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Affiliate Marketing can be a source of passive income for marketers and a cost-effective way for brands to gain new loyal customers
The term ‘affiliate marketing’ is searched on Google approximately 49,500 times every month in the U.S.—that’s an average of more than 68 searches per hour. Most people end up searching for affiliate marketing when looking for passive income or ways to make money online.
While most claims of making money online are fraudulent or futile, affiliate marketing is a legitimate way for individuals to generate income by promoting products they use or like, without bearing the risk of starting a business or creating a product.
Done correctly, affiliate marketing has the potential to generate millions of dollars for both companies and affiliate marketers. After all, a former U.S. Senator, Robert Bennet once said, “Affiliate marketing has made businesses millions and ordinary people millionaires.”
Passive income or the prospect of earning money from home is enticing for almost everyone. Moreover, the global pandemic has not only claimed the lives of more than 400,000 people worldwide but has also costed millions of jobs.
Whether you are looking for ways to earn money from home to maintain social distancing, or looking to generate extra income for yourself or your family, this article will help you understand the different aspects of affiliate marketing.
1. What is Affiliate Marketing?
Affiliate marketing is a performance-based marketing strategy that allows a merchant, which could be a creator of a product, an entrepreneur, or a multi-million dollar company, to generate additional sales for the company by offering a percentage of sales or fixed commission to affiliates.
These are people who promote the products or brands through reviews and recommendations on blogs, links on websites, digital banners, online ads on social media platforms, etc. in order to drive more traffic to the merchants’ sites, leading to more sales.
Simply put, affiliate marketing involves affiliates promoting a company’s products through different platforms in order to generate more sales for the company.
In this way, every time someone purchases a product through an affiliate’s link, the affiliate earns money, which could be either a commission or fixed incentive, depending on the affiliate program or agreement with the merchant.
Affiliates are provided with unique affiliate links when they sign up for Affiliate Programs, which are then monitored to track leads and conversions, to calculate commission, and used by the affiliates to direct traffic to the products they are promoting.
The company or the merchant, on the other hand, saves money on advertising and sales personnel, pays affiliates based on their performance. This means, that affiliates, also known as publishers, only get paid when they generate a real lead or sale.
For example, Tripadvisor uses the affiliate model to generate revenue and maximize profit. Tripadvisor forms affiliations with third-party websites like hotels and airlines to generate additional revenue by directing traffic over to those websites for a commission.
Tripadvisor also runs its own Affiliate Program, which offers up to 50% commission, and does not require customers to make a booking. The customers simply need to click out from Tripadvisor to any of the hotel booking partners’ websites for affiliates to earn their commission.
The Affiliate Marketing Industry is valued at US$12 billion, with U.S. affiliate marketing spend expected to reach $8.2 billion by 2022, up from $5.4 billion recorded in 2017.
According to Business Insider’s ‘The Affiliate Marketing Report,’ 16% of all ecommerce orders in the U.S. came through affiliate marketing, the same amount as email marketing, in 2015. Moreover, 15%-30% of all sales for advertisers come from affiliate marketing, while 15% of total digital advertising revenue comes from affiliate marketing (Business Insider).
Fashion is the most popular affiliate marketing category, followed by Sports and Outdoors, and Health/Wellness and Beauty, according to AM Navigator.
2. How is Affiliate Marketing different from Referral Marketing and Influencer Marketing?
In referral marketing, companies and brands generate more interest and sales through their existing customer base by providing them with incentives in the form of cash rewards, coupons, discounts, etc. to refer the products/services to their close family and friends.
If your friend asks you to check out an app she loves, she is participating in a Referral Marketing Program, although she might not know it.
While both forms of marketing aim to acquire new loyal customers, and are cost-effective, there are some fundamental differences between the two strategies.
Key Differences Between Affiliate Marketing and Referral Marketing
1. Relationship with the audience: The chief difference between referral marketing and affiliate marketing is that in referral marketing the company uses its existing customers to gain new customers, while in affiliate marketing, the same job is done by third-party affiliate marketers who may not know the customers personally.
Referral marketing works on recommendations from close friends or family members. Therefore, trust plays a big role, and will likely be the foundation of a new customer choosing to try out a friend or relative’s recommendation.
On the other hand, in affiliate marketing, affiliates target consumers by placing ads and links on websites. While most affiliate marketers believe in being transparent about this, consumers are sometimes unaware of the marketing strategy.
For example, let’s say you are looking to buy a laptop or a smartphone. Before making a purchase decision, you will probably sift through the hundreds of websites and videos about the best products, their reviews, etc. You may not realize that when you buy a product directly from a link in a review blog, you are helping the website owner earn a commission from it.
In referral marketing, customers are primarily motivated by the incentives provided to recommend a brand or product, and most consumers recommend products or brands that they like and personally trust. On the other hand, for affiliate marketers, the primary goal is to earn commission, and they recommend products that they may not use.
