How Affiliate Marketing REALLY Works

how affiliate marketing works

According to Wikipedia, the definition of affiliate marketing is “a performance-based marketing that rewards affiliates for customers brought to a merchant.”

Thanks Wikipedia – you’re on the right track.

However, for many affiliates, it’s so much more…

For one person, it’s food on the table. It might be rent money for someone else.

What Is Affiliate Marketing?

A lot of people remember the 1990s as a time when grunge music was popular. This is true, but the 1990s also marked the real birth of the Internet.

Today, the World Wide Web serves as a digital ocean of information, which everyone has at their fingertips.

After the birth of the Internet, it didn’t take long for companies to realize that they had access to a new way to market their products to consumers.

Some of today’s top search engines came online during the mid-1990s, and the Internet quickly transformed into an ecommerce monster.

Webmasters started creating content and providing their visitors with massive value.

Affiliate marketing was and still is based off of providing the end user with valuable content. The real definition of affiliate marketing can be summed up as a relationship between three parties.

At its core, it’s the relationship between an advertiser, publisher and consumer.

Understanding the Advertiser, Publisher and Consumer

The advertiser is almost always a company that is selling a product. Some great example products are car parts, clothing and airline tickets.

You can even think of an advertiser as a company that sells insurance policies. If you’re willing to pay other people to promote a product or service, then you’re an advertiser.

The publisher is the affiliate. This individual promotes the advertiser’s products, and when a sale is referred by the affiliate, he or she earns a commission.

An advertiser agrees to contractually work with the publisher. Most advertisers provide their affiliate with banners and other items to help the publisher make sales.

The third party in the relationship is the consumer. This individual completes the affiliate marketing trifecta.

The consumer is the person who sees the advertising and completes a desirable action.

As a result of this action, the affiliate earns a commission.

When this even occurs, it’s called a conversion. The affiliate has managed to convert a consumer into a customer for the company they’re contracting with.

The process is easy to understand. If you wish to truly understand how affiliate marketing works, read below…

How Does Affiliate Marketing Work?

If someone has tried to explain affiliate marketing to you, and the end result was a melting sensation occurring within your brain – you’re not alone!

Even though it’s easy to explain, it has the tendency to seem like rocket science for anyone who isn’t tech-savvy.

The part that most people have trouble with is the technological aspect.

The reality is that a lot of people have trouble understanding modern technology, which makes it difficult to understand topics like affiliate marketing.

The Mysterious Cookie

Most of today’s affiliate programs rely on something called a cookie, and I’m not talking about that thing that you used to steal out of a jar.

What I’m talking about is a form of technology. The cookie is used by web browsers and stores information on a computer.

A cookie can store a variety of information. It’s commonly used to store shopping cart contents, login information or user preferences.

If you’ve ever went to a website, where you’ve previously logged in, and wondered how the website was able to remember the information that you entered, everything was made possible by a cookie.

Maybe you’ve searched online for dog sweaters and started seeing banners on websites advertising dog sweaters the next day. This is the work of a cookie.

Fortunately, a cookie isn’t some terrible villain that is coming to steal your dog…

It’s actually a core part of affiliate marketing and how it works.

When used in the context of affiliate marketing, the cookie is really good at remembering the link or ad that a consumer clicked on before reaching a merchant’s website.

A cookie might also store the date and time that the user clicked the ad or link. Although there are several different types of cookies, the major type that is used for affiliate marketing is called a first-party cookie.

No, the cookie doesn’t have VIP status or something.

When publishers join an affiliate program, they’re given access to special links.

The links are important because they’re used with the cookie to store anonymous data about a consumer.

How Affiliate Links Are Used

An affiliate link is what a publisher uses to make sales.

Affiliate links can take on many different forms. They’re very commonly used as simple text links, but they might also be displayed as banners.

It’s easy to understand how affiliate links are used, and it’s even easier to actually implement them.

