Curious on affiliate marketing and how can it help build your business. We used to be surprised when the first question from a lot of our future clients is “what is affiliate marketing?” but not anymore. This is something we’re often asked by clients who are familiar with the term but don’t know exactly what it means. Perhaps you’ve heard it suggested as an effective marketing channel but aren’t quite sure what it is. Or you understand the concept of an affiliate marketing program but want to learn more about how it works.
As an online strategy, affiliate marketing is often misunderstood. In the past, it gained a poor reputation for spammy tactics, but modern affiliate marketing is something very different. In this article, we break down exactly what affiliate marketing is and how it can benefit all types of businesses.
What is Affiliate Marketing?
Affiliate marketing is an online strategy where people are incentivized to promote your product or service. It’s defined as ‘a marketing arrangement by which an online retailer pays commission to an external website for traffic or sales generated from its referrals’. All of the referrals are tracked using cookie technology so that commissions and affiliate payments can be automated.
What Is it from an Advertiser’s Perspective?
Affiliate marketing enables you to generate more sales by tapping into other people’s audiences. These people or ‘affiliates’ earn a commission for referring customers, so it’s in their interest to write positive reviews and spread word of mouth. They’ll often write blog posts, promote your product on social media, and share it with their email list, in order to earn higher commissions.
This online marketing strategy is suitable for lots of different business situations. If you want to launch a new product or service with a bang and generate buzz from the start, having an army of affiliates can help. Affiliate marketing can also increase your website traffic and generate more leads, so you drive more sales of an existing offering to new audiences. To really drive an effective at this channel, working with a firm who specializes in affiliate management is a sure-fire way to bypass any learning curve, leverage existing relationships and turn up the heat on results.
What Is Affiliate Marketing from a Publisher’s Perspective?
From a publisher’s perspective, affiliate marketing involves the promotion of a product or service that your audience is likely to purchase. To do this you might create detailed blog posts, infographics, or step-by-step video guides to using it on YouTube. You may choose to host a resource page on your blog that lists all of your favorite products or send an email to your list with your top shopping picks for the week. You might even invest in pay-per-click campaigns to drive visitors to a landing page that includes your affiliate links.
Whichever way you choose to promote something, you’ll include a trackable link that’s unique to your affiliate account so that any sales can be attributed back to you. If you’re a blogger who wants to monetize your platform, then becoming an affiliate can provide that steady source of income. It also gives you the opportunity to provide solutions to your audience who may need a product to solve a problem.
Why Is the Affiliate Channel So Effective?
Affiliate marketing is a highly effective promotional and income generation channel. It’s one of the leading drivers of online sales and continues to grow in popularity.
- 90% of advertisers consider affiliate programs to be important or very important in their overall marketing strategy.
- The majority of publishers reported that affiliates drove over 20% of their revenue.
- 46% of marketers consider affiliate marketing to be very cost effective in acquiring customers (second only to email).
- Affiliate marketing drives 16% of e-commerce sales, which is on par with email marketing and ahead of both social commerce and display advertising.
- 53% of advertisers have seen a YOY sales increase as a result of affiliate marketing efforts
- 83% expect revenue to continue to increase over the next two years.
- 61% of advertisers plan to devote more of their budget to affiliate marketing next year.
- Affiliate commissions are the fastest-growing income source for publishers, comprising 15% of their revenues.
Affiliate marketing works because it creates a win-win situation for everyone involved. Companies only pay commissions on sales that are generated which guarantees a strong return on investment. Affiliates get to earn more money which can eventually turn into passive income over time. It’s a low-risk marketing channel that benefits both advertisers and publishers.
Benefits & Drawbacks
Affiliate marketing has lots of business benefits but it’s also important to be aware of potential drawbacks too. From an advertiser perspective, it can be one of the most effective ways to drive traffic to your website. It’s a well-known concept that people need to know, like, and trust you before they’ll buy from you. In the case of affiliate marketing, they just need to know, like, and trust your affiliate. You benefit from their credibility and existing relationship with their audience. So, instead of having to go out and build something from scratch, you get a head start on sales.
Affiliate marketing also enables you to reach a much wider geographic audience. If you’re a business that sells internationally, then you can recruit affiliates from all over the world to promote your products and services. Instead of having to invest in local agencies and translation of traditional marketing materials, your affiliates will produce localized promotional content on your behalf. They’ll know the best keyword terms to target search engines in their own language without you having to source expensive translators or local marketing companies.
It’s also an incredibly low-risk marketing strategy with a high ROI. Most other promotional channels require some kind of payment upfront and there’s a chance that it may not work. In these cases, you’ve lost some precious marketing budget and not gained anything in return. However, with affiliate marketing, you’re only charged once a sale is confirmed. You can define the payment terms as 60 or 90 days to allow for refunds or processing issues. This protects your cash flow and ensures you’ve already received the money from the customer before you have to pay the affiliate. It’s a performance-based method that rewards top-performing affiliates who refer genuine customers.
How Does Affiliate Marketing Work?
Affiliate marketing is quick and easy to set up since there’s a very low (or sometimes no) investment required to get started. There are usually four parties involved; advertisers, publishers, networks, and consumers.
- Advertisers – the party that sells a product or service (sometimes referred to as merchants).
- Publishers – the party that promotes the product or service and receives a commission on sales (e.g. bloggers, website owners, Instagram influencers, YouTubers).
- Networks – an affiliate network is the middleman who connects advertisers with publishers, provides the tracking technology, and processes commission payments (e.g. Commission Junction or Shareasale).
- Consumers – these are the end-customers who purchase the product or service.
Successful affiliate marketing leverages the relationships between these parties to generate revenue. Publishers promote a product or service using their own unique affiliate link and consumers make purchases as a result. Tracking cookie technology is used to record consumer activity so that sales can be attributed back to the publisher. The network and advertiser use the cookie data to quantify results and calculate commission payments.
Best Uses for Affiliates
If you create a product or service then affiliate marketing can be used to generate buzz and ensure a successful launch. It’s also highly effective at generating leads, trials, and sales. Since you only pay commission after a genuine sale is made, there’s a minimal amount of risk involved. Once you set up your program and find affiliates, it’s a relatively self-sustaining channel that basically manages itself. This frees you up to pursue new marketing initiatives or focus on other areas of your business.
Although affiliate marketing is an incredibly effective online strategy, many businesses have yet to take full advantage. This presents a huge opportunity for you to gain an extra edge over the competition, but you’ll need to move quickly. As we saw in the statistics above, more and more companies are engaging with affiliate marketing to drive revenue. If you don’t incorporate an affiliate program into your marketing strategy, then you’re likely to be missing out on sales.
So, there you have a comprehensive answer to the question – what is affiliate marketing? It can benefit a wide range of businesses and delivers a strong return on investment. The setup requires some initial work to define program terms and create promotional content for affiliates to use. However, once this is completed, affiliate marketing can be a relatively passive source of revenue.
So, if you’re still wondering – what is affiliate marketing? Or have other questions related to how it works and the first steps to get started, then our team can help. Our digital marketing team are specialists in this area and always up-to-date with the latest affiliate management technologies. They can advise you on the best approach for your business, whether you’re a small start-up or large enterprise.