2. Loyalty of the New Customers: As mentioned above, in referral marketing, new customers automatically trust the brand or product because of the personal recommendation from a trusted family member or friend, thereby providing an easier path to brand loyalty.
In the case of affiliate marketing, although customers may trust the affiliate marketer and their opinions, the level of brand loyalty is less, with higher chances of churn.
3. Medium used for marketing: While affiliates promote products or brands through dedicated websites or digital ads, referral marketers share their referral codes through text messages and social media platforms.
Influencer Marketing refers to the marketing strategy through which companies and brands leverage a social influencer, like bloggers, vloggers, journalists, consultants, analysts, or other public figures with large followings, in order to promote awareness about the brand, sell particular products or services, increase social media presence, create hype around an event, and gain new customers.
This is a modern version of celebrity endorsements and effectively a word-of-mouth marketing strategy. For example, let’s consider the ‘Oprah Effect.’ With her vast viewership and influence over millions, she has impacted the sale of books, products, and more. Similarly, brands now seek the endorsement of influential content creators on platforms like TikTok to boost sales.
Key Differences Between Affiliate Marketing and Influencer Marketing
- Cost: In affiliate marketing, the affiliates are paid commission, which is a percentage of the sales they generate for the merchant. On the other hand, social influencers are paid a flat fee to promote brands or products. Additionally, the influencer might also get free products in return for their endorsement.
- Measurement and Tracking: In influencer marketing, the influencers’ website and social analytics are monitored to determine potential reach or total audience, rate of social engagement, cost per impression, etc.
For affiliate marketing, tracking cookies and a pixel are placed on the merchant’s website, in order to record engagement with the marketer and calculate their commission.
3. Benefits of the Affiliate Marketing Model
An Affiliate Marketing model holds quite a few benefits for merchants.
1. Performance-based and Cost-effective: Affiliate marketing is one of the most cost-effective ways to gain new customers since affiliates are paid based on their performance. Therefore, companies save money, as compared to the cost of hiring full-time sales and business development personnel.
2. Rapidly increase website traffic: Effective affiliates can greatly increase merchants’ website traffic through digital ads, reviews, recommendations, etc. The more sites that link to a brand’s pages or website, the more opportunities will arise for merchants to convert visitors into paid customers.
3. Boost merchants’ reputation: As a business, if you carefully onboard trusted and reputed bloggers and websites, their recommendations and marketing strategies can boost your reputation.
4. Expand customer reach: If you are a niche business, onboarding affiliates who interact with your target audience can help you reach relevant customers across the globe. In fact, whatever your product or service is, onboarding affiliates in strategic locations can help expand your customer base.
For affiliates, affiliate marketing provides an easy way for individuals to forego the hassle of creating a product or starting a business, and simply focus on promoting the products of other merchants. This saves affiliates the time and investment required to develop products or start a business venture.
Consequently, affiliate marketing is low risk. They are also fairly light in time consumption: some people even do it part time to generate extra income while holding on to their full-time jobs.
Moreover, affiliate marketing has the potential to generate a surprising amount of income for successful affiliates. There are hundreds of stories of successful affiliates who have gone on to earn millions. It’s also easy to scale: at any point, new products or services can be introduced to your current audience to expand your earnings.
4. Early Beginnings
The first patent for affiliate marketing was granted to William J. Tobin, referred to as the world’s first Internet marketer. Although he applied for the patent in 1996, it was granted in 2000.
The Founder of PC Flowers & Gifts, Tobin conceptualized the idea of affiliate marketing and launched his program on the Prodigy Network in 1989. With the same basic concept, the model involved paying a commission for every sale. By 1993, it was generating more than $6 million per year for Prodigy.
In 1996, Amazon launched an affiliate marketing program called Amazon Associates, available to the general public, which gained popularity across the globe. Amazon’s model involved paying commission as a percentage of the sold product, now up to 10%, and many affiliate networks launched later followed the same model.
Clickbank and Commission Junction, founded in 1998, were among the earliest affiliate marketing networks, who have retained their popularity till date. These networks, which offered payment solutions and facilitated exchanges between affiliates and merchants, enabled smaller retailers not involved with Amazon to earn commission.
According to moreniche, Refer-it.com, now acquired by Internet.com, was the first Affiliate Program Directory to be launched in 1996, and provided an overview of affiliate networks to both affiliates and merchants. AssociatePrograms.com, AffiliateGuide.com, ReveNews.com are all affiliate program directories launched later, that also provide other resources related to affiliate marketing.
5. Popular Affiliate Marketing Programs
- Amazon Associates: One of the first and most popular affiliate programs, Amazon Associates provides thousands of products for affiliates to choose from, and is one of the best programs for beginners. It has varying commission rates for different product segments. More details are here.