A great example of how a link might be used can be seen in the product review below.

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in-content affiliate link

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The publisher recommends a product that they’ve used and endorsed and adds a link into the content of the article they’ve created.

Depending on the terms and Conditions created by the advertiser you’re contracting with, there are several places where you can place affiliate links.

It’s very common for affiliates to place links on their own websites, but it’s also possible to place links on third-party websites.

However, it’s important to remember that you’ll always have the most control over your own websites, which is why they’re the best places to drop your affiliate links.

Understanding Affiliates

An affiliate can be almost anyone. However, most affiliates are content sites or bloggers, and these individuals usually have some sort of pre-existing interest in a merchant’s industry.

For example, bloggers who have websites about WordPress are likely to contract with companies that sell premium WordPress themes.

Everything works great because the bloggers already have an interest in and talk about WordPress-related topics, so it’s easy to become an affiliate and promote premium themes.

Another simple example would be a blogger who has a website about how to maintain healthy skin.

It would be very natural for this blogger to start promoting products as an affiliate for companies that sell high-quality skincare products.

However, an affiliate doesn’t have to have a pre-existing interest in a specific industry. Depending on how they plan to drive sales, some affiliates will choose to promote products that have nothing to do with their interests.

A great example is the insurance and mortgage industries.

Advertisers in these industries are known to pay affiliates very well for qualified conversions.

Many affiliates have no interest in these topics, but they choose to promote products within the industries because of the huge commissions that they can earn.

Affiliates are good at introducing consumers to a merchant’s brand. As an example, they might write a blog post about a new promotion that the advertiser is running.

This is very common in the web hosting industry because web hosting companies are always running promotions.

You’ll frequently see affiliates promoting a particular product or service using coupon codes.

Many of the biggest brands in the world offer coupon codes because they understand how effective promotions can be for bringing in new business.

Affiliate programs have grown over time…

It hasn’t always been possible for content bloggers to join affiliate programs and earn commissions. In the past, a lot of affiliate programs were loyalty and coupon sites.

Now that you know what affiliates really are, you should understand how payments work.

How Affiliate Payments Work

If there is one thing that most affiliates absolutely HATE, it’s the time that it takes to get paid.

Many advertisers pay their publishers two months after a sale has occurred.

On the flipside, there are many companies that pay their affiliates monthly, and some might even pay sooner than that.

The reason why many companies wait so long to pay their affiliates is because they have to verify the validity of the sale referred by the affiliate.

Unfortunately, some people sign on with affiliate programs for less-than-honorable reasons, and they try to make money using fraudulent methods.

The companies that offer affiliate programs have to constantly watch for and eliminate fraud, and by implementing a large gap in the pay schedule for affiliates, they have time to scan for fraud.

The long pay gap is also used as a way for the advertiser to make sure they’re actually getting a good ROI from the sales referred by the affiliate.

For example, imagine Jeff runs a website about web hosting and refers several consumers to the merchant website.

Let’s imagine these consumers convert into sales.

If the web hosting company paid Jeff $100 per sale one week after he referred the sales, and all of the referred consumers cancel their service on the eighth day, then the advertiser isn’t going to make any money.

In fact, they’d be losing an incredible amount of money using the above example.

All affiliate programs are different, but many programs pay based on performance. In other words, they pay more money per sale to affiliates who send more consumers to the merchant’s website.

A great example is the Amazon Associate program. I believe this is one of the best programs for beginners, and it pays based on performance.

amazon commission tiers

 

In the image above, you can see that you’ll be payed based on how many sales you refer. The total commission percentage that you get from every sale increases as you sell more products.

Performance pay is brilliant because it entices affiliates to put more effort into selling more products.

Understanding Affiliate Networks

To fully grasp how affiliate marketing works, you need to understand the networks. The Internet is filled with several different networks. Commission Junction happens to be one of the largest.

