The What, Why, Where, and How of Affiliate Marketing: An Introductory Guide

Wrapping your head around the new normal in the marketing industry means working your way through a branching tree of innovations. The long list includes social media outreach; leveraging video with different audiences in different settings; the latest tricks and tools of search engine optimization (SEO); influencer marketing; high-tech business analytics and other data-driven advertising tools; and more.

Another item that belongs on our list is affiliate marketing. The term refers to the practice of earning income from marketing someone else’s brand, services, or products on their behalf. If it sounds like a golden ticket to financial success, there’s a good reason for that. It can be a great source of revenue when properly carried out.

But, at the same time, the simplicity of the concept can be deceptive. And because the idea lends itself to some easy misunderstandings, a few myths about affiliate marketing have grown up over time. Our job here will be to dispel those myths and lay out a roadmap for success in affiliate marketing based on some simple fundamentals. Keep reading to grab that map.

What Is Affiliate Marketing?

Put simply, affiliate marketing is the sharing of revenue based on shared marketing efforts. It’s a process by which one party, the affiliate, earns a commission by promoting the product or services offered by another person or business. The affiliate generates a “passive income.”

Money earned through affiliate marketing commissions is passive in the sense that it is how someone else compensates you for simply recommending and passing along information about their brand or service. Think of it as a reward for directing new customers to a business that’s already operating in an existing market. It is passive because it can be done in one’s sleep. (More on how that works shortly.)

First, let’s be clear that affiliate marketing is not an untried, utopian scheme. It’s a fast-growing practice. And if you get the impression that this non-traditional system is a win-win for both brands and affiliates, the numbers seem to back that up.

Affiliate Marketing by Numbers

This year, digital marketing efforts outshone traditional methods by a factor of three, and affiliate marketing accounted for 16% of online orders – that’s a huge absolute dollar value.

Every year, spending on affiliate marketing increases by 10.1%. The annual total will reach upwards of $7 billion in just the next year and a half.

The share of brands (81%) and publishers (84%) that leverage affiliate marketing efforts is high and climbing every year.

One affiliate marketer, in particular, has been so successful that you’ll hear folks name-dropping him as proof-of-concept for the method. From June 2016 to June 2017, Jason Stone, also known as Instagram’s Millionaire Mentor, drove $7 million worth of retailer sales simply through affiliate marketing.

And finally, in March 2017, Amazon gave the trend a boost by expanding the rates at which affiliate marketers can be compensated for generating sales. Whereas creators previously earned 4-8.5% of product revenue, now their commissions range from 1%, for promoting video games, to 10%, for promoting luxury items.

Why Does It Work?

Affiliate marketing has drawn strength from the continuing trend away from traditional shopping and toward online buying and product research. A big part of this shift is customers’ growing reliance on user reviews of products even in preference to traditional advertising.

This helps explain why leveraging affiliates is a marketing strategy whose time has come. Influencers, especially those with large social followings online, provide marketers with access to audiences and the inbuilt trust that brands can’t always rely on these days.

Where Does It Happen?

This tag-team style of marketing is implemented across a wide array of platforms, from social channels to streaming sites like YouTube, whose users pack their video descriptions with affiliate links to products, like music or clothing, that they discuss or display in their content.

Another fertile ground for affiliate marketing efforts are blogs. Once bloggers seed product reviews and other content with affiliate links for their followers, the links and the followers do all the work. Hence the notion that affiliates can generate revenue while they’re counting sheep.  

Not all affiliate marketing programs were created equal. In terms of product categories, fashion dominates the affiliate marketing game, accounting for 18.7% of campaigns. Outdoor and sporting products (14.6%) and beauty, health, and wellness (11.1%) came in second and third, respectively, in a robust study of 550 affiliate programs.

How Does It Work?

Our discussion so far shows that the basic idea behind affiliate marketing is pretty straightforward. In essence, it’s a way for collaborators in promoting and selling products to share the resulting profits. What’s going on here is a division of labor between creator, marketer, and consumer. Which brings us to the next facet of our overview of affiliate marketing—how it’s done.

There are three basic parties involved in the affiliate marketing process:

1. The seller/brand
2. The affiliate/publisher
3. The consumer/end user

The Seller

The role of seller, or brand, can be filled by anyone with something to sell, regardless of what it is or whether they are themselves the product creator. Sellers include large enterprises, mid-size businesses, vendors, solo entrepreneurs, and retailers. Tangible products, like clothing or makeup, and skilled services, like music lessons or freelance writing and editing, are equally fair game. The seller herself may or may not be directly involved in marketing efforts and the sharing of revenue with affiliates.

The Affiliates

Affiliates are sometimes called publishers and can be an individual or a company. As we’ve seen already, their role is to promote what’s being sold. They help bring new customers to the brand, make them aware of the product’s merits, and drive conversions and purchases.

Affiliates are often chosen because of their pre-existing connection with a particular audience that the brand wants to engage. So, for example, a YouTuber with a substantial following of music fans will be an attractive affiliate prospect for a music industry brand that wants to market its products to that audience.

Depending on the terms of her marketing agreement with the seller, an affiliate receives a given share of revenue from product sales that result from her marketing efforts.

The Consumers

Finally, consumers are arguably the most important party to the affiliate marketing trinity. Affiliates reaching out to their audience on blogs, social media, and websites is half the equation. But completing sales is kind of a non-starter with nobody shelling out the cash.

Not all affiliates disclose to customers that they receive commissions to promote what’s being discussed. But this is not necessarily to hide a raw deal. Since affiliates’ commission typically include the retail price, the cost of affiliate marketing is often not passed on to customers.

How to Make It Work for You

We’ll close with some broad tips for those interested in pursuing affiliate marketing as a passive source of income that’s currently on the rise.

There are a variety of ways in which affiliates are paid. 

In the most common scheme, affiliates are paid a share of the profit resulting from each sale they help complete. Here compensation requires a purchase.

In another system, an affiliate’s compensation is based her success in driving web traffic to the merchant’s site.

In yet another arrangement, the conversion of leads determines affiliate compensation. Here the affiliate persuades customers to visit the seller’s site and complete a transaction or perform another specified action, such as signing up for a trial, downloading content, subscribing to a newsletter, and so on.

Wrapping Up

2018’s marketing landscape is more diversified than ever, and affiliate marketing is a growing piece of the pie. This makes sense given that the system provides some clear potential advantages for affiliates.

Affiliates put in a certain amount of initial or intermittent work and receive financial returns over a period of time-based on the consumer activity they help generate. After that initial investment, no further action is necessary until the next round. The seller is then left with the time-consuming customer support duties. 

And like other freelancing work, affiliate marketing offers a lot of flexibility and independence in setting one’s own hours, picking one’s area of focus, and avoiding the need to collaborate with teams or honor someone else’s timeline.

Affiliate marketing offers flexibility in another sense, too, as we’ve seen. Different marketing channels are available for affiliates with different audiences and interests. Blogs, social media platforms, streaming sites, email lists, popular websites with high volumes of traffic, focused microsites, and more are leveraged by affiliates at home in those settings. And influencers with substantial followings already have an ideal bully pulpit for launching campaigns.

In short, affiliate marketing is clearly an idea whose time has come. The tips we’ve reviewed can help put its many benefits within reach.