consider the level of effort seriously.
On the affiliate marketing side, you will need to ensure you are finding the right programs to promote, ones where you can indeed make a fair commission that outweighs your costs of marketing or advertising. And you will want to make sure that it properly integrates with the vision you have for your entire business.