What is Affiliate Marketing

Bret Kershner on Social Media Marketing

Utilizing affiliates to grow your organization is a marketing strategy very akin to traditional advertising. But what makes affiliate marketing unique is its performance-based nature.

Unlike ads placed on TV, radio, or print publications, for which you aren’t guaranteed a return, affiliate marketing doesn’t cost anything unless it performs. Your costs occur when paying the affiliate a commission for the sale that they’ve made for you, and not when the advertising space is purchased.

So, is affiliate marketing as low risk as it sounds? Essentially, yes, but it still requires careful planning and management in order to succeed.

There are pitfalls to avoid, of course, and recruiting affiliates to work with you will not come automatically. For now, lets start with the basics of how affiliate marketing works, so that you can get a better idea if this is a good marketing strategy for your organization.

Examples of Affiliates

Also known as a publisher, an affiliate is essentially any website owner who utilizes their organic web traffic to make referrals to a merchant’s website (merchants are also referred to as advertisers).

Websites that serve as effective affiliates provide services and content that garner large amounts of web traffic because they’re able to attract an audience that finds value in it.

Common examples of affiliates include, but are not limited to, the following:

  • Blogs
  • Product review sites
  • Shopping comparison sites
  • Coupon sites

Affiliates can come in all shapes and sizes. Some provide web services designed solely for making efficient referrals to other websites (think comparison shopping websites, like FindGift.com).

Others provide valuable content and perspective for those who are evaluating existing services (think product review sites).

The common thread that all effective affiliates have is that they can be very instrumental in providing an interested visitor to your website. An increase in visitors can to lead to an increase trial signups of your product, more requests for information about your services, more newsletter signups, etc… All of this equals more qualified leads for the you, which should lead to higher sales.

This type of synergy between affiliates and merchants helps to make the eCommerce world go ‘round.

Case in point — meet our fictional blogger, Tim.

Tim operates a successful self-improvement blog that provides his readers with useful content to organize their time, meet their goals, and be more productive, both professionally and personally.

In an effort for Tim to turn his high web traffic into a financial win he has agreed to have a banner advertisement placed at the top of his blog. This banner links back to GoalTracker, which is an app designed to help people plan, organize, and meet the tasks that make up the user’s goals that they set for themselves.

Once a reader visits Tim’s blog and clicks on GoalTracker’s banner, both the company and Tim can start cashing in. Tim’s success = GoalTracker’s success.

The app could choose to reward Tim in one of three ways:

Pay-Per-Click:  Each time a user clicks the advertisement and visits the website, the advertiser (GoalTracker) pays the affiliate (Tim) a small amount.

Pay-Per-Lead:  Tim only gets paid once the referred web visitor completes a commitment defined by the advertiser, such as signing up for a trial version of the service, signing up for a newsletter, contacting the company for more information, etc.

PayPer-Sale:  For each referred visitor that ultimately converts to a sale, Tim gets paid exponentially more.

Established Affiliate Networks vs. Homegrown

Getting your feet wet with affiliate marketing is easy since you don’t have to create a system from scratch that will track the progress of your affiliates and dish out the rewards. Instead, there are many established affiliate networks to choose from, including:

  • Rakuten Linkshare
  • CJ
  • Clickbank
  • ShareASale
  • Affiliate Window

These services automatically pay your affiliates for the commissions that they’ve earned and report on the numbers of clicks, leads, and sales your ads are earning. Many of these affiliate services only require a modest monthly subscription fee to use their service.

Of course, there are significant savings to be had by designing and developing an in-house affiliate system, but this could be viewed as more of an area of future optimization rather than a critical starting point where your success hinges.

Instead, all highly profitable affiliate marketing efforts depend on how well they’ve been able to recruit quality affiliates to work with.

Customers are Your Best Affiliates

To identify productive and loyal affiliates, look no further than your own customer base.

By tapping into the existing goodwill that these customers already have for your organization you can begin to see positive results quickly.

After exhausting your existing evangelists, you can ask yourself, “What are the websites that a prospective customer would visit if they were searching for my product?”

Try to focus on websites that are related to your product offering, but do not compete with your product directly. Product reviews sites are a great example here, but many times finding a service that compliments your offering in a natural way can produce the highest quality affiliate leads for you.

Case in point:

IdealPath's sister site, SurveyGizmo.com, has formed one of its most successful affiliate relationships with a market research firm. As one of SurveyGizmo’s uses is a powerful tool for creating surveys meant for research, these two services are part and parcel.

I Have Affiliates! But How Should I Track Their Performance?

There are are a handful of key performance indicators that are very useful to track, including the following:

  • Number of Leads: perhaps a referred visitor contacted the advertiser in some way, such as a request for a quote or for more product information.
  • Number of Conversions: these are the completion of a goal that you define on your website. A conversion could be a trial signup or, of course, a sale.
  • Conversion Rate: the percentage of referrals sent to your site who ultimately complete the conversion goals that you have defined.
  • Average CPA (cost per acquisition): the amount of money paid to obtain the desired outcome (usually a sale).

While reviewing your affiliates’ performance metrics it’s important to think of the long-term value of a customer, not just their initial expenditure compared to the commission that you paid. You only pay the commission once, but a customer who is retained for years in the future can make your ROI on affiliate marketing skyrocket!

Should I do Affiliate Marketing?

Short answer: probably. If you foster great affiliate relationships then the time to effort ratio for affiliate marketing is very favorable. Just don’t expect to make an incredible amount of money until you get a large number of quality affiliates.

The affiliate marketing strategy takes advantage of the fact that there are many pockets of the web that people visit on their way to making a buying decision. Many times people visit blogs and sources of original content to help in their buying decision (whether B2B or B2C).

If your business is able to align itself with these areas then it makes all the sense in the world to participate in affiliate marketing.