The program also offers daily reports of traffic, revenue, earnings, conversion rates, and link types for affiliate websites, to help them monetize more effectively.
- Shopify Affiliates Program: The Shopify Affiliates Program offers an average of $58 as a commission for each user who signs up for a paid plan on Shopify using a unique affiliate link. You can also save time and money on content by linking to Shopify’s resources, including blogs, webinars, and tutorials.
- Tripadvisor Affiliates Program: Tripadvisor’s affiliate program offers at least 50% of their own commission to marketers when consumers click on any hotels listed on the platform, even if they don’t book. Therefore, this is one of the higher paying affiliate programs.
6. Affiliate Marketing Networks
An Affiliate Marketing Network acts as an intermediary between affiliates and merchants. These networks typically provide a database for affiliates to use to find relevant products to promote on their websites. Affiliate marketing networks like Clickbank can handle the payment and product delivery on behalf of affiliates.
For merchants, affiliate marketing networks offer tracking technology, reporting tools, payment processing, and access to a large base of affiliates.
If you do not want to join any existing affiliate networks, you can also build your own network.
7. A step-by-step guide to Affiliate Marketing
Step 1: Selecting a product or service to promote
Firstly, it is important to determine where you are starting from, and your strengths. If you are starting from scratch, the first thing you need to do is decide what products you can and want to promote and analyze your strengths. Some good questions to ask yourself might be:
1. Which products can I sell convincingly?
2. Which products can I recommend with conviction?
3. Which products can I review?
4. What is my personal connection with this product? Is it something I use or have used, or is it something I have never used before?
It’s important to know and understand your audience in order to be able to connect with them. The more things you have in common with them, the better your connection with your audience, and the greater their trust.
This is also the stage where you determine your target market—this will help you decide whether you want to promote a mass-market product or a niche product, and the size of your potential audience.
While apparel and beauty brands offer higher commission rates, targeting a niche market with a focused audience will make it easier for your website to become visible and rank higher on search engines, as the competition is comparatively lower. You can check out a useful list of niches here.
Secondly, make sure the products you select are fit for the platform you will be promoting them on. For example, if you’re trying to promote software or a service, a blog or website may be a better platform. On the other hand, apparel and home decor items might be better promoted through Instagram with the help of visuals.
Finally, it is important to consider keyword search trends when selecting the products or services you want to promote. A product people are searching for will ultimately make you more money compared to a product which nobody is looking for. It is crucial to know that there is a demand for the product or service you want to promote or sell.
Step 2: Select an Affiliate Marketing Program
Once you have selected the products or services you want to promote, research the brands in that category and select the ones whose affiliate programs best suits your needs. You can check out the networks listed above or find your own affiliate program through Google Search.
If the product or brand you want to promote does not have a public affiliate program, especially if they are local businesses, you can reach out to the company and set up a revenue-sharing arrangement for affiliate marketing.
Which type of affiliate marketing program you should join also depends on your resources, the competition, and your expertise. There are high-paying, low-volume programs in niche markets where you will need to generate comparatively less traffic to earn a decent commission every month. However, high commission paying programs attract a lot of competition, and it could be difficult for beginners to make a meaningful income in the beginning.
Alternatively, programs like Amazon Associates pay lower commissions and require higher traffic flow in order to generate a comfortable amount every month. Depending on whether you want to target a niche market or mass market, you will have to select between the first and second type of programs.
Step 3: Figure out your promotion strategy
Once you find the best affiliate programs for your needs, the next step is to lay down your promotional strategy depending on your time, resources, budget, and other relevant factors. For example, if you signed up for the Amazon Associates program, and selected a piece of apparel to promote, you can choose to promote it through social media like Facebook, and Instagram, along with a focused website.
But firstly, you will need to set a budget for your promotional activities, set up a website, and generate content for marketing. If you are a wizard with words, you can generate your own original content to save costs. However, you can also outsource the work by hiring freelance content writers to save time.
The same goes for websites. You can either use your own technical know-how or free tools to design your website, or hire a freelance web designer to do it for you.
Most experts suggest having a dedicated website or channel for affiliate marketing. If you already have a website, you can easily place your affiliate links in your website content as internal links or use digital or banner ads. For example, if you have a tutorial channel on YouTube, you can insert links in your description for the products, or place an affiliate link on your reviews or rankings websites.
There are hundreds of websites and YouTube channels where products from hair straighteners to smartphones are reviewed, or compared with their competitors. For example, Track Time, a niche YouTube channel, which reviews Hot Wheels tracks and cars, generates more than 300,000 views for its videos.
These types of niche websites usually attract focused and relevant consumers, although the number of target consumers in the segment may be low compared to mass market products.
Another recommended promotional strategy is email marketing, by designing a form to collect emails on your website. However, remember that you have to provide something valuable in exchange for the email addresses – for example, websites that offer courses often give away free courses in order to collect emails from people who sign up.
