Affiliate Marketing

Using Affiliate Marketing to Increase Sales. How Does it Work?

Affiliate Marketing
Written by publishing team

Affiliate marketers act like the sales team for a business.

Marketing can be a costly investment for businesses. Large investments in advertising can be very risky if you do not know the return.

Wouldn’t it be cool if someone else who was better at marketing took the risk and funded the marketing?

You can pay them a small commission for every sale. It might sound too good to be true, but it isn’t. This is called affiliate marketing.

This article explores affiliate marketing, how it works and the benefit it provides to both the seller and the affiliate marketer.


What is affiliate marketing?

Affiliate marketing is an endorsement based advertising strategy, the (affiliate) promoters earn money when internet users act on this marketing.

Based on revenue sharing model, sellers (merchant) offer a financial incentive such as commission, through an affiliate program. Affiliates earn a portion of the profit for each sale by creating marketing content to try to redirect customers through the customer’s URL to the merchant’s product.

Affiliates can earn money by promoting products and services and generating income, without actually having any income of their own.

For a merchant, it’s using the affiliate’s help to invest time and money in marketing your products or services. To expand their reach to the target audience (online).

According to Mediakix, spending on affiliate marketing increases every year in the United States, with an annual increase of approximately 10 percent in spending on affiliate marketing.

Affiliate marketing refers to the online relationship between the so-called merchant and affiliate partner, in which the merchant pays the affiliate a commission to redirect potential consumers to the merchant’s website (Libai et al., 2003).

How does affiliate marketing work

Affiliate marketing involves four different parties:

• Merchant,

• subsidiary company,

• Affiliate Marketing Network, and

• the customer.

From a marketing point of view, there are two components: the merchant who produced the product or service for sale and the affiliate marketer who promotes it.

In a traditional business model, the seller bears the risk that the profit will exceed the total marketing costs. However, the affiliate company takes on the promotion efforts and then earns a portion of the profit from every sale you make. This is usually done via a pre-set commission, and sales are tracked via dedicated affiliate links.

For affiliate marketers, they just have to be good at marketing. It works similarly to someone who works in affiliate sales. Like real estate agents. This stimulates their performance. This is a huge benefit for a merchant who has a purely commissioned sales force and predictable marketing costs.

On the other hand, affiliates can create a revenue stream without investing in inventory or infrastructure.

“The key to affiliate marketing success lies in building a win-win relationship between the advertiser and the affiliate partner.” (Duffy, 2005)

How does affiliate marketing work

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1. Merchant

A merchant is also known as a seller, seller, or retailer. They are the party that created the product for marketing – it could be a physical thing or a service. They can be a single trader or a large corporation. Once the product is created, they are not required to actively participate in the marketing. They have others who promote, for a commission on sales.

2. Affiliate company

Affiliates, also known as a content creator or publisher, try to create engaging marketing to attract customers to the merchant’s website. They create content for products to share on social media, blogs, and websites.

Affiliates often have an audience or followers on social media, so they choose products in their niche that meet the needs of their audience. For example, if I had built an audience posting content about fitness and health, I wouldn’t become an affiliate marketer for a candy company.

“There are thousands of affiliate marketers working with many different advertisers simultaneously, driving traffic and sales for the commission.” (Duffy, 2005)

3. Network

Many business/affiliate relationships are managed through affiliate marketing networks. There are two main types of relationships: the first with the affiliate and the second with the merchant. The network acts as an intermediary between the merchant and the affiliate partner.

Affiliate marketing networks like Linkshare, Commission Junction, and Clickbank make it easy to keep track of sales transactions, payments, and product delivery. Their technology tracks all activities, manages commissions, and issues payments to affiliates.

These networks also serve as a product database, from which the affiliate can select products or services to promote. The network facilitates the management of applicants, making the participation process easy for both the merchant and the partner.

Amazon also has an affiliate network, the Amazon Associates Affiliates Program, to help promote consumer products such as books and games, sold on its platform.

4. Consumer

The consumer (or customer) makes this relationship work. If they don’t buy, there will be no revenue and the affiliate will not get commission. When consumers buy the product, the seller and partner share in the profits.

There will be no higher price for consumers who buy through an affiliate, as the cost of the affiliate network is usually included in the price.

Benefits of Affiliate Marketing

Affiliate marketing is beneficial for both the merchant and the partner. Relationship distributes marketing responsibilities, leveraging the capabilities of a diverse group of individuals for a more effective marketing strategy.

