How Affiliate Marketing Works: A Guide for Those Who Dive Into the Topic

With the help of affiliate marketing, a business can attract customers at a lower cost than with other methods of promotion. A business does not need to hire a lot of specialists and pay for advertising that may not bring the expected effect. The company delegates promotion to partners and pays for the result.

What is affiliate marketing?

Affiliate marketing, also known as affiliate marketing, is a method of promotion with the help of affiliates. Affiliates advertise the advertiser's products or services, and the advertiser pays affiliates for the result, for example, for each attracted buyer, subscriber, or site visitor. Giants like Amazon and AliExpress generate a huge part of traffic and sales with the help of affiliate programs.

Affiliate marketing usually involves three parties:

• A merchant (advertiser) is a company or person who has a product or service to sell. The advertiser is ready to pay for attracting customers.
• An affiliate (affiliate, publisher) is a person or company that promotes the advertiser's products. Usually, the partner has their own website, blog, newsletter, or accounts with a large number of followers on social networks.
• An affiliate network (CPA network) is an intermediary between sellers and affiliates. The network provides technical solutions for launching affiliate programs, monitors payments, helps sellers find partners, and partners choose suitable affiliate programs.

I will tell you how these sides interact. The seller creates links to his site and gives them to partners — everyone receives an individual link. Affiliates place these links on their sites or promote them with the help of advertising, while investing their own funds. When someone clicks on the affiliate link and performs the target action, the seller sees which partner the client came from. The seller pays the partner the agreed remuneration — directly or through the CPA network.

With the help of affiliate marketing, you can promote anything. It is most often used to promote online courses, products, mobile applications, financial and professional services. For example, lawyers, accountants, and consultants can attract partners to get a steady flow of clients.

the market leaders are the USA, Great Britain, Germany, and France: they account for more than 80% of all spending on affiliate programs. There is a forecast that by 2027, global advertiser spending on affiliate marketing will reach $48 billion.

What are the payment models within affiliate programs?

Businesses pay for different types of targeted actions, such as sales, clicks, and registrations. Let's take a closer look at the common models.

Pay per click (PPC). PPC (pay per click) is a model in which an affiliate receives a reward for each click on an affiliate link. The fee is usually low because clicks don't always bring purchases.

Cost per action (PPA). PPA (pay per action) is a general term that refers to payment models for different types of targeted actions. The target action can be filling out a form, registering on the site, subscribing to a newsletter, installing an application, and much more. Usually, the payout is higher than PPC.

Pay per sale (PPS). PPS (pay per sale) is perhaps the most popular model in affiliate marketing. The partner receives a percentage of the purchase amount made by the client he brought. The rate can vary from 1-5% when the product is inexpensive, to 20-30% and even up to 60% when the product is information products or expensive services. This is the most profitable model for the seller - he pays for real sales.

Pay Per Lead (PPL). PPL (pay per lead) is a model in which the affiliate receives money for leads. That is, for people who left contact details in the application or registration form. The cost per lead is usually higher than per click, but lower than per sale. This payment model is popular in niches with a long transaction cycle, such as B2B and financial services.

RevShare, or revenue share. With this payment model, the partner receives a percentage reward all the time as long as the client he attracted brings profit to the business. For example, while the client deposits funds, makes purchases, replenishes the account, renews the subscription.

There are other payment models:

• Cost per mille (CPM) — the affiliate receives money for every thousand ad impressions.
• Time fee – the partner receives a fixed amount for a specified period, for example, for a month, regardless of the results.
• Two-level programs — the partner receives a percentage not only from the sales that were made thanks to him, but also from the sales of second-level partners attracted by him.

There are also combined models, when a business pays for performing several actions at the same time. For example, for clicks and sales, or for leads and sales.

What are the pros and cons of affiliate marketing?

The advantages of working with partners for business are that it:

• Pays for the result. This is the main difference between affiliate marketing and other types of promotion and, perhaps, its main advantage.
• Gets wide coverage. Due to promotion with the help of partners, more people learn about the business, loyalty to its products grows.
• Receives targeted traffic. Partners advertise the product on thematic sites or recommend it to their subscribers who trust them. Therefore, the conversion of such traffic into purchases is usually higher than, for example, when using targeted or contextual advertising.
• He spends less on his advertising. Due to the fact that partners increase brand awareness, advertising launched by the brand itself is cheaper for it and brings good results.

The main disadvantages of working with partners:

• Fraud traffic. One of the main problems in affiliate marketing is fraud, that is, fraudulent traffic. Unscrupulous partners can buy clicks, leads, or even purchases using bots, click farms, and other gray methods. As a result, the advertiser pays for useless actions that do not bring real customers and profit.
• Reputational risks. The advertiser's reputation may suffer due to incorrect actions of partners. Let's say a seller provides educational services for children, and the partner places an advertisement for him on a gambling site or uses too aggressive promotion methods bordering on spam. This has a negative impact on the brand image.
• The need for control. The advertiser needs to constantly monitor the work of the affiliate program: analyze statistics, track traffic sources, identify and resolve problems in time.

