How do Affiliate Programs Work
If you are reading this article, you are interested in affiliate marketing and know exactly how so many advertisers are interested in creating their affiliate program.
We will make it very simple to understand in this article. Just keep reading and by the end of it, you will know everything you need to know about how affiliate programs work.
Affiliate Marketing explained
I like to use an example to explain affiliate marketing. This is the origin of affiliates in the offline world. In other words the pioneers of affiliate marketing.
The example is very simple.
- An appliance factory needs to sell a large stock of irons. They call very savvy salesmen and offer them a commission on every unit they sell. When they give them the items, they sign a contract where the factory says exactly what the commission will be for each unit they sell, how and when will they be paid.
- Very talented commercials like Alex, then, go door to door selling the irons. They will have to use all their marketing knowledge to make the iron interesting so people who opened the door buy it. Alex is not getting a salary out of his work, just the commission so he has all the interest in selling a lot of irons.
- At the end of the month, Alex sold 8 irons
- The factory pays him a commission on the 8 irons he sold.
As shown, there are 3 parties in the vintage offline affiliate transaction:
- The Advertiser
- The Publisher
- The customer
Can you tell who is who?
The advertiser is the appliance’s factory. Alex is the affiliate and the person behind the door is the customer. Simple as that.
Now that you know what is the principle of affiliation, let’s see what is affiliate program and what are the parties in the digital era.
What is an Affiliate Program?
Affiliate programs, also called associate programs, are in a nutshell, arrangements in which an e-commerce site pays online publishers a commission to send them traffic, qualified sales, or real leads.
These affiliate publishers or websites, post links inside their content, that take the visitor to the merchant site and are paid according to a particular agreement.
The affiliate agreements are usually based on the number of people the affiliate sends to the e-commerce (the brand's site), or the number of people they send who buy something or perform some other desired action.
Affiliate marketing programs pay their affiliates according to the number of conversions or a percentage of a sale or action.
If a link on an affiliate site brings the merchant site traffic or money, the merchant site pays the affiliate site according to their agreement.
1. The Advertiser
Just like in the example, the advertiser in the affiliate marketing world is a brand. The brand has a product to sell or a service to promote. The advertiser is the one that creates and fixes the terms and conditions of the affiliate program.
Advertisers are interested in engaging with talented affiliate marketers that will publish content promoting their physical or digital products in exchange for a commission.
Advertisers provide a unique link to each publisher called an affiliate link.
2. The Publisher
The publisher, exactly as the pioneer example, is the one that will use their digital marketing capacities to get customers interested in the advertiser’s product and buy. Publishers can be bloggers, YouTubers, influencers, review websites, comparison websites, or journal websites, in general, content creators, that use affiliate marketing as a strategy to monetize their traffic.
Publishers choose affiliate offers that are interesting for their audiences and affiliate to the programs, accepting the terms and conditions of it. They receive the affiliate link that then they will add to their content.
Some examples of publishers are Wirecutter, USNews, Cnet...
3. The customer
The customer is simply the person that will click the affiliate link on the publisher’s website and or purchase the product or becomes a valuable lead for the advertiser. It’s important to mention, that the customer doesn’t pay an extra cost when arriving at the merchant site through an affiliate link. The advertiser pays directly to the publisher and this commission makes part of their advertising investment.
In online affiliate marketing, there is a fourth party called the affiliate network.
4. The affiliate network
An affiliate network is a place where advertisers meet talented publishers and digital marketers, that work with content that relates to their niche. And in the other way around, where publishers find the best offers from advertisers that are valuable for their audience.
Affiliate programs can be managed in-house, which means the brand/advertiser designs, creates and manage, its affiliate program and the relationships with their affiliates. This way, the brand doesn’t need the participation of an affiliate network.
When a brand makes a decision to work with an affiliate network, they can focus on their business and rely on a team of affiliation experts to set, manage and control the affiliate program. Affiliate networks like lemonads® have an in-depth platform where both publishers and advertisers can track their performance in real-time.
Affiliate network examples: CJ affiliate (commission junction), ShareASale, lemonads.
Now that you understand the affiliate marketing principle, the parties involved and what is an affiliate program let’s jump into how affiliate programs work.
How do affiliate programs work?
Amazon popularized this idea as an Internet marketing strategy. The idea is to attract publishers to post links to individual items like electric appliances, books, or streaming tv sold on Amazon. In exchange, they offer a percentage of the profits if someone clicks on the link and then purchases.
Most of the blogs nowadays have amazon affiliate links. The affiliate helps make the sale, but Amazon does everything else: They take the order, collect the money and ship the product to the customer.
But Amazon is just an example. According to Mediakix and business insider, 81% of brands use affiliate programs and approximately 15% of all digital media industry’s revenue comes from affiliate marketing.
So what are the different kinds of affiliate programs?
The difference between programs, besides the products, are the payment model, the commission rate, and the cookie lifetime. High commission makes affiliate programs more interesting, but also, the longer the cookie lifetime the most attractive the affiliate program becomes to publishers.
Affiliate Program Payment models
As we said before, when the advertiser creates an affiliate program, they first have to know the goal of the affiliate strategy. If it is to increase web traffic, increase sales numbers or bring qualified leads, will determine what paying model suits better the strategy.
1. Pay per sale. (PPS)
This is the most common affiliate marketing structure. In PPS affiliate programs, the advertiser pays the affiliate a commission per sale that corresponds to a percentage of the sale price.
2. Pay per lead. (PPL)
Pay-per-lead affiliate programs compensate the affiliate based on qualified leads. The affiliate must persuade the consumer to visit the advertiser’s website and complete the desired action. Some actions can be filling out a contact form, signing up for a trial of a product, subscribing to a newsletter, or downloading software or files.
3. Pay per click. (PPC)
PPC affiliate programs reward affiliates when they redirect consumers from their marketing platform to the merchant’s website. This means the affiliate must engage the consumer to the extent that they will move from the affiliate’s site to the merchant’s site. The affiliate is paid based on the increase in web traffic.
A cookie is a small file stored on the user's computer, used to identify the site's visitors. In affiliate marketing, cookies are used to track affiliate referrals.
Once customers click on an affiliate link and it’s redirected to the e-commerce, a cookie is installed into the computers of potential buyers. It is triggered once a buyer clicks an affiliate link. When this event happens, the cookie is placed on the buyer's browser, and he is identified to be the referral of the affiliate who advertised the link.
Each Advertiser determines the lifetime of the cookie. For Amazon, the cookie lifetime is only 24 hours. This means that the affiliate will get paid if the referred buys within 24 hours after clicking on the affiliate link.
But there are different lifetimes. Some programs use 7 days, 30 days, 90 days, and so on. The longer the cookie lifetime, the most interesting an affiliate program is for the publisher. In the case of Amazon, the conversion rates are high which makes them attractive for publishers in any case.
Affiliate programs allow publishers to make money online by promoting products and services of online merchants. It exists a wide range of affiliate programs in every niche. Some of the most interesting are website builder affiliate programs, web hosting services, financial services like credit repair or consumer loans, meal kit affiliate programs, dating affiliate programs just to mention a few.
Amazon Associates is one of the most popular affiliate programs but is far from being the only one. 80+% of brands use affiliate marketing as a strategy to increase revenue. By working with talented publishers like social media content creators and other professional publishers, brands can reach audiences they wouldn’t with other marketing strategies.
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