An email list can help you target customers and send them marketing related content and weekly updates, without having to wait for them to visit your website. For example, if you have a blog, you can send a newsletter with your latest blog posts every week.
If you choose a niche segment, even with less than 500 emails, you can generate significant income.
Another strategy that has attracted interest since the lockdowns began with the outbreak of COVID-19, is webinars and live streaming. With live streaming and webinars, you get to interact with your audience and develop your relationship with them. Watching someone review a product or sell a product live also generates more trust.
No matter the medium, the important thing is to provide genuine and valuable content that consumers can trust. If you have a review website, posting genuine reviews with both pros and cons can help win people’s trust. Wirecutter, for example, posts recommendations of products after testing and trying them, which explains their success.
Trust is a key factor in affiliate marketing efforts, because people need to trust you enough to act on your recommendations. The level of trust needed to make affiliate sales depends on your industry and the products you’re recommending—for example, it takes more trust to be an effective affiliate for a $1,000 course than it does for a $20 t-shirt.
Depending on your budget, you can also choose to use digital ads with Google Ads or Facebook Ads. However, it is important to understand that these costs climb very quickly, and with low commission rates, they not be advisable in the beginning. Besides, SEO can help your website and content gain visibility organically without spending a dime.
Step 4: Create great content
For your affiliate site to drive sales and succeed, you need to create high quality content for your customers, where your affiliate links fit in naturally.
For example, Tim Ferris, the author of The 4 Hour Work Week, interviewed hundreds of famous people about any purchases of $100 or less that positively impacted their lives. The answers were published in a blog post along with affiliate links of the products.
You can look up keyword search trends for content ideas that are related to your niche and are popular. You can also follow affiliates in other sectors to get content ideas that could work for your niche.
Step 5: Drive traffic
If you outsource content writing, you will be spending most of your time as an affiliate on driving traffic to your website. This is the most important aspect of the income-generating process.
While there are ways to increase paid traffic to your website through ads, they require both time and money. The best way for you to drive traffic to your sites organically is through Search Engine Optimization (SEO). As long as you rank high enough in search results for your target keywords, you will receive enough traffic on your sites.
There are several tutorials, videos, and blogs online, that explain how you can optimize your webpages to improve your search engine rankings.
Email is another free way to drive traffic to your website. If your weekly update contains excerpts from your latest blogs, customers who find the content intriguing may visit the website to read more.
Following these five basic steps, you can start affiliate marketing within a few days. However, affiliate marketing usually takes time to yield a sizable income, as there are no real overnight tricks to it. If you are looking to quit your 9-to-5 job, affiliate marketing may not generate a steady paycheck immediately.
How much money can you make as an affiliate marketer?
How much you earn from affiliate marketing depends on a few factors:
1. Commission rate: Commission rates vary according to the market segments, products, and companies. For example, travel affiliate programs offer up to 60% commission, but the rates vary from program to program. Tripadvisor offers 50% of gross revenue generated, while Agoda offers 30%-60% commission.
Commission rates also vary according to the product. For example, Amazon offers a 10% commission on its beauty products and only 4% for fashion.
2. Customer Acquisition Cost (CAC): CAC is the total of all your marketing costs divided by the number of sales, including money spent to develop a website, freelancer fees for graphic design, content writing, and ads like Google or Facebook Ads. If you are spending a huge amount of money to drive sales, you may not recover your costs or make a profit.
The less you spend on marketing your website and products, the lower your profit margin. You can generate huge sales by spending a fortune and operating at a loss, or you can try to organically increase traffic, and earn higher profits even with fewer sales. This is why an affiliate who earns $500 per day may have a higher net profit than someone who earns $1,000 per day.
3. Niche: The niche market you choose to operate in will determine your potential income. Each niche market has a distinct set of customers with particular purchasing habits, and attracts different levels of competition.
For example, the ecommerce or consumer loan segment has a huge number of affiliates competing for sales. Dating affiliate programs, on the other hand, are constitute a profitable niches, as the demand for dating and relationship advice remains almost consistently high.
4. Time: The longer you are in the market, the higher your chances of earning a higher income. Generally, website visibility may take about six months to years to increase. There are several success stories where sales jumped overnight, but most affiliate marketers earn steady incomes by using a consistent marketing strategy and delivering great content.
The amount of time it takes for you to start earning from affiliate marketing also depends on how well you execute your marketing strategies and utilize SEO.
If you are patient enough to wait out the initial stages of frugal- to no-income and continue to deliver valuable content and be consistent with your marketing tactics, you will be able to generate meaningful income in a few years.
Affiliate marketing is not a hack to become a millionaire overnight – it requires persistence, patience, and consistency. But if done right, it can work wonders.
Header Image by Austin Distel on Unsplash