Risks can be minimized. Here's what you can do for this:

• Draw up a contract that will clearly spell out the rules of work. In this case, the partner will not be able to advertise courses for children on the casino website.
• Choose reliable partners or a CPA network with a good reputation and functionality.
• Implement tracking, analytics, and anti-fraud protection systems, block fraudulent clicks and unscrupulous partners.
• Start with small volumes and scale your ad campaign gradually.

Remember that, as in other types of marketing, the responsibility for the result lies with both parties – both the customer and the contractor.

What tools are used in affiliate marketing?

Partners use different promotion channels. Let's talk about the most common ones.

Contextual advertising. This is one of the most popular and effective tools in affiliate marketing.

Targeted advertising. This is advertising on social networks, which is shown to users who meet the criteria that are important for the advertiser. Partners show ads to people who are not interested in the product or service now, but have been interested in it before or may show interest in it.

Email newsletters. If the partner has his own subscriber base, he can recommend the advertiser's product to them. The main thing is that newsletter subscribers are interested in the topic: weight loss products are not advertised in newsletters for marketers.

SEO and content marketing. These are affiliate marketing tools that give results in the long run. Partners publish useful content on their own or other people's sites, optimize it for key queries, and unobtrusively recommend the seller's product. A partner can publish, for example, articles or reviews. Coupon and cashback services. Partners place promo codes, discounts, or offers to return part of the money for a purchase on special websites and aggregators.

Most often, the customer provides the materials necessary to launch an advertising campaign, such as banners, pictures, and photos. But sometimes performers can do them on their own, at their own expense. Partners also cover all the costs of launching the campaign.

What are the ways to launch an affiliate program?

There are two ways – to develop your own program or to connect to a CPA network. Let's analyze the pros and cons of these options.

Development of your own affiliate program

To create your own affiliate platform based on a website or store, you need to hire programmers who will develop a system for registering partners, tracking clicks and sales, accruing commissions and payments. This can be either a completely self-written solution or a customization of ready-made plugins.

It makes sense to create your own affiliate program when the business already has a popular product, a loyal audience, and a proven team of IT specialists.

Placement in the CPA network

CPA networks are ready-made platforms where advertisers interact with partners. A business representative just needs to create an offer for partners and place the tracking code in the code of their website. The CPA network itself attracts performers, monitors statistics, accrues commissions, and fights low-quality traffic.

Placement in a CPA network is the best option for most representatives of medium and small businesses, especially in highly competitive niches.

How to launch an affiliate program?
Here are the steps that a business will go through both when creating its own affiliate program and when connecting to an affiliate network:

• Choose the launch goal and key metrics by which you want to measure the success of the program.
• Choose a platform on which you will interact with partners, or develop your own.
• Create and register an offer — a detailed description of the offer for partners.
• Set a commission rate, that is, the amount or percentage that the business will pay customers for completing the offer.
• Set up a tracking system to track clicks and user actions.
• Create promotional materials to make it easier for affiliates to promote the product. These can be banners of different sizes, ad texts, promo codes and coupons, XML product feeds for online stores.
• Launch and promote the program to attract more partners.

After the launch of the affiliate program, it is worth communicating with partners and regularly monitoring key metrics.

How to improve the effectiveness of the affiliate program

An affiliate program does not always bring the expected results. Here are four tips for improving its effectiveness.

Make the offer attractive to partners. High rates, a wide range of products, fast payouts, flexible terms of cooperation, and the availability of ready-made materials for promotion make the offer attractive.

Regularly compare your terms with those of competitors and market leaders. If your bids are below average, raise them. If the product is out of date, update it. Simplify the registration and payout process. Do everything to make your partners choose you.

Train and support partners. Even if your offer is perfect, partners will still need help and support. Create a knowledge base for them with detailed instructions, answers to frequently asked questions, and best promotion practices. Hold webinars and master classes where you will share your expert experience.

Appoint responsible managers or a whole team who will promptly answer questions from partners, help solve technical problems, and analyze complex cases. Partners highly appreciate good service and support.

Run promotions. To keep partners interested in your program, arrange regular promotions. For example, you can temporarily increase commission rates, introduce bonuses for agreed actions, or launch a contest with prizes for active affiliates.

All this will encourage partners to promote your products more actively, attract new customers and increase sales. The main thing is not to forget to widely cover your promotions in all available channels.

Motivate your partners. The more incentives they have to promote your product, the more sales you will get. Develop a system of bonuses and rewards for the most active and productive affiliates. These can be increased commission rates, exclusive offers, gift certificates, merch, and much more.

The Main Things About Affiliate Marketing

• Affiliate marketing is a method of promotion in which the customer pays to achieve a given result. And the contractor, with the help of his sites and sometimes using his budget, ensures this result. Most often, businesses pay for clicks, sales, user registration, and form filling.
• Performers in affiliate marketing are called affiliates. To achieve the desired result, they launch, for example, contextual or targeted advertising, email newsletters with customer offers. The customer can provide the partner with all the necessary materials for advertising, but the contractor launches the advertising campaign at his own expense.
• The main advantage of affiliate marketing is that the customer pays only for the result he needs. But there are also risks. For example, partners can buy clicks or registrations, place ads on non-target sites. To protect yourself, it is worth drawing up a contract that will clearly spell out the rules of work, and monitor the traffic of the advertised pages more often.