This guide covers affiliate marketing, including an introduction to this monetization technique, a review of the most popular implementations of affiliate marketing, and highlights of the top affiliate ad networks.
This guide will be much more useful if you already have your own blog. In case you don’t, check out our post titled “Paytrix Review “.
What Is Affiliate Marketing?
Affiliate marketing has become a massive online industry over the past several years, emerging as both an effective way for marketers to sell their products and services and for publishers to monetize their audiences. Despite the popularity of affiliate marketing, many publishers still aren’t aware of exactly what affiliate marketing is or how it works. In some cases, these publishers are gatekeepers to an audience that could be very effectively monetized through affiliate marketing, meaning that they’re passing up an attractive revenue stream.
What It Is (And What It Isn’t)
At its heart, affiliate marketing is an online version of a sales structure that has been happening offline for decades. In its simplest form, it involves three primary components:
When I was a child, my school would have fundraisers that involved us going door-to-door to sell magazine subscriptions (magazines were glossy, soft-cover publications that would be mailed to a subscriber’s house on a weekly or monthly basis). I didn’t realize it at the time, but I was right in the middle of an affiliate marketing scheme. The magazine companies had products they wanted to sell. Schools had the ability to sell these products. And for every subscription sold, the magazine companies gave a slice of the proceeds to the school. (In this example, there’s actually a secondary later of affiliate marketing; the schools effectively outsource the actual selling to the students, in exchange for prizes that come with meeting certain sales figures.)
Online, affiliate marketing works generally the same way–except that the door-to-door sales approach is replaced by strategies more suited to a digital marketplace. In most instances, the Membro Review process works as follows:
Affiliate marketing is facilitated by “affiliate links” that allow merchants to track where their customers originate. In other words, it’s possible (and actually very simple) to know which revenue came from a specific affiliate and to compensate that affiliate accordingly.
Affiliate Marketing Economics
For publishers, the affiliate marketing revenue equation looks something like this Video Joiner PRO Review (we’ve bolded the factors that are most within your control in optimization efforts):
Visitors x Click Rate (on Affiliate Links) = Referred Visitors
Referred Visitors x Conversion Rate x Average Purchase Price = Referral Revenue
Referral Revenue x Commission % = Affiliate Marketing Revenue
The success of an affiliate marketing strategy depends on how many referrals you’re able to send to merchant sites and how well these referrals convert (hence the bolding of these factors above). The more relevant and appealing the offers you highlight on your site, the higher both your click and conversion rates will likely be. If you’re running a travel blog, you probably don’t want to be featuring affiliate offers for baby products; replacing them with affiliate links to cruise packages would probably result in a higher referral rate.
For more, see the next section on Easy Instant Profits Review.
Appeal of Affiliate Marketing (to Advertisers)
Advertisers love affiliate marketing because it involves minimal risk. If a sufficient margin is built in as compensation for the affiliate, it becomes impossible to lose money. That’s because affiliates are generally only paid when a sale is completed (i.e., a lead is converted). Advertisers (or “merchants”) pay nothing for leads that don’t convert.
Compare this to a CPM-based advertising campaign, where an advertiser pays a fixed amount to get a fixed number of ad impressions. (E.g., they may pay $10,000 to have 1 million ads shown on a publisher site, or a $10 CPM.) That campaign may be unsuccessful however if the ad impressions don’t convert into clicks and/or eventual sales.
Under most affiliate marketing arrangements, advertisers only pay for converted leads. There is basically no way they can lose money or get a negative ROI with this marketing method. Each new sale generated may have a thin margin after the affiliate payment is made, but it’s possible to structure in such a way that eliminates the possibility of a loss.
Some merchants will pay for actions that do not involve the transfer of money (i.e., something besides a sale of a product or service). For example, many merchants pay affiliates for referred visitors that ultimately sign up for a newsletter or other free product.
Appeal of Affiliate Marketing (to Publishers)
Affiliate marketing is very appealing to some publishers as well, because it can allow them to make considerably more money than they would under an alternative monetization strategy. Though the specifics of payout arrangements can vary a bit, in general affiliate payments will be significantly larger than the revenue generated from a click under a CPC pricing arrangement (or the effective CPC under a CPM arrangement). For high margin products such as e-books, for which there are no material costs, affiliate margins can be as 50% of the total purchase price. So it’s not unheard of for affiliates to generate $100 or much more from each referral.
To explain this a bit further, let’s consider a real life example. Below is a screenshot from AffiliateTip.com, a popular blog run by affiliate marketing guru Shawn Collins. In his right sidebar, he has a number of affiliate links for products such as HootSuite, Dropbox, and Bluehost:
Alternatively, there could be a traditional 160×600 display ad unit here. From a network, that ad unit might earn the published an effective CPM of $3 or $4. If the optimal affiliate marketing links are used instead, the payout can be much higher.
Let’s assume that the aggregate click rate on this affiliate link section is 1%, that 20% of referred visitors convert, and that the average commission is $10. For every 1,000 visitors:
Of course, the revenue per visitor is highly dependent on the click and conversion rates. But the hypothetical above should illustrate that if you’re able to find quality, relevant affiliate offers, affiliate marketing can be a very attractive monetization opportunity.
Affiliate Marketing In Action
Affiliate marketers can use a number of strategies to sell to their audience, with different approaches making the most sense for different niches and product lineups. These strategies include:
Below are some real life examples of affiliate marketing strategies in action:
Affiliate marketing is a fairly simple concept that can be implemented in a countless number of ways online. Though it’s not as familiar or easy to set up as display advertising strategies that dominate many publisher monetization strategies, there is the potential for a big payoff if a bit of work is done upfront.
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Three Factors That Determine Affiliate Marketing Success
As affiliate