What Is Affiliate Marketing And How Does It Work?

Running a business and selling a product or service is all about brand recognition, credibility, and most of all, marketing. It takes a whole lot of marketing power to really get a business off of the ground. Some people do TV or radio commercials, some use social media, some use blogs, and many use affiliate marketing. Now, this brings us to the questions of what is affiliate marketing and how does it work?

 

Well, needless to say, affiliate marketing is a very effective tool used by retailers and service providers to drum up traffic and ultimately to increase sales. It has become more and more popular throughout the years, especially since online retail is now so huge. It has proven to be very successful in many cases. If you are a big business looking to increase sales and traffic, affiliate marketing is a good way to go about it.

 

On the other side of the coin, if you are looking to make some extra cash, you could be an affiliate marketer for a larger business. Let’s talk about exactly what affiliate marketing is.

 

What Is An Affiliate?

 

In the case of online retail and marketing, an affiliate is a business, entity, or website that is related to the larger company looking to do marketing and increase sales. For instance, Amazon, the retailer, would be the larger company, and various blogs that advertise Amazon products, such as through product reviews, would be the affiliates.

 

Now, affiliates do not necessarily have to be connected to a certain merchant (which is the larger business being advertised for), but they do have a financial relationship. An affiliate site, when it is done right, could potentially advertise for multiple different businesses.

 

In essence, affiliate websites are the guys which promote a service or product for another larger company or business in one way or another. These websites may be related to the larger retailer or service provider, but they are usually never owned or strictly controlled by them. It is kind of like a symbiotic relationship that benefits both sides.

 

What Is Affiliate Marketing?

 

Affiliate marketing involves the affiliates we talked about before, which advertise a product, service, or simply a website for a larger company, usually a retailer or service provider. There will usually be some kind of deal made between the two parties, those being the affiliate and the larger business, usually a merchant. The affiliate websites will agree to market a service, product, or simply the whole website for that merchant in exchange for some kind of compensation.

For instance, we might create a product review talking up the benefits of a certain product. Included in this review are going to be links to the product and to the retailer’s website.

 

Therefore, our product review article will drive potential customers to the website and hopefully to buy the product or service in question. This is not a very in-depth explanation, but the whole thing is pretty complex, and in a nutshell, this is exactly what affiliate marketing is.

 

The Players Involved In Affiliate Marketing

 

When it comes to affiliate marketing, there are a few specific entities involved in the game, four to be exact. The first party involved is the retailer, service provider, or the merchant. This is the business or company selling some kind of product(s) or service for a financial gain.

 

The second party involved is the network. The network is a place where affiliates can look at and choose various offers presented by the merchant in terms of affiliate marketing. The network will contain offers from these merchants in regards to specific affiliate advertising needs, what the requirements are, and what the compensation is like. Affiliates can go to the network and select from various offers.

 

The third party involved is the affiliate itself. If you are still unsure what an affiliate is, we would recommend revisiting the top few sections of this article to get a better grasp on what an affiliate is. The fourth party involved is the customer. The customer is the intended target audience for the merchant and the affiliate. The customer is the end goal and after all, the point of this whole exercise is to bring more customer traffic to a desired location.

 

Affiliate Marketing & Compensation – How Does It Work?

 

Now it is time to get to the meat and potatoes of it all. How exactly do affiliates make money through affiliate advertising? Well, there are several main methods of compensation, all of which slightly differ from one another. There might be only one compensation style in use for a specific affiliate, or there might be a combination of compensation methods. Let’s go over some of the most prominent compensation methods used in affiliate marketing. Something that does need to be said is that compensation usually always works through some sort of commission style formula.

 

The first and most prominent compensation method is that of revenue sharing or pay per sale (PPS). This means that for every sale that an affiliate drums up, the affiliate will gain a certain percentage of the profits. If we are an affiliate and you click on a link for a product for sale on another site, and you buy that product, we would gain a percentage of that sale.

 

Another main method used is that of pay per click (PPC) compensation. The compensation for this type of affiliate marketing is lower than that for pay per sale, but the revenue stream is much steadier. Simply put, if you click on an affiliates link or advertisement for another site, the affiliate will be awarded compensation regardless of whether or not a sale is made.

 

Another method of compensation is cost per action (CPA), also known as cost per acquisition. In this case a merchant will specify the goal for the affiliate, and when that goal is reached, the affiliate will be compensated. This could be a pay per click type setup, a pay per sale setup, or maybe the merchant wants the customer to fill out contact forms or sign up for a certain service.

 

Conclusion

 

Affiliate marketing is definitely a great way for merchants to advertise their products for a minimal cost, while at the same time driving up traffic and sales. Whether you are a big business or a potential affiliate, it can be a good way to make money either way.

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