What is affiliate marketing and its basic terms?

Do you know what affiliate marketing and its initial terms are? Learn what it is, the parties involved in it, criteria for joining the best affiliate marketing networks or programs, the commission, models affiliate marketing works with, when and you get paid,
as well as the advantages and disadvantages of affiliate marketing.

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Affiliate marketing is the wave of the future and we would like to share our number one recommendation in the affiliate marketing field and we will gladly give you a free tour!

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What is affiliate marketing?

In modern digital marketing landscape parlance, the term refers to the promotion by an individual (a.k.a. affiliate) of the products or services of another entity (a.k.a. vendor or merchant), often through an affiliate network using an affiliate link, to earn a cut of the sales price (a.k.a. commission). These sales are tracked via affiliate links from one website to another.

Affiliate marketing influencer Neil Patel thinks the best definition of affiliate marketing is the following given by Pat Flynn of Smart Passive Income:

Affiliate marketing is the process of earning a commission by promoting other people’s (or company’s) products. You find a product you like, promote it to others and earn a piece of the profit for each sale that you make.

What that means is that affiliate marketing is a performance-based marketing system. You get from it what you put into it. Put in little work and you get next to nothing from it. Put in hard work and you will reap the fruits of your labors.

Therefore learning to hone your reviewing skills and writing engaging campaigns will translate to direct boosts in your affiliate revenue.

But my favorite definition of affiliate marketing is this one from streetdirectory:

Affiliate marketing is a joint and mutually beneficial business partnership between merchants and website publishers/owners whereby an affiliate is compensated for every visitor or client provided through his effort. The moment a customer makes a purchase of goods or service, part of the profit generated from that particular transaction is credited to the affiliate’s account as a commission. Amounts of compensation may be based on a fixed value for each visit (pay-per-click), registration (pay-per-lead), or for every purchaser (pay-per-sale).

As you see, it is quite extensive.

The figute 4 written in golden letters to signify the four parties of affiliate marketing
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Parties involved in affiliate marketing

There is a sort of division of labor in affiliate marketing which basically involves four distinct elements who play different roles.

They are:

  1. the merchant
  2. the affiliate marketer
  3. the consumer, and
  4. the affiliate network

Wikipedia also says 4 four core players are involved in the industry:

Other sources however mention only 3 parties: the merchant, the publisher, and the customer as shown in the image below from Commission Junction:


Affiliate marketing partners
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(Image source: CJ)

But we will stick to four.

So, let’s look at them.

The merchant

The merchant is also known as the seller, the product creator, the business, the vendor, the brand, the advertiser, or the retailer.

That is a person or a business that creates a product or a service and offers them through their own affiliate program or an affiliate network to be promoted by an affiliate.

The product can be physical (tangible), like household goods, video cameras, bicycles, etc. Or it can be a service, something intangible like makeup tutorials, plugins, eBooks, video games, etc.

The merchant can be an individual solo entrepreneur like Paul Clifford who offers Designrr eBook making software, Aaron who operates Spinrewriter, etc. It can also be a big company like AWeber, an email services provider or Wealthy Affiliate, an affiliate marketing training platform.

So solo entrepreneurs, startups, medium-size forms, and massive Fortune 500 companies could be the merchant in an affiliate marketing program.

In addition to the marketable products or services, the merchant also provides affiliates the strategies to promote their offers.

These go from email swipes, through banners, blog posts, customer support, to training and others.

The affiliate

The affiliate, also called the website publisher/owner, is also an individual or a company that implements strategies to promote products and services offered by the merchant for a commission.

The affiliate’s promotional strategies include creating marketing campaigns with ads, links and banners, and other marketing tools to reach the consumer.

The affiliate is like the engine in a car. While all the parts are important, they play a crucial role, enabling the industry to move forward.

It is in cognizant of this fact that 81% of brands and 84% of publishers leverage the power of affiliate marketing.

These figures are even expected to go up as affiliate marketing spending increases every year in the United States.

Imagine that there is a 10.1% increase in affiliate marketing spending in the United States each year.

This means that by this year (2020), that number will reach $6.8 billion.

As the engine of the niche, it is not surprising that it is at the affiliate’s side that the marketing takes place.

They promote one or several affiliate products and services through attracting potential customers and convincing them of the benefit or value of the merchant’s offerings that they may end up buying.

Affiliates market to a very specific audience, generally adhering to that audience’s interests.

That means, the promotion is done within a defined niche or personal brand that enables the affiliate to attract people already stoked about an offer and thus most likely to act on it.

