What is Affiliate Marketing and how does it work? A Guide for Beginners

What is Affiliate Marketing? A Guide for Beginners

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Affiliate marketing has been around for quite a long time (the first affiliate program was created in 1994!) but has been become one of the more popular methods of generating passive income on the web. In fact, affiliate marketing is soon to become an estimated $6.8 billion industry by 2020!

So how does it work?

Let's dig into the different facets of affiliate marketing business model and how it can be leveraged to generate income.

So How Does Affiliate Marketing Work?

There are essentially 4 parties involved in affiliate marketing:

  • the product creator - the creator of the product
  • the affiliate - the promoter of the product
  • the consumer - the end user that purchases the product
  • the affiliate network - the network listing various products to promote

The Product Creator

Also known as the merchant or advertiser, the product creator is simply the party that creates the product. A key part of the affiliate marketing model because without a product, the affiliate would have nothing to promote!

The product could be a physical ware created by a large company e.g a Samsung TV. Or it could equally be a software product or online course that a single individual is selling. The point is, anyone can be a product creator, as long as they have a product worth selling.

The Affiliate

An affiliate is the individual or company who promotes certain products or services in order to later earn a commission.

The affiliate, also known as the publisher, markets the product to potential customers. Commonly, this takes the form of a website that promotes products through various means such as blogging with reviews, sending emails to newsletter subscribers or even placing ads.

All these methods provide ways in which to encourage customers to buy the product. In doing so, the affiliate can receive a commission for sales made where the affiliate played an active role in converting the potential customer into a paying customer. Additionally, it's worth noting there are ways in which the affiliate can still earn commission, before any monetary transaction has occurred. This is called lead generation (more on this later).

As for how much the commission is worth in monetary terms, this can vary greatly depending on the terms of the affiliate program, as well as the sale price of the product.

Example of an Affiliate Site

NerdWallet started as a simple blog comparing different credit cards but later grew into one of the largest sites on the web exploring personal finance.

NerdWallet

From best estimates, NerdWallet likely makes over $800K per month! And guess how they achieve that...

That's right, affiliate marketing 😎

By using affiliate links, NerdWallet generate incredible levels income by recommending various credit cards and other financial services and get paid in return for the consumer clicking those links.

The Consumer

The consumer or customer is the one making the transaction. Generally, the customer purchases the product recommended by the affiliate but a sale does not necessarily need to take place for the affiliate to gain a commission.

It's important to note that consumer doesn't usually pay any more money than they otherwise would for purchasing a product - the affiliate commission is normally included in the sale price. However, this also opens up the possibility that they may not even realise that this commission was given. The affiliate largely decides how transparent they are to consumers regarding this relationship but lately the trend has moved further towards transparency.

The Affiliate Network

The affiliate network acts as a the middle-man or intermediary between the product creator and the affiliate. The network is not strictly necessary for a transaction to occur through affiliate marketing but provides benefits such as handling payments and tracking multiple affiliate programs.

Product creators can host their own affiliate programs and therefore would retain more of any generated income. However, some choose to host their programs via an affiliate network because they lack the time to track and pay affiliates for each transaction.

Similarly, it's possible for affiliates to signup for the affiliate programs for individual products if available. Alternatively, affiliates can signup to an affiliate network to access multiple affiliate programs and track payouts in one convenient place.

Examples of Affiliate Networks

One of the earliest affiliate programs to be made available was the Amazon Associates Program, which enables you to promote items available on the Amazon marketplace in exchange for a commission. You can sign up and generate a unique affiliate link with Amazon, so that when a customer purchases an Amazon item through your link, you get paid a small kickback as thanks. How much money you can earn per purchase can vary widely, as affiliates are paid different fixed percentages of the sale price depending on which category the product belongs to.

Amazon Associates

While Amazon Associates is a bespoke affiliate network specifically for use only with Amazon, it is more commonplace for networks to offer a wide range of products for affiliates that are listed explicitly for promotion.

These more general-purpose networks serve as an affiliate program catalogue which affiliates can browse at their leisure.

Clickbank is an example of such, providing a diverse database of products to potentially promote.

Clickbank

From the image above, you can see that products tend to be defined under various categories. When seeking a product to promote, affiliates can fairly easily select a product to market by browsing the category appropriate to their marketing strategy.

