What is affiliate marketing?

More and more readers are asking this question now than in the past. In a recent poll readers were asked whether they’ve done any affiliate marketing on their blogs. The results revealed that:

29% of readers regularly do it
24% occasionally do it
27% have never done affiliate marketing on their blogs
6% used to do it but don’t any more
14% don’t know what affiliate marketing is

If you're a serious online advertiser or publisher you should be extremely familiar with what affiliate marketing is, how it works, and how you can make a profit using it. I'll only cover the first two topics in this post, but will follow up in later posts about making money with affiliate marketing.

So what is affiliate marketing?
Affiliate marketing is a marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's own marketing efforts. Examples include rewards sites, where users are rewarded with cash or gifts, for the completion of an offer, and the referral of others to the site. The industry has four core players: the merchant (also known as 'retailer' or 'brand'), the network, the publisher (also known as 'the affiliate'), and the customer (the end user who is making a purchase). The market has grown in complexity to warrant a secondary tier of players, including affiliate management agencies, super-affiliates and specialized third parties vendors, but we wouldn't dig too deep into those here.

Perhaps the simplest way to explain affiliate marketing is that it is a way of making money online whereby you as a publisher are rewarded for helping a business by promoting their product, service or site. There are a number of forms of these types of promotions but in most cases they involve you as a publisher earning a commission when someone follows a link on your blog to another site where they then buy something. Other variations on this are where you earn an amount for referring a visitor who takes some kind of action – for example when they sign up for something and give an email address, where they complete a survey, where they leave a name and address etc.

Affiliate marketing is frequently overlooked by advertisers. While search engines, e-mail, and website syndication capture much of the attention of online retailers, affiliate marketing carries a much lower profile. Still, affiliates continue to play a significant role in e-retailers' marketing strategies.

Pros and cons of affiliate marketing
Cost per action/sale affiliate marketing methods require that referred visitors do more than visit the advertiser's website before the affiliate receives commission. The advertiser must convert that visitor (turn that visitor into a paying customer) first, before the affiliate is paid. It is in the best interest for the affiliate to send the most closely targeted traffic to the advertiser as possible to increase the chance of a conversion. The risk and loss is shared between the affiliate and the advertiser. Merchants favor affiliate marketing because of this "pay for performance" model, meaning that the merchant does not incur a marketing expense unless results are accrued (excluding any initial setup cost).

Some businesses owe much of their success to this marketing technique, a notable example being Amazon.com. Unlike display advertising, however, affiliate marketing is not easily scalable.

Affiliate marketing isn’t the only way to make money from websites and it won’t suit every publisher but there are a few reasons why it can be profitable to you as a publisher. Perhaps the biggest of these reasons is that affiliate marketing seems to work best when there’s a relationship of trust between the publisher and their readership. I’ve found that as this trust deepens that readers are more likely to follow the recommendations that a blogger makes. Of course this can also be a negative with affiliate marketing – promote the wrong product and trust can be broken.

What is a PPC (Pay Per Click) campaign

Pay per click (PPC) is an Internet advertising model used on websites where advertisers pay a predetermined fee only when their ad is clicked, not each time their ad is displayed. With search engines, advertisers typically bid on keyword phrases relevant to their target market. Content sites commonly charge a fixed price per click rather than use a bidding system.

Advertisers typically setup ppc campaigns on a PPC network and define how much they are willing to spend for each click that their campaign receives. Advertisers select keywords, keyword phrases, keyword groups, or categories in which they want their advertisements to appear.

CPC or Cost Per Click
Cost per click (CPC) is the sum paid by an advertiser to search engines and other Internet publishers for a single click on their advertisement, which directs one visitor to the advertiser's website.

PPC Bidding
Bidding in PPC campaign is the process where advertisers who are willing to spend the most money for a relevant advertisement get listed first on the publisher's website. *Google's PPC ranking system assesses CPC (cost per click), ad relevance, click through rate, and daily budget, so the order on which the ads appear is based on a number of factors. In the bid-based model, the advertiser signs a contract that allows them to compete against other advertisers in a private auction hosted by a publisher or, more commonly, an advertising network. Each advertiser informs the publisher of the maximum amount that he or she is willing to pay for a given ad spot (often based on a keyword), usually using online tools to do so. The auction plays out in an automated fashion every time a visitor triggers the ad spot.

PPC & Affiliates
In contrast to the generalized portal, which seeks to drive a high volume of traffic to one site, PPC implements the so-called affiliate model, that provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. The affiliates provide purchase-point click-through to the merchant. It is a pay-for-performance model: If an affiliate does not generate sales, it represents no cost to the merchant. Variations include banner exchange, pay-per-click, and revenue sharing programs.

Benefits to PPC
When you setup a PPC campaign you can control the traffic. While a new website takes time to rank well in search engines, with PPC you can turn the traffic on and off. With PPC you can create almost instant traffic.
Unlike organic search listings you control the information (i.e. description) and where the visitor is directed on your website.

Another benefit to PPC listings is the opportunities for international exposure. Organic search listings vary in different geographical regions. With PPC you control where you are seen.

Click Fraud
Fraud has plagued PPC advertising medium since its inception, and while many PPC networks have made significant progress in combatting click fraud, it is still something to be cognizant of.

Tracking PPC
In order to determine how effective a PPC campaign is, it is important to implement tracking. Just because an advertisement has a high number of click throughs does not mean it is the best ad. It is easy to get users to click on "Free Software" but few of those clicks will convert to sales.

The Goal of PPC
A successful PPC campaign should be targeted not too narrowly and not too broadly. Direct the user to a relevant landing page that has a direct relationship to the keyword or phrase.