Some affiliates will get paid by the affiliate networks simply for getting people to click on the affiliate’s links. This is called lead generation.

When it happens, the links take the person to the company’s website where they enter into a sales funnel.

Should that person make a sale, the affiliate gets a slice of it.

The consumer

The consumer, also named the buyer or the purchaser, is the part of the affiliate marketing equation that patronizes the merchant’s goods or services marketed by the affiliate and thus makes the affiliate system go ’round.

As the affiliate is the engine of a car so is the consumer the fuel. They are the drivers of the affiliate system. Without them, there wouldn’t be sales to keep the merchant and the network in business and no commissions to make the affiliate keep working.

The affiliate will market to the consumer on channels such as social networks, digital billboards or by content marketing on a blog.

While the other three partners realize that they are part of an affiliate marketing system, the consumer do not generally do so. But, for the sake of transparency, the affiliate marketer now has the obligation to disclose that they are receiving commission for the offers they are proposing.

The consumer will not necessarily pay a higher price for the intervention of the affiliate marketer, as the commission is already included in the affiliate network’s retail price.

The network

The network, also designated as the program or the platform, is a middleperson that puts the goods or services of several merchants at the disposal of affiliates. In other words, the network as a digital platform, enables the merchant and the affiliate to handle referral link clicks, purchases, and payouts.

As a go-between or an intermediate agent, the network is automated to track the clicks the affiliate’s customers make. This also goes for the affiliate’s sales. The network also calculates payments due the affiliate from the merchant.

While some networks, like Commission Junction, do not consider the network as part of the affiliate marketing equation, I believe it is because of its usual role as an intermediary between the affiliate and the merchant.

The network side of the equation is where the promotion is done.

An affiliate network promotes the products of one or multiple merchants to attract and convince potential affiliates of the value of the merchants’ products so that they may decide to market them to earn a commission.

While you could actually market an online affiliate marketing course and receive a direct revenue share from the creators, joining a network like ClickBank or Commission Junction to handle the payment and product delivery
gives the affiliate marketing business more seriousness.

In the second case, the affiliates can only go through the affiliate network to market the product. This is because the merchant only manages their affiliate program on that network.

For the affiliate marketer, it is more interesting to use the network as it is a database of lots of products, out of which they can choose which ones to promote.

ClickBank is a good example of an affiliate network.

Their ClcikBank affiliate program lets you promote any of the over 10,000 digital items available on the platform. Some of the digital products affiliates can promote include eBooks, software, etc.

Check the ClickBank product categories

(Image source: ClickBank)

Check some ClickBank featured products below:

(Image source: Clickbank)

Concerning consumer products such as tools, books, toys and household items, Amazon serves as the biggest affiliate network.

Their Amazon Associates affiliate program lets you promote items on their platform.

Note that Amazon recently has cut their affiliate commission again. But some people claim it is still worth promoting them as their wide assortment of products is in high demand.

You can sign up free to both networks, as well as to others, and generate a custom affiliate link to the products.

If someone purchases through your link, you earn a commission.

If you are just beginning, it pays to begin with just one product. After mastering it, you can use the experience to market other or more products.

Finger pointing to dancing lady solhouette among 5 men silhouettes to signify Criteria for best affiliate marketing networks or programs to join
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Criteria for best affiliate marketing networks or programs to join

There is a multitude of affiliate networks and programs out there, some small, others medium-sized, and large ones too.

Here are factors to take into consideration before choosing to join any of them.

Legitimacy

Not all the good programs or networks are popular with affiliates.

If you want to join one that you don’t know much about, consult reviews and ratings to see how legitimate it is.

The niche

Choose programs or categories whose products or services have a high demand and little to no competition.

You must also be passionate about promoting them.

The commission rate

If you want to make more money, the secret is to promote products with low commission but high demand or high commission items for which you can easily generate sales.

In the latter case, making even a few sales will bring you nice commissions.

Payment methods

Not all affiliate programs use the same methods to pay out. Therefore before joining any, make sure that the payment methods used are available in your country.

I have had to avoid promoting some interesting programs because they pay out only by Paypal.

While people in almost all Africans countries (I think) can send money through this processor, only a couple can receive money through it.

I have never understood the logic behind this policy.

I have asked Paypal about this twice, and each time they cited local regulations and the like, which I find strange.

Local regulations generally prevent money from going out (because of foreign exchange restrictions) and not coming in (which is good for the economy)!

Other payment processors like Payza and SolidTrustPay allow me to send and receive payments.

Limitations

Some programs are limited to specific countries.