For example, if your site revolves around the fitness genre, you might want to start browsing the "Health and Fitness" category to get some ideas on relevant products.

So What Makes Affiliate Marketing So Popular?

There are some very good reasons why people have flocked to affiliate marketing as their choice of business model online:

No Large Upfront Costs

The amount of time and money needed for starting a traditional business is usually at least in the thousands. This is because of expenses such as buying and storing product stock and requiring a physical premises with which to conduct business.

As an affiliate, the initial monetary investment to get started is pretty low. There is the option of paid traffic and outsourcing tasks to other people but this is all in the hands of the affiliate.

Even compared to other online business models, not requiring to hire staff, purchase ads or cater to customers in real-time make affiliate marketing a more comfortable space to work in for most people.

For example, Dropshipping is another common online business model that involves forwarding customer orders to a supplier who is responsible for shipping the product to a customer. Similarly, it's a low risk model due to not being required to purchase stock upfront and enabling potentially high product margins. This is because you can usually sell a product for higher than the regular selling price and make a direct profit, instead of earning a percentage of the sale as commission.

However, due to the requirement for real-time customer support and lack of control over shipping times, affiliate marketing tends to be a more forgiving model to adopt when you want to primarily earn passive income.

Doesn't Require Professional Expertise

While every bit of knowledge helps, you don't actually have to be a domain expert to write blog articles about your chosen subject. That said, you should know relatively well what you're writing about but you can learn as you go, gaining knowledge and breaking it down into more easily digestible forms for your readers.

Don't feel put off by your current level of knowledge - seek to improve yourself and your content and you'll likely reap dividends in the long run. If you're really passionate about the subject you're writing about, you'll be much better off than someone else who's doing it without caring about their content and their site visitors.

You Don't Need to Generate a Sale to Get Paid

While the most money from affiliate marketing is usually from making sales happen, you can also gain income from generating leads for products.

Ultimately, this means that you can still make money, even when a purchase hasn't been made.

A Great Source of Passive Income

It's genuinely a pleasure when your business can run smoothly without much intervention to keep generating income. Obviously, it helps to blog fairly regularly as an active site tends to be more inviting to users and your site is more likely to be found through user searches with the more content you have. That said, it's largely up to you how hands-off you want to be after you've established some success.

Even better, it's completely up to you whether this becomes your primary or secondary source of income. You don't necessarily have to leave your current job to build your affiliate side business.

How to Make Money From Affiliate Marketing

As an affiliate, it's typical to get paid whenever a visitor to your site creates a transaction with the product creator. This can take many forms but here are some of the core methods of payment.

Pay Per Click (PPC): The affiliate gets paid for any click-throughs to the product site. Usually this is a minimal amount, as no sale was made to make a commission off of.

Pay Per Lead (PPL): The affiliate gets paid for any leads they had a hand in generating. In most cases, the affiliate directs the visitor to a signup form, usually only making money when the visitor signs up to the service. This could be a free trial or a newsletter subscription but usually the visitor doesn't pay for anything at this stage.

Pay Per Sale (PPS): The affiliate gets paid for every sale generated. This will likely pay out the most money per transaction, as the product creator can give a commission based on money made from the sale.

You may have noticed that usually when commissions are generated from sale, they are likely to be small percentage as most money is kept by the product creator.

That said, it may make sense then to market the more expensive products to consumers. But because not all affiliate programs are created equal, both the price of the product and the type of affiliate program can have a big impact on your returns.

For example, some programs offer a fixed percentage of the sale price for each product sold, say 4% of a $500 product - making $20 per sale. The most lucrative programs tend to offer lifetime, recurring income for subscriptions - this is ideally what you want to aim for if you want to massively increase your earning potential.

Imagine if someone clicks your affiliate link and signs up for a subscription service that pays monthly. Now imagine if you were to get paid every month that person pays their subscription. And even if they were to cancel the service, you get paid again if they resume their subscription. And then, imagine that compounds for every person who signed up via your affiliate link.

You, as an affiliate, would be making money even in the case that you've had no visitors to your site recently. Additionally, this income would scale exponentially with each assisted conversion.

Why not give it a try?

Example of a Lifetime Recurring Affiliate Program

SEMrush is an online tool that is extremely useful to help you analyse and improve how your site ranks on search engines.

SEMrush

It does this by offering a broad range of services such as SEO keywords analysis and backlink audits to ensure you have as many advantages as possible in marketing your business.

