What is affiliate marketing? Definition and examples
Affiliate marketing is a marketing arrangement in which the online retailer pays commission to another website. The other website gets a commission for sales or traffic that it generates from its referrals.
In other words, it is a way that your website or blog earns commissions for promoting another person’s or company’s products. The seller pays you either for products that people buy or referrals. Referrals are visitors to your website that went to the seller’s website thanks to you. They got there by clicking on a link on your website.
Affiliate marketing is easy to start and set up, and can bring in a tidy income if you choose the right one.
Although this type of marketing predates the Internet, nearly all of it today occurs online.
Affiliate marketing – revenue sharing
Promoters of affiliate marketing say that the system is based on revenue sharing. The term ‘pay per sale’ means the same as revenue sharing.
If a seller has a product and wants more sales, they can offer promoters a financial incentive. An affiliate program, for example, has a financial incentive.
Neil Patel, an English angel investor, says the following regarding affiliate marketing:
“If you have no product and want to make money, then you can promote a product that you feel has value and earn an income from it as an affiliate marketer.”
An angel investor is somebody who invests their own money in a startup business. In other words, a type of venture capitalist, but in this case, they use their own money.
Affiliate marketing – the Internet
Since the advent of the Internet, affiliate marketing has grown and changed dramatically. Online retailer Amazon.com popularized the practice. With Amazon, bloggers and websites direct links to an Amazon page and receive a fee if a referral results in a sale.
In Amazon’s and most other cases, affiliate marketing is a performance marketing program where the selling of consumers for a product is outsourced.
Affiliate marketing before the Internet – example
A door-to-door insurance salesperson would, for example, pay another door-to-door salesperson for appointments. That salesperson would go door-to-door making appointments for the person who sold insurance.
The person who arranged appointments would either be paid per appointment or per sale.
The rest of this article focuses on affiliate programs that exist online.
Three main reward types
Here are the three main reward types that affiliate marketers use:
- Pay-per-click: the affiliate directs a visitor to the seller’s website. The seller pays the affiliate each time this happens, irrespective of whether a sale occurs.
- Pay-per-lead: the affiliate directs somebody to the seller’s website. This time, that person fills out a contact form. In other words, the seller now has their personal information. This person is now a ‘lead.’ Affiliates get money for each lead they generate. It is also possible that the lead filled in the form on the affiliate’s website
- Pay-per-sale: the seller pays a percentage of the sale price to the affiliate.
Affiliate marketing – pros and cons
Like many business models or marketing approaches, there are advantages and disadvantages.
- No investment necessary. You ‘create’ products on offer without having to get involved in creating them.
- A wide variety of goods to choose from. You can, for example, focus on products that pay you the most. Alternatively, you can select products that your visitors are most likely to buy.
- You are not responsible. The seller, not you, is responsible for, for example, customer service, returns, etc.
- Income. If you sell a lot, you could earn a good income.
- The arrangement doesn’t stop you selling your own goods. If you sell your own products, you can still sell other goods as an affiliate.
- Your reputation depends to a certain extent on how well or badly another business does. If the seller gets embroiled in a scandal, the whole thing could end up having a negative effect on you.
- The customer is not yours: every visitor to your site who ends up buying from the seller is the seller’s customer. In many cases, when that customer buys again, you do not benefit financially.
- Getting the right affiliate program is not easy: the chances of choosing the wrong affiliate program are high. Choosing the right product is essential for your financial success. There are so many products out there!
- Competition from other affiliates. Remember that you are not the only affiliate. There may be hundreds or even thousands of rival affiliates promoting the same products you are.
Affiliate marketing – social media disclosures
In the United States, social media celebrities must inform their viewers or followers about any affiliate marketing on their page. However, researchers from Princeton University discovered that such disclosures were quite rare.
They extracted affiliate marketing links from 500,000 YouTube videos and 2.1 Pinterest pins. They identified 3,572 YouTube videos and 18,237 Pinterest pins with affiliate links.
The researchers were surprised to find that very few social media personalities disclosed their affiliate marketing arrangements.