You can think of a network as the meeting place for hundreds of affiliate programs or advertisers. The advertisers list their products on the network, and an ocean of active affiliate can pick and choose what advertisers they’d like to work with.

Publishers join affiliate networks and begin promoting the merchant’s products.

How Affiliate Programs Are Managed

As mentioned earlier, there are many different programs to choose from. Before you decide to join any type of program, it’s important to understand how they work.

Some merchants or advertisers have in-house affiliate programs while others choose to outsource their program to an affiliate network management company. External agencies are called outsourced program management.

The company that manages the affiliate program is tasked with sourcing high-quality affiliates and getting them to join the program.

Major Mistakes That New Affiliate Marketers Make

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If you’re just getting started as an affiliate, there is a good chance that you’re primarily thinking about the money.

When you have this mindset, you tend to fly off in several different directions.

You’ll be tempted to try everything and could end up reducing your chance for long-term success.

As an experienced affiliate marketer, I have several years of experience in the industry, and I can help you avoid several major mistakes that newcomers make.

Mistake #1

If you’re a new affiliate, it’s a huge mistake to join as many programs as possible. There are hundreds of different affiliate programs to join, but you can’t join them all.

While it’s a good idea to have several streams of income, you don’t want to spread yourself too thin and join too many different programs.

To avoid this make, choose your affiliate programs wisely. I recommend getting started with the Amazon Associates program.

I believe they’re one of the best programs to get started with, and I’ve been able to make plenty of money with them. In fact, I don’t work with too many other programs, even today.

Mistake #2

The second major mistake is only focusing on the money. Look – the truth is that we all love to make money because money is freedom.

The problems arise when you focus more on making money than helping people.

There is an old saying that says: “you get what you give”…

The main purpose of an affiliate is to help people.

It’s the job of the sales page to SELL and make money. Many new affiliates bombard their content with obnoxious phrases in an attempt to get consumers to buy.

If you want to be successful with affiliate marketing, I have some advice for you.

You have to understand that consumers want to buy from your affiliate links….

THEY REALLY DO!

All that you have to do is hold their hand and help them understand why they need the product that you’re promoting. Most consumers just want to heat from someone else who’s tried the product or know a lot about it.

You can be this person.

Yeah – it’s important to sell. Duh! The magic happens when you choose the RIGHT WAY to sell.

When you focus more on helping your visitors, you’ll naturally sell more of the products you’re promoting, and you’ll feel really good about it.

You’ll also notice that you don’t have to inject obnoxious phrases into your sales copy.

Think about all of the products that are sold using a personal story. All you’re doing is telling YOUR story and aligning everything in a way that helps the consumer and steers them in the right direct.

Mistake #3

Another major mistake that newcomers make is not testing. If you’re an affiliate marketer, you need to be testing, and you need to test the right metrics.

There is no point in testing metrics that have no effect on important metrics, such as conversions.

I’ve always found that it’s the little things that make the biggest difference.

Ever paid for a five-star hotel because you wanted a luxurious experience for you and your partner, only to find out that the hotel makes you buy your own toilet paper?

I remember paying for a hotel that was advertised as “one of the most-luxurious experiences along the Oregon Coast”.

After paying, we went up to the room and found that pretty much everything in the room was cheap. The TV was only 17 inches and didn’t even have cable!

To get back on topic, test the little things. On many sales pages, the additional or exclusion of a SINGLE SENTENCE can dramatically increase or decrease the conversion rate of your page.

A simple change like swapping out the color of your buy button has the potential to stack the odds in your favor. All of these little tweaks leads us to the next major mistake…

Mistake #4

Another major mistake that newcomers make is not tracking anything. When you begin your career in affiliate marketing, you should get into the habit of tracking from the start.

For example, the Amazon Associates program lets you create hundreds of unique tracking IDs.

This is important because you’re able to track what links are converting the best. You can begin to learn why some links convert better than others and optimize your efforts.