BeRush is the affiliate program for SEMrush and is a great example of a lucrative program with lifetime recurring commissions. For each successful conversion, the affiliate receives a whopping 40% commission for the lifetime of the subscription.

While the commission for a user who stops paying for SEMrush will disappear, you'll again be paid commission on a recurring basis if that same user resumes their subscription. What's more, SEMrush offers multiple tiers of account plans so there's also an opportunity for an affiliate to passively increase their income if users decide to upgrade their plan to the next level!

How Much Money Can You Realistically Make?

In all honesty, the amount of money you can make can vary substantially. Many affiliate websites make 100's or 1000's a month, some lucrative businesses can even make more than traditional marketplaces. But how successful you are depends on many different factors. For example:

  • A good marketing strategy - How successfully you implement email marketing, organic SEO, paid traffic

  • How much traffic your site gets - The more traffic received, the higher the chances you'll convert a visitor into a paying commission

  • The affiliate programs you promote - As the terms of affiliate programs vary massively, you can either be paid a small amount per transaction or a lot of money. Choose wisely and you'll reap the rewards.

That said, it's also important to realise that affiliate marketing isn't some get-rich-quick scheme. It's a legitimate business model that rewards perseverance and dedication, just like any other business. It's easy to create a blog that sprinkles affiliate links here and there but ultimately it's the value your site content offers and the effort that you put into improving your business that makes the most difference in increasing your potential income.

Also, though you can outsource some of your business activities (such as hiring guest bloggers to submit content for your site), this comes a cost. You should find a happy medium between how much you spend on building your site and how much you spend per month to keep things going. Obviously, the more you reduce your outgoings, the more of your generated income that you can keep for yourself.

How to Get Started With Affiliate Marketing

Hopefully this guide has given you some insight into what affiliate marketing is and how it works. But now it's time to get your hands dirty and try it yourself!

Here are some tips to get you started.

Seek Mentorship

While not absolutely mandatory, having a mentor to watch over your progress and using their experience to nudge you in the right direction can help immensely.

Similarly, finding a community of people with the same interests centred around affiliate marketing can help to nurture ideas and will encourage you to stay on track with your goals.

Choose a Niche You're Passionate About

It's much easier to rank more highly on search engines like Google if your site content is scoped to a particular niche. Rather than attempting to be the most knowledgeable site for everything, find a smaller category that you're interested in.

Where possible, try to find a niche that you can comfortably write about and is also not too competitive for the keywords you want to rank on search engines. This will give you a good chance of making your site visible to internet users and increase the amount of traffic you're likely to receive.

Passion is one of the great drivers of innovation so try and align your chosen niche with something you're passionate about.

Whether it's your hobbies or personal interests, bringing passion to your business will only help increase the likelihood of your success.

Find Products Worth Promoting

While you could promote every product you come across, it's a much better and more honest approach to only promote those products you're familiar with. Either you can how used them yourself, know someone how has, or researched enough about them to understand their benefits. You'll be more convincing to your readers when you're promoting a product you genuinely feel is worth using. Along with being an unprofessional practice, it's usually somewhat noticeable to readers when you recommend a product your heart isn't in.

Ultimately, you want to be confident that the product is genuinely useful, as well as offering good commission rates.

The first step is finding products that align with whatever niche you've chosen. Looking through the catalogues of the larger affiliate networks such as Clickbank can give you good examples of the types of products that are available.

Take a look at the relevant category for your niche and use that to shape your marketing strategy going forward.

Write Great Content

Writing great content that your readers want to consume is one of the most overlooked aspects of blogging and can't be taken lightly, especially with regard to affiliate marketing.

Simply put, the higher the quality of your blog posts and closer they meet the needs of your readers, the more trust and rapport you gain and fundamentally, the greater the likelihood of converting your userbase into generated affiliate income.

Don't Give Up!

It's always darkest just before the dawn.

It's all too easy to get overwhelmed when you're new to something and not sure how things will pan out in the future. Although affiliate marketing requires a lower upfront investment that other business models, you should still be prepared for the initial work you have to put in before you're generating the level of income you want.

It helps immensely to have the relevant support networks in place, whether that's your family, friends or a community of like-minded people who you share interests with.

But make sure to enjoy the journey to financial freedom and above all, have fun!