For example, for sometime, free 7-day Starter Membership at Wealthy Affiliate was NOT available in Bangladesh, Egypt, India, Kenya, Nigeria, Pakistan, Philippines, and Vietnam. I think the ban is now only applicable to Nigeria.

So you may want to check this as well for any program before you try to join.

Some programs systems will automatically prevent you from signing up. Otherwise, check before trying to join.

It is worth knowing this information than to join and find out later you were not supposed to.

Some programs or networks also limit the number of sales you can make per month. Don’t go wasting your precious resources promoting such vendors beyond what you are supposed to do.

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The commission

The commission is a part of the sales price of a good or service that the network pays to the affiliate for sending them a consumer who took a desired action, such as a click or a purchase.

Commissions can be as low as 1% with physical products from Amazon and go as high as 75% with digital products from ClickBank.

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Models affiliate marketing works with

Affiliate marketing works with three models:

  • PPS model
  • CPC model
  • CPA mode

PPS Model

PPS means pay per sale.

In this model the affiliate marketer is paid a specified rate by the merchant whenever a customer referred by them purchases one of the merchant’s marketed products.

CPC Model

With the CPC, or cost per click, model, affiliate marketers receive a specified rate per click. This is why this type of model is commonly referred to as pay per click, or PPC.

CPA Model

The cost per action, or CPA, model pays the affiliate marketer a set amount for a specific action, which can be a product being purchased or a form filled out.

This model is often referred to as a pay per lead, or PPL, model.

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When you get paid

The various ways you get paid your affiliate commissions depends on the affiliate network/program.

When you make a sale, there’s a waiting period before your payment is effected:

  • New account (first payment delay, typically 30 days)
  • Money back guarantee period (to avoid returns and chargebacks)
  • Affiliate network (merchant delay with topping-up accounts)

How written in black on a yellow sphere to signify how you get paid in affiliate marketing
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How you get paid

You will get paid your commission via PayPal, cheque, or direct deposit.

Other options are Egopay, LeuPay, Okpay, Neteller, Payoneer, Payeer, Skrill, Payza, Solid Trust Pay, Paxum, and Perfect Money.

Bitcoin currently had become one of the most popular payment methods used.

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Advantages and Disadvantages of Affiliate Marketing

People generally consider only the advantages of affiliate marketing. But what somebody going into this business should mind most are the disadvantages since they inform you of the pitfalls awaiting you.

That said, let’s see the advantages of going into affiliate marketing for all parties.

Advantages of affiliate marketing

For merchants

  • They can have motivated, creative people to help sell their product or services to the world.
  • It enables them to have a bigger market to sell their products and services, resulting in more customers and more sales.
  • They can gain more customers without spending valuable resources (time and money) in searching for them.

For affiliate marketing programs

  • They provide an easy way to generate additional sources of income for website publishers and owners.
  • Programs that track compile statistics from affiliate sites provide reliable and current client behavior on trends and demands at no extra cost.

For affiliates

  • They do not have to make a sizeable investment
  • They do not have to worry about customer support, book keeping, and e-commerce since the merchant takes care of them; all the affiliate needs to do is promote and resell the product.
  • They are their own boss and work at their own hours. Thus, they can work only for a few hours or more and generate income 24/7.
  • With a laptop and an internet connection, they can work almost anywhere in the world, even while enjoying a vacation.
  • They place merchant advertisements on their websites and get paid when someone clicks on them
  • The primary advantage of the PPS (Pay per sale) model to them is the huge potential for income with successful sales
  • Advantages of the CPC (Cost per click) or PPC (Pat per click) system to them are that it is straightforward, and the affiliate marketer gets paid regardless of whether the customer purchases anything or not
  • One advantage to the CPA (Cost per action) or PPL (Pay per lead) model for the affiliate marketer is that the customer doesn’t necessarily have to purchase a product in order for the marketer to be paid.
  • The cost-per-acquisition model is fair and profitable.
  • Coverage and new advertising spaces are increased.
  • They do not pay for clicks (CPC) or impressions (CPM).
  • Affiliate marketing allows them to attract new clients and have a high impact.

For customers

  • They do not have to drive all the way to the merchant’s store or retailer to physically buy the product or engage the services of a service provider
  • For clients, they do not have to drive all the way to the merchant’s store or retailer to physically buy the product or engage the services of a service provider.

