How affiliate marketing works

By Leon Tranter | Affiliate Marketing

Sep 30
affiliate marketing

You might be new to affiliate marketing. Or maybe you’ve barely heard of it. This article will provide a brief high level introduction to what affiliate marketing is. So you can decide if it is something you want to check out.

How affiliate marketing works

The concept behind affiliate marketing is very simple. If someone promotes or recommends a product, they should be paid for it. Since they are providing a service.

This is how advertising works! Which has been around for hundreds if not thousands of years. So affiliate marketing is not some weird new scam or crypto scheme. It is a normal proven business model used by huge global businesses.

The difference between affiliate marketing and advertising, is that advertising agencies get paid for running ads, whether the ads are successful or not.

Affiliate marketing is more based around the concept of “direct response marketing”. The affiliate is promoting a product out of their own time and money. And if they get a sale, then they get paid.

So they don’t get paid for running ads, but they can get paid for every sale they make. And if they make a lot of sales, they can make a lot of money. As opposed to an ad agency, who just gets paid the same if the ads are successful or not.

Affiliate marketplaces versus affiliate programs

Affiliate marketing is generally done either via marketplaces or via programs. A marketplace is a big platform or website where product vendors (people who create products) can get matched up with affiliates, also known as publishers (people who promote the products and offers created by the vendors).

Three very big and popular affiliate marketplaces are Clickbank, JVZoo and Warrior Plus. Though there are some other large ones also, especially for CPA offers (which I’ll talk about later).

Some marketplaces automatically approve affiliates to promote all the offers there (Clickbank does this). For other marketplaces like JVZoo and Warrior Plus, you have to apply to each product’s vendor to get approved and get a link for each product.

Some really big companies (vendors) have their own affiliate programs, however. They don’t go through a marketplace, you just apply through their website. And there is no middleman.

For example, big service or software companies like web hosting providers or Softare As a Service publishers will often have their own affiliate programs. You just apply and get a link and away you go

Affiliates get paid a proportion of the sale price

How it actually works is that there is a vendor and a publisher. The vendor is the person who created the product or offer. They own the IP (intellectual property) and ultimately the rights to the product.

Every time an affiliate makes a sale, the affiliate earns a commission, which is a proportion of the sale price.

These proportions can vary a lot. For some programs, such as the Amazon Associates program, the commission rate is only a few percent. For many of the digital products on Clickbank, it is 50 to 75%. For some of the digital products on JVZoo and Warrior Plus, it is from 50% to 100%!. Vendors can pay 100% to affiliates because they can make more money on the other offers that come after the main offer. Affiliates usually get a lower rate on those offers.

Digital versus physical marketing

There is obviously a big distinction between promoting digital and physical products. I personally like digital products, because they are delivered right away, and there is no shipping and handling costs. I live in Australia, so I hate paying $20 shipping for something that only costs $10!

Some people like physical products, though, and that’s fine.

The profit margins on digital products are really high however. That’s because there is no manufacturing or shipping or anything. If I produce an ebook or video course, it costs me nothing to send it to one person or one thousand people. But sending a physical book to a thousand people will cost a fortune!

That is why the commission rate on Amazon Associates program is so low. Amazon struggles to make a profit on each item they sell, so they can only afford to pay affiliates a small commission rate. Digital products have amazing profit margins so they vendors can afford to pay affiliates a lot and encourage them to make a lot of sales for them.

CPS versus CPA marketing

Another important distinction is CPS versus CPA marketing. CPS stands for Cost Per Sale and is a common model in affiliate marketing. Basically, it is the model I have been describing. Vendors make a product, affiliates try and sell it, and if they do, they earn a commission as a percentage of that sale price.

But there is another system known as CPA marketing. This means Cost Per Action – rather than a sale, CPA is based on someone making some kind of action, process or activity.

This is usually filling out a form of some kind, such as a survey or a contact form. For example, legal or banking services firms will pay a lot of money to collect potential leads or clients, since they can earn thousands from just one client.

It could be other things though, such as watching a video, playing a game or installing an app.

CPA marketing is very different to CPS marketing. They have their own marketplaces, their own strategies and their own culture.

CPA marketing usually relies heavily on paid traffic (as opposed to CPS marketing, which usually uses a mix of free traffic and paid traffic).

Which side is better, vendor or affiliate?

You might be wondering whether it is better to be a vendor (also known as advertiser in CPA marketing) or affiliate (also known as publisher in CPA marketing).

This is not an easy question to answer. They are both very different and each side has their pros and cons.

At first, you might think that affiliates have a great deal. They don’t have to build a product, they don’t have to make a sales page, they don’t have to organise affiliates. And they don’t have to deal with customer support! That’s the vendor’s problem. All they have to do is convince someone to buy the thing, and they can earn up to 75%, or sometimes more!

Seems like a very good deal, right?

Well, it can be, and some people can do very well out of affiliate marketing this way. I’ve started earning some money as an affiliate.

Think about it from the point of view of the vendor though.

They do have to do a lot of work to come up with the product, the sales page, the advertising material, and so on. They have to organise all the affiliate material so it can be promoted properly. They have to deal with customer support, which can be a pain.

And they might only be earning 25%… but that is just from one affiliate. Then they earn 25% from the next, and the next, and the next.

Would you rather make 75% of say $1000 (sales that you made as an affiliate)… or 25% of $1000 from twenty different affiliates? Or fifty different affiliates? You can see that vendors can actually make a lot of money.

Also, they get the email addresses of all the people who bought the products (the affiliates don’t really, unless they have a few tricks up their sleeve).

And that “buyer list” can be worth a lot of money over the following months.

So each side has their pros and cons.

The importance of trust and authority

If you are doing CPS marketing, I would say one of the most important factors in making sales is trust. People generally buy from people and companies they trust.

So if you want to get started with affiliate marketing, the first thing you really have to do is start building up trust and authority. And the best way to do that is with content marketing – such as this blog you are reading right now!
I’ve written an article explaining why blogging is important to internet marketing.

Summary

So I hope you found this explanation of how affiliate marketing works helpful. If you have any questions or comments, please leave them below, I will respond to every single one! Unless you are a spammer and just leave a link to some gambling website. In which case, go to hell!