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.