What is Affiliate Marketing?

If you've ever expressed an interest in online business, you must have stumbled across the term "affiliate marketing". Let's find out what hides behind this complicated term, and who are the parties involved.

What is affiliate marketing?

It's a sales strategy that allows companies to increase traffic and sales by offering an incentive to promote their products. This can work directly for single advertisers or as a part of a network.

The affiliate terminology can be confusing to a new user, so we broke down the complicated industry terms step by step, with simplified examples.

Example:

1. Nokia decides to increase its phone sales, and employs an affiliate program to handle the referral process. That's called an "offer".
2. Nokia promises to pay 10% of the purchase price to their partners. That's a "payment structure".
3. David (or anyone on Earth), as a publisher, can sign up to that affiliate program and start promoting Nokia phones (recommend them on social media, newsletters, etc). That's called an "attribution".
4. David starts promoting Nokia phones on both his websites through banner ads (using his attributed link). Every time the banner is displayed or viewed, it's called "impression".
5. A visitor on his website sees the banner ad and clicks on it, to find out more about the product. Yes, that is a "click".
6. Once this visitor makes a purchase through David's attributed referral link, David earns a 10% commission. And this is called "conversion".

Of course, this is an overly simplistic example. However, it explains the core principle of the structure.

Basically, we have 4 players.

1. Merchant ("advertiser").
2. Blogger or publisher ("affiliate").
3. Customer ("end-user").
4. A platform that connects both ("affiliate network").

You may be the publisher looking to make money, or the advertiser, looking to increase sales. Either way, you need a smooth solution to invisibly connect the dots and transfer the customer from one end to the other. Now that we have sorted out through the hard part, let's see what are the advantages of using performance-based marketing as a sales strategy for your business. In other words, what can it do for your business?

Core benefits for business companies:

• Easily integrate affiliate infrastructure with your e-shop.
• Attract and motivate a large volume of partners, who will voluntarily and eagerly promote your product(s).
• Detailed reporting and statistics allow continuous optimization.
• Optimize performance and increase ROI thanks to cutting-edge AI tools.
• Monitor incoming traffic sources, campaigns, and sales across various platforms.
• Commissions are paid only after a purchase has been made (i.e. "conversion" is complete).
• No upfront advertising fees.
• The commissions' structure is easy to set up and follow.
• Full control over the entire process.
• Advertising companies and media buyers can manage the whole infrastructure in one place.

Having an affiliate program integrated with your online business gives you endless control over the sales process. But what about networks?

Affiliate marketing & 're-seller' strategy

Now, try to apply the concept of 'affiliate marketing' to the old-fashioned 're-seller' strategy. Let's see what happens if we get back to the example of David and Nokia phones above and add a third-party, or an agency.

Now, this agency can buy advertising or offer the same product through the affiliate structure but providing a smaller commission to its users. For example, 7% instead of 10%. Standing as a middle man between the "offer" of the advertiser and "commission" of the end-user. This means, that the network gets to keep 3% of the sale, by simply redirecting the traffic to the merchant.

You might have seen this concept in agencies that deal with buying tickets, online events, or even digital goods. This is also the core system behind shopping "cash-back" schemes.

As you can see, there are a lot of sides and angles to affiliate marketing. It is merely a tool for tracking traffic, campaigns, and online visibility. Many people and parties get involved in the process. Everyone is pursuing their own goals and interests.

Impressions, clicks, or conversions?

On top of everything we discussed above, media buying networks or advertising agencies can also use the same platform. However, instead of paying for conversion/sale, they can either monitor impressions and clicks or pay for them. The concept of Google Adsense for publishers, or Adwords for advertisers, is probably the easiest example you can relate to. The only difference is, the ads are not displayed in search results, but on partners' websites instead.

A high volume of "impressions" can contribute enormously to the brand's visibility and awareness, while "clicks" can draw traffic to the advertiser. As a network, you can either simply monitor and track them, or reward for them.

Who's money is it?

Every publisher gets a unique URL token that he uses to drive traffic to the advertiser's landing page. Therefore, as a publisher, he benefits from a fool-proof method to track his own traffic only. All the visitors, who come through that unique URL, get logged and attributed exclusively to that publisher.

Conclusion

Affiliate marketing, or performance-based marketing, is simply a multifunctional platform that connects the bloggers, influencers, and publishers with advertisers or agencies. It's a growing and expanding versatile solution that can solve a lot of confusion in one simple step.