What is the Affiliate Business?
The easiest explanation you’ll find on the internet.
The affiliate business has an average growth of 10% annually and it's worth at least 20% of the advertiser’s marketing budget. The affiliate business is a passionate world where product owners and marketing professionals join their forces to make money.
With this article, we aim to explain to you what the affiliate business is and everything involved.
The affiliate business is a business that revolves around affiliate marketing. To start understanding the affiliate business we have to start by understanding what affiliate marketing is.
What is Affiliate Marketing?
According to Wikipedia Affiliate Marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.
In other words, a product owner or brand (the advertiser) pays a commission to a person (the affiliate) who brings quality leads or sales.
How does Affiliate marketing work?
Affiliate marketing can be tricky to understand and because of that, we would like to use a “vintage” example to illustrate it.
If you are more than 40 years old you might remember these people who went door by door selling a specific product. If you are younger than that, let us use “the pioneers of affiliate marketing” to explain to you how affiliate marketing works.
As shown in our illustration, a clothing iron factory has finished the production of new iron. They claim that it irons clothes with half the effort and half the electricity consumption.
They contact several expert salespeople and offer them a commission on every unit they sell.
Then, these salesmen went door to door engaging with potential customers, showing them the benefits of this new iron.
At the end of the month, the iron factory would pay the salesmen the commission they promised for each unit they sold.
In this affiliate business, the factory is not paying the salesman a salary. Whatever he is paid at the end of the month depends on his performance.
Which are the parts involved in the Affiliate Business?
In the affiliate business, there are 3 parties involved: The Advertiser, The publisher, and the buyer.
Who are the 3 parts in our example?
The advertiser: The Iron Factory.
The Publisher: Alex the salesman.
The buyer Is simply the person who opened the door and bought the irons.
How do the 3 parts get engaged with each other?
Affiliate Marketing Programs
The affiliate program is in a way the contract between the advertiser and the publisher during an affiliate business. The advertisers (or product owners) create or start an affiliate program where they stipulate the commission they are willing to pay, the payout modalities, and the legal terms and conditions.
The publisher affiliates to these programs when they see potential in a certain product or service that relates to their audience or niche. The advertisers provide the publisher an affiliate link.
Some of the most successful affiliate programs are accessible only through affiliate networks.
What is an Affiliate Link and how do they work?
As we were saying before, the advertiser provides the publisher with an affiliate link that is a way to track where their affiliate product sales are coming from. The publisher adds the affiliate link to their content or ads and when a buyer purchases through that unique link, both the publisher and the advertiser get notified of this conversion.
Performance-Based Pricing Models
Performance marketing is a model where the publisher only gets paid when he delivers results. There are different pricing models in performance marketing. There are actions other than sales that are valuable for the advertiser. These things are called “actions”. Cost Per Action (CPA). CPA is the cost measurement of a specific digital action. For example, a form submission, a sale, or a newsletter sign-up.
Cost Per Sale (CPS)
If we use our iron factory example, the publisher only gets paid for the number of units they sell. In affiliate marketing, the paying model the iron factory is using is Cost Per Sale (CPS). This means they only pay when there is an actual purchase.
Cost Per Lead (CPL)
A lead can be an email. Some companies base their marketing strategy on email campaigns. To nail those campaigns, they need to build a strong email list. Here the CPL model comes in handy for them. With affiliate marketers or publishers, they can always reach people they maybe couldn't reach with their other marketing strategies. Why? Because the core of the affiliate business is the niches. Every single marketer is focused on finding products to sell in very specific product categories.
Some advertisers in the affiliate business use the Cost Per Lead model (CPL). Example: A construction company is developing a gated community 15 minutes away from Geneva. They already have a model unit and they need to attract some new prospects that are potentially interested in buying their next home. They offer different publishers a commission based on leads. These leads are for example scheduled visits through their affiliate link. The prospect can decide not to buy after the visit. In any case, the affiliate still gets paid. Why? Because he is not paid by sale (CPS) but by lead. It can also be called PPL Pay Per Lead.
App developers will most probably use the Cost per Install model (CPI). They are only interested in people installing their product. This means that the publisher’s goal is to make people install this app to earn a commission.
If you are interested in learning more about affiliate marketing, check out our article for the best affiliate marketing course list.
The affiliate business spins around affiliate marketing. Affiliate marketing is a media model where the advertisers pay the publishers a commission only when they bring quality leads to their business.
The parts involved in the affiliate business are 1. The advertiser or product owner, 2. The publisher or affiliate, and 3.the “buyer”. This last not necessarily needs to buy the product or service for the affiliate to get paid. It all depends on the pricing model the advertiser chooses for the affiliate program.
The publishers use all their available tools to promote these products and convert as much as possible. What he makes at the end of the month depends only on his performance. That's why it's called performance-based marketing.
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