For an affiliate, it’s an inexpensive way to make money with little overhead. It allows digital marketers to make money as free agents for a variety of merchants. The ally gets a share of the profit and the merchant benefits from the expected marketing costs as a percentage of sales.

“The strategy represents the ultimate in the true push of performance marketing and, as a result, represents one of the most promising long-term marketing strategies for e-commerce.” (Duffy, 2005).

How are affiliates paid?

Affiliate marketers get a commission from the merchant, depending on the predefined consumer actions. These include pay-per-click – consumer redirection, such as clicking into their online store to get a potential customer; Or they might pay per sale if a deal happens.

Affiliate’s share of profit is included in the retail price – there is no additional fee charged to the customer for selling through affiliates. Custom affiliate URLs generated by each affiliate company or marketing network, to keep track of their sales.

“Every time a sale is made using affiliate URLs, the merchant pays the content creator a portion of the sale through the affiliate marketing company.” (Mathur, Narayanan, & Shetty, 2018).

Trader strategy

Suppose you already have a product or service to sell and that there is a market for it. Merchants find affiliate partners, often through an affiliate network, to promote their product or service.

The tricky part for a merchant is finding an affiliate that already has an engaged audience, matching their target market.

The amount of commission positively affects the number of leads. The ally will work harder on its marketing. For digital products, due to their ease of replication, commission rates can be as high as 50% or higher.

“Affiliates place a variety of different types of ads on their websites (banners, text ads, even product links) that motivate consumers (site visitors) to take action to review and possibly purchase a product or service from the advertiser. When it works, the affiliate gets commission”. (Duffy, 2005).

Affiliate Strategy

Affiliate marketers find one or many products, they like enough and think it is worthwhile to promote it.

Websites like Gumroad help affiliates find affiliates to partner with and allow them to collect commissions.

If an affiliate marketer starts without having a following, they can start by reviewing products on their YouTube channel or blogging with product reviews and comparisons at the niche of their choice. Part of this strategy involves trying to build your contact list by motivating people to join your mailing list. When an affiliate earns income, using pay-per-click advertising will help scale up the growth faster.

Merchants must provide their affiliates with various advertising media to suit different applications and to remain fresh in the market. This will improve affiliate results.

Social media activities have shown a significant impact on the number of potential customers from affiliates. Affiliates mostly use social media to interact with their target audience. Especially if the focus of the affiliate business is aligned with the merchant, affiliates may use social media messages to draw the attention of their audience to the relevant merchant.” (Olbrich, Schultz, & Bormann, 2019)


Marketing Tools

There are many marketing tools that an affiliate marketer can use. First, marketing should be targeted to try to reach the people who are most likely to be customers. If you sell a B2B service, for example, don’t use TikTok. Use the methods most likely to reach them. It could be through social media, blogging, email marketing, or paid advertising.

If you’ve picked a product somewhere that already has a large email database or a large social media tracking, these are the most sensible places to start.

It might be a banner on a blog article on your website that you wrote to compare products in that category that sends potential buyers to the merchant’s site. You can develop an entire website dedicated to merchant products. Optimize your search engine by having content that is interesting enough to get a decent number of natural traffic.

Social media

Studies (see Olbrich, Schultz, & Bormann, 2019) show that affiliate social media activities have a positive impact on ad impressions on the number of leads.

Social media as a marketing tool

Through social media, affiliate marketers can regularly communicate with existing customers and reach new customers by providing targeted content. Leave links in your email to view social media content that might be of value to them and have buttons at the bottom of your accounts email.

There may be an audience captivated by platforms you’ve never thought of, like Pinterest. So at least have an account on the major social media platforms and reuse the marketing content you already have, to fit the users on that platform.

Pinterest content will be different than Instagram content for example.

PPC ads

Once the affiliate earns money by generating organic (unpaid) leads, the next step for advertising is paid. This will direct traffic to their site.

However, it is important to know and improve your numbers through ad analysis and optimization. The price paid for each click, the conversion rate for those who click, and the average commission should be taken into account, which determines the profitability of the ad.

“If the value proposition is insufficient for affiliate partners, it is usually because the advertiser is offering too low a commission or the conversion rate for customers once directed to the advertiser’s website is too low.” (Duffy, 2005)


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