I would not be surprised if someone using internet regularly does not even know how affiliate marketing works. Some people cannot even believe that there is such an online internet business model called affiliate marketing. It is mainly because affiliate marketing seems to work its way in the background. Common users when they click on something and end up buying what they always wanted do not even realise they just made a purchase from a website via an affiliate.
How does affiliate marketing work?
To summarise in a simple statement how affiliate marketing works from an affiliate’s perspective, one can say as an affiliate you can promote a seller’s products or services and earn a commission. How affiliate marketing works from a seller’s perspective is that as a seller, you accept others to promote your products or services and pay commissions on sales. An affiliate network connects affiliates and sellers via contractual agreement – This is the perspective of how affiliate marketing works for an affiliate network..
In affiliate marketing business, an affiliate refers buyers to a seller’s website and the seller will pay a commission or fee for every sale from such a referral. This is the core of how affiliate marketing works.
There are other points to note such as:
- a seller provides affiliate links to the affiliates to be used on affiliate websites, emails, social media etc.
- seller or affiliate network track visitors from affiliate websites, keep record of all referrals
- affiliate network or seller calculates and pays fee or commission to the affiliate
- seller prepares the products or services, keeps an inventory and delivers them to buyers
- merchant or seller develops a website and hosts product or service lists with provision for online checkout
- affiliate develops an affiliate website that hosts reviews on products and services and links to sellers’ website
- seller or affiliate network provides various marketing material and tools like banners, images, email swipes etc. to affiliates
Building blocks of affiliate marketing
Now let us look at the building blocks of an affiliate marketing business from the perspective of how affiliate marketing works.
Seller or merchant
In affiliate marketing world, a seller or a merchant is either an individual or a business that can sell goods and services online. A seller can enter the affiliate marketing world if they are willing to offer commissions to affiliates for sales. A seller has the responsibility to make products and services available for sale, process the checkout and ship the purchases to the buyers. All of this needs to be done electronically on the internet. Seller is also referred to as advertiser.
Seller or merchant’s website
A seller or merchant website is hosted by seller or advertiser. A seller’s website represents the online shop where people can browse through the products and services and make a purchase online. Thus, a seller’s website needs to list and showcase all products and services available for sale. Seller website also needs to have provision for electronic shopping basket, electronic payment processing etc.
Affiliate
An affiliate is a business or an individual. In either cases, an affiliate normally runs a website within the area of seller’s business. An affiliate website normally hosts blog posts or banner ads etc. related to products and services that the seller has available for sale. An affiliate posts links to the merchant website on the affiliate website. These are called affiliate links.
Affiliate Links
Affiliate links are urls to the merchant’s website. With the affiliate links, an affiliate can drive traffic to the seller’s website and introduce the visitors to the seller website.
An affiliate link is normally generated by a seller or an affiliate network. It points to the sales page or product page etc. on the seller or merchant website. An affiliate link consists of information about the affiliate, the product etc. The information in the affiliate link helps the merchant or affiliate network to track and calculate the commission for the sale.
Affiliate website
An affiliate normally develops and runs an affiliate website. The purpose of an affiliate website is to draw traffic from internet and re-direct them over to the seller’s website where they can make a purchase.
The content on an affiliate website is normally designed in such a way to attract targeted traffic and provide them with helpful information about seller’s products or services. This aspect of an affiliate website is sometimes called as pre-selling. This means an affiliate website’s content helps the buyers to convert when they arrive on the seller’s website.
An affiliate website may also contain banners that link visitors over to the seller’s website. An affiliate website can sometimes offer a coupon code that gets a discount to the buyer on the seller’s website.
Affiliate marketing strategy
A good affiliate marketing strategy is very important for the success of your affiliate marketing business. Affiliate marketing strategy can use a mix of tactics like content marketing, email marketing, blogs, video marketing, social media marketing, SEO etc. to attract visitors and direct them to the seller’s website.
Products or services
Money changes hands in affiliate marketing when products or services are sold online. Products or services are made available by the sellers on their websites. A seller or merchant can prepare their products and services themselves. They can also source the products or services from others and sell on their website.
Affiliate network
An affiliate network is like a go between an affiliate and a seller. Affiliate networks facilitate how affiliate marketing works between various building blocks of an affiliate business.
Some sellers run their own affiliate programs in house. For example, amazon run their own in house affiliate program. But most of the sellers offer affiliate programs via one or more affiliate networks. Examples of such affiliate networks include Clickbank and commission junction etc.
Note: We believe the amazon code or the az code is a great tool for affiliate marketing as an amazon affiliate. We have written a review of the amazon code and you may find it helpful. Please click here to read the review of the AZ code.
Affiliate networks are responsible for contracting in affiliates, providing affiliate links and other marketing material. They also track and process affiliate performance reports for sales and commissions.
Cookies
A buyers journey from an affiliate website or multiple affiliate websites to checkout on seller’s website is tracked by affiliate networks via cookies. The tracking data collected by cookies along with merchant policy drives the payments and commissions to affiliates.
Affiliate program
An affiliate program is what ties up various building blocks of an affiliate marketing business together. As affiliate marketing is purely digital, an affiliate program is also managed online or digitally. Affiliate networks create, publish, maintain and run the affiliate programs for merchants or sellers unless they want to run their own affiliate programs in house.
The activities that take place in an affiliate program include affiliate registration, creation and distribution of affiliate links and other marketing tools like banners to affiliates, tracking affiliate performance and calculating affiliate commissions, paying out commissions etc.
An affiliate program outlines very clearly how affiliate marketing works and needs sellers and affiliates to agree to the terms and conditions. If you want to join an affiliate program, you need to understand how affiliate marketing works for the given affiliate network and sign an agreement.
Affiliate commission
A seller or an affiliate network pays a commission or fee to the affiliate for every sale triggered by the affiliate. In affiliate marketing, an affiliate earns commission only when a sale is completed and not just a referral to seller website. The affiliate link provides the information about the affiliate that introduced the visitor to the seller.
Once an affiliate directs a visitor to the seller’s website, the affiliate gets paid a commission as long as the visitor makes a purchase within certain time. This time limit can be 24 hours or 4 weeks etc. or any other duration as decided by the affiliate network.
In affiliate marketing, a seller pays out a commission or fee only when there is a sale. From this point of view, sellers find affiliate marketing more rewarding than other marketing channels such as PPC, SEM etc. In other online internet business models, sellers end up paying fees for sales as well as visitors who never convert.
Summary | How affiliate marketing works
Despite its wide presence, some people consider affiliate marketing a source of spam. This is unfortunate. Affiliate marketing gained its reputation as a spam source from the initial days of internet marketing. In those days, marketers did not follow the best practices of affiliate marketing. But experience over time has refined how affiliate marketing works and now people consider affiliate marketing one of the best online internet business models.
As a matter of fact, affiliate marketing can be beneficial to both sellers and publishers. Sellers can have their products and brand promoted and publishers can make significant passive income from affiliate marketing. In recent years, many businesses started to realise affiliate marketing is indeed a great source of sales. As a result many sellers are opening up for affiliates via an affiliate program or affiliate network.
Integrating affiliate marketing into overall marketing strategy, any business can definitely boost their sales and revenues.