It’s important to know where your sales are coming from. It’s especially important if you’re running a large website because it will be much easier to scale your efforts when you have enough tracking data.

I should add that the Amazon affiliate program makes it VERY easy to track this important data.

Mistake #5

Not staying honest. It happens all the time.

Affiliates begin to see nothing but dollar signs in their eyes, and in an attempt to make a sale, they tell a little white lie about the product they’re promoting.

This is especially common in the “make money online” niche and several similar industries.

It’s OK to review products that you haven’t tried, but you should never make stuff up about the products or say you’ve made a lot of money with them if you haven’t.

In the case of physical products, if you’ve never used the products, you can still create a review for it, but you just need to make sure that you don’t say that you’ve actually used it.

Mistake #6

This final mistake is a BIG one.

Countless newcomers have fallen victim to it…

When you’re getting started with affiliate marketing, you need to pick a path and stay on it long enough to really know if it’s the right path for you.

When I first got started with the Amazon Affiliate program, I stuck with it, but since I had heard people talking about Commission Junction and several other affiliate networks, I joined many of them.

Fortunately, this wasn’t a lasting phase, and I quickly self-corrected and focused exclusively on Amazon.

Many marketers call it shiny-object syndrome, but I like to call it being distracted.

Pick a path, stick to it long enough to get some results and find out if it’s right for you. Avoid all of the other distractions, even if it seems like everyone and their grandmas are making money with Amazon Kindle books.

Can You Really Make Good Money With Affiliate Marketing?

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If you’re just getting started with this business model, you’ve undoubtedly had this question cross your mind.

The reality is that you can make BOATLOADS of money, but you have to know what you’re doing.

You also have to consider why you’re getting into affiliate marketing to begin with. Maybe you just want to make some supplemental income.

Maybe you’re much more ambitious and would like to make several thousand dollars per month. Both of these outcomes are entirely possible.

There are many super affiliates who make seven-figures per year from selling other people’s products. The key to success to knowing what to do and making sure that you do it consistently.

There is no magic formula, and it’s very unlikely that you’ll become an overnight success. With that said, I’ll leave you with some personal tips that should steer you in the right direction towards success.

Tips for Successful Affiliate Marketing

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The best tip that I can give to newcomers is make sure that you learn from the right person.

Information is really only useful when it comes from a legitimate source. To get the most out of this tip, try to learn from someone who has accomplished exactly what you want to do.

If they’re willing to teach you how to do it, then that’s a huge bonus!

You must also make sure that you choose high-quality products to promote. Nobody wants to purchase and use a crappy product.

If you want to start stacking the odds in your favor, only promote high-quality services and products. Regardless of whether you’re promoting digital or physical products, pick high-quality products.

Another simple tip involves reading and understanding your affiliate program. It’s VERY important to understand the Terms and Conditions for the company you’re affiliating with.

If you don’t fully understand this information, you run the risk of getting your account banned, which can also lead to a loss of income.

No affiliate wants to endure the process of trying to appeal a banned account. Fortunately, it’s a nightmarish situation that easily avoided, but you MUST read and understand the Terms and Conditions.

This is especially true if you plan to contract with the Amazon Associates program.

If possible, you should always choose to promote products that you have an interest in. For example, if you have a website in the fishing industry, look for products related to this industry that you can promote.

A website in the fishing industry is great for promoting fishing poles, reels, fish finders and different types of bait.

Another pro tip is to always make sure you’ve disclosed your relationship with the merchant. You also need to know what your specific merchant requires in terms of disclosure.

Some programs have much stricter requirements than others.

I also recommend using in-content affiliate links because they tend to convert better than most other forms of advertising.

An in-content links is basically an affiliate link that is embedded within the main content on a page.

Since this is the area where most of your visitor’s attention will go, it’s an excellent area to place your affiliate links.

Now that you understand how affiliate marketing works, you can finally get started and see how successful you can become with it!