Disadvantages of affiliate marketing

For merchants (N.B.: Some of these apply to the affiliate marketing programs also)

  • Complicated for companies or brands with little margin on the sale
  • Must monitor the approved spaces, since some may be of little interest to the brand
  • In some cases, they cannot control the impressions of the ad, since it depends on the affiliate and the traffic, he/she may have
  • False advertising, unlawful use of trade names, logos, or brands
  • Unscrupulous affiliates can squat on domain names with misspellings and get a commission for the redirect
  • Unscrupulous affiliates can populate online registration forms with fake or stolen information
  • Unscrupulous affiliates can purchase AdWords on search terms the company already ranks high on
  • There is the possibility that some merchants may incur high commission costs and costly set up and maintenance fees due to affiliate facilitators/brokers.
  • The affiliates may engage in false and misleading advertising in order to get sales commissions.
  • Unscrupulous affiliates may make claims and promises regarding the product and services, which are completely wrong or extremely exaggerated. Usually such cases may make the merchant receive complaints and lose any potential consumer.
  • False advertising, unlawful use of trade names, logos, or brands.

For affiliate marketing programs

  • Even if the terms and conditions are clear, affiliates must be monitored and rules enforced to avoid unlawful acts
  • An effective affiliate marketing program requires some deep thought. The terms and conditions must be tight, especially if the contract agreement pays for traffic rather than sales. The potential for fraud in affiliate marketing is real
  • It is possible that some merchants incur high commission costs and costly set up and maintenance fees due to affiliate facilitators/brokers
  • The advertising company sets the terms of an affiliate marketing program. Before that, companies largely paid the cost per click (traffic) or cost per mile (impressions) on banner advertisements. With the development of technology, the focus turned to commissions on actual sales or qualified leads. The early affiliate marketing programs were vulnerable to fraud because clicks could be generated by software, as could impressions.
  • Now, most affiliate programs have strict terms and conditions on how to generate leads. There are also certain banned methods, such as installing adware or spyware that redirect all search queries for a product to an affiliate’s page. Some affiliate marketing programs go as far as to lay out how a product or service is to be discussed in the content before an affiliate link can be validated.

For affiliates

  • Unscrupulous and dishonest merchants may arbitrarily close down programs without informing the affiliates and without paying commissions
  • Merchants may promise high commissions to attract new affiliates then drop commission rates after a week or two
  • Link hijackers can hijack affiliate links and get paid for the commissions instead.
  • A disadvantage to the model CPA (Cost per action) or PPL (Pay per lead) for the affiliate marketer is that it’s more difficult to obtain this type of opportunity because merchants only take affiliates with existing high-traffic websites
  • Low payout rates and the need to generate high levels of traffic to the advertisements
  • The affiliate marketer won’t get paid anything for their efforts that don’t result directly in a sale
  • Unscrupulous and dishonest merchants may arbitrarily close down programs without informing the affiliates and without paying commissions.

For customers

None.

N.B.: We see as many disadvantages as advantages in affiliate marketing.

But no matter the number of disadvantages, affiliate marketing still remains as one of the best ways to make money online.

An affiliate marketer simply has to do their homework and research beforehand and implement simple security measures to easily negate all these disadvantages in order to enjoy the advantages of the affiliate marketing program.

TREND written on a colorful background to say popular affiliate networks and programs
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Some very popular global affiliate programs and networks to join

Below are some very popular global affiliate programs and networks that you can join today and start earning…

Click on the images for more information.

Wealthy Affiliate

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The Hoth

 

ShareASale

PayDotCom

JVZoo

Hotmart

eBay Partners Program

 

Designrr

Commission Junction

Performcb (formerly Clickbooth)

Learn how to promote ClickBank products through CBProAds.

AWeber

AliExpress

AWIN (Affiliate Window)

Ads 4 Dough (A4D)

Which other affiliate program or network would you want to add? Tell us in the comment section below.

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2 thoughts on “What is affiliate marketing and its basic terms?”

  1. This is a fantastic breakdown of affiliate marketing and I’m sure it will be of great use to many people thinking to break into this business. I’m an affiliate marketer and even I learned a few things!  For example, the fact that 81% of brands and 84% of publishers use affiliate marketing to produce sales is a very real indication that I’m not working with enough companies!  hahaha!  It goes to show what a wide-open market this is!  

    As a fun point of reference, before I became an affiliate marketer, I had no idea that all those “Top Ten” articles I used to decide on the best product earned the author a commission!  This is how I now explain to people what I do!

    Reply
    • Hi Cynthia,

      Thanks for appreciating my piece. I’m happy you learned a few things from it!  Yes, affiliate marketing is a
      wide-open market indeed. 

      Thanks for your comment.

      Reply

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