When we speak about making money online, affiliate marketing is a topic we cannot exclude from the discussion. Making money by promoting other’s products through online channels falls under the wing of ‘affiliate marketing’. The concept is also referred to as revenue sharing where the owner of the product increases his sales and revenue with the help of others who are reaching out to the same target consumer group.

In this article, we will delve deeper into the concept behind online affiliate marketing, how it works, the benefits you get and the downside of using this model as a strategy for creating wealth.

What is Affiliate Marketing?

Affiliate marketing is considered among the best and most popular ways of making money online, and it also happens to be one of the oldest forms of marketing.

An affiliate is a person who earns a fee or commission by marketing the product of another person or company. The person who is interested in being an affiliate can search for the products or services they can help promote or sell and earn a commission from each sale made through their promotion. The commission amount will vary based on the product and the company you are promoting.

To give an example, if you are a blogger then you can become an affiliate with a product that is related to your blogs, place the links of the product or the company on your post which upon clicking will lead to the respective company’s web page. Every time a reader on your blog clicks on the link and when a successful transaction is made, the company will pay you a commission.

How does Online Affiliate Marketing work?

The name affiliate marketing may sound a little scary to those who are new to the concept. The truth is that it can prove to be beneficial not just to the affiliates but also to the company whose product is being promoted and to the consumer. Studies indicate that when appropriately managed, affiliate marketing is a channel that can bring in the maximum return on investment (ROI) as an online business model.

Let us now see how it actually works.

The four components

We can split the process of affiliate marketing into four components (or parties) as detailed below.

1. The Merchant is the maker, producer, seller, brand or company of the product being promoted. It could be an individual who offers services through online portals, or a well-established brand offering a variety of products for consumers. The merchant here refers to anyone who has a product or service to be sold online, which can be done through an affiliate marketing channel.

2. The Affiliate is the most integral part of the chain, who is the third-party advertiser, distributor or the publisher of the promotion. Again, this could be a single person who is looking for making some money online or a company which specializes in the affiliate marketing channel. There are no limitations or restrictions on the number of products and services an affiliate can promote. There are also affiliate websites that have theme-based product promotions targeting specific consumer groups.

3. The Consumer is the source of income for both the affiliates and the merchants. Without the purchase, by a consumer, there is no sale or revenue for the merchant; hence, there is no commission for the affiliate. The consumers may or may not be aware of the affiliates selling the products to them rather than the company itself.

4. Finally, the Affiliate Network, which helps the affiliate in conducting an efficient promotion of a product or service. The network generally has a massive list of products in their database from which each affiliate can choose from based on the one that will best suit their preference and reach. The best example for an affiliate network is Amazon where you have a whole plethora of products from toys to appliances, with an affiliate program where the Affiliate can choose any category or products to promote.

The fourth one is an optional component, and the affiliate marketing process works fine even without a well-supported Affiliate Network.

Now that we know the different entities involved in affiliate marketing let us see how the actual process flows through.

Steps in Online Affiliate Marketing

1. You, the affiliate, join an affiliate program from an affiliate network or that of a company selling the product (A Merchant) relevant to your online ‘niche’.

2. You then include the link for the product or service that you are promoting into your website or blog directing your website visitor to merchant’s website.

3. A visitor clicks on the link in your website and is taken to the merchant website, where the visitor can purchase the product (or service).

4. The customer completes a transaction on the merchant website.

5. You get a commission or a percentage of the sales, credited to you.

This is a cyclic process which continues, offering a higher sale for the merchant and a continuous commission for the affiliates. The payout is made either on a monthly or a weekly basis depending on the agreement with the merchant (or affiliate network).

Three models in Affiliate Marketing

  • PPC (Pay Per Click) is among the most popular of the affiliate marketing models, where a payment is made for every click on the link, irrespective of a successful transaction or not.
  • PPL (Pay Per Lead) where a fixed payment is given out by the merchant to the affiliates for each action completion like free trial took, survey completed, online form submission, etc.
  • PPS (Pay Per Sales) where every qualified sale will guarantee a percentage of the revenue as commission to the affiliate. The percentage paid out is agreed upon by the company with the affiliates.

Benefits of Affiliate Marketing as a Wealth Creation Strategy

The best feature of the affiliate marketing is that you have your own army of sales personnel with their own websites and consumer groups, serving you to make the best out of the online marketplace.

Here is what you can gain from affiliate marketing as an affiliate

  • It becomes an additional income for the publishers who can simply include the banners from the merchant sites and get an instant commission.
  • It does require a minimum capital to make a website, so it is a cost-effective way to make money.
  • There is no requirement for customer support, bookkeeping or any other e-commerce related processes to be handled by the affiliates. All the affiliate has to do is to include a link in their website, and everything is taken care of automatically.
  • This is a supplemental income, and there is no need for an affiliate to quit his main occupation or business to pursue this.
  • For an affiliate, there are no specific work timings to be followed and still be able to make a good income on the promotion.

Here is what you can gain from affiliate marketing as a merchant.

  • The marketplace expands giving you access to many more customers, helping you to reach out to a broader audience as a merchant. This inevitably results in better sales.
  • The merchants do not have to spend time or effort in searching for customers as the affiliates will do it for them.
  • The data collected from the affiliate sites on customer behaviour helps you to understand the recent market trends and make decisions for improvising the current marketing campaign.

And there are many more benefits for merchants and affiliates alike with the affiliate marketing strategy.

The Cons of Affiliate Marketing

Like every coin has two sides, there is a flip side to affiliate marketing too.

For the affiliates:

  • Affiliates might suffer when the merchants shut down the program without prior intimation and without settling dues.
  • You have to be wary of dishonest merchants who might offer a higher rate of commission at the beginning and then reduce the commission after a few days.
  • If you join a demanding affiliate network, there may be overhead costs involved which also has to be taken into account.

For the merchants:

  • the setting up of the affiliate program and the cost of commission might become higher than the actual product expenditure.
  • If the affiliates are not loyal to the brand and build a misleading campaign, it can have irreversible damage to the brand image.
  • The affiliates might abandon you and seek a more promising business whenever the business slows down which will further slow down your business.

It is often a contentious topic on whether affiliate marketing is worth all the effort and time. Despite having a few drawbacks, if done conscientiously, affiliate marketing can prove to be a worthy tool than many other conventional strategies. You have to be wary of the hackers, dishonest persons of course which is the case in every other strategy.