What Is Affiliate Marketing and How Does it Work

What Is Affiliate Marketing and How Does it Work?

Every business desires to make profits by getting as many customers as possible and in the
process increasing sales. There are many ways to drive sales, and one of them that is very
convenient and preferable to many entrepreneurs is affiliate marketing. Some people are
familiar with the term because they've probably heard it thrown around from different
quarters. So what really is this type of marketing and what does it entail?

In simple terms, it is a form of internet marketing where the affiliate (person referring
customers), signs up for a merchant's affiliate marketing program. The affiliate then
recommends the merchant's products to customers and earns a commission on every sale
made. It's similar to what used to exist before internet marketing became mainstream;
where sales representatives would go out and get customers and then be paid a
commission for every sale made. To some extent, this type of marketing also intertwines
with some internet marketing methods because affiliates use conventional advertising
methods to create product awareness. Some of these methods include making use of
search engine optimization tools, email marketing and pay per click.

Affiliate marketing should never be confused with referral marketing as is often the case
because the two are very different. The main motivation behind affiliate programs is
financial gain as a way of driving sales while referral marketing uses personal relationships
and trust to increase the amount of sales. By relying on loyal existing customers and
business connections, a business can use referrals to increase revenue generation. In
affiliate marketing, you only get paid commissions when you bring in customers and they
actually make purchases.

This marketing program requires the affiliate or publisher to use an affiliate link anytime
that they mention the advertiser or merchant on their website. When a potential customer
visits the affiliate's website and clicks on the link, he or she is taken to the merchant's
website. At the same time, a cookie gets dropped on the customer's computer. The
customer then makes a purchase from the merchant's website. As he logs out, the
merchant finds a cookie that belongs to a specific affiliate and thereafter makes a credit for
the sale in accordance with the initial agreement. For transparency purposes, the merchant
avails reports showing breakdowns of the amount of traffic from the affiliate's link and the
sales made. This ensures that the publisher is paid his rightful dues without being taken
advantage of by the merchant. The commission payments are usually made after certain
durations, on most occasions on a monthly basis. At least that allows the merchant to
receive a reasonable amount as opposed to the payments coming in small bits.

The most common compensation method is the one described above where the affiliate is
only paid commissions for actual sales made. The cost per click method of compensation is
not favored by many merchants because there is always the danger of the marketing
program not resulting into reasonable sales numbers. An affiliate can also just sit around
and earn money for actually doing nothing. Affiliate marketing is sometimes referred to as
performance marketing because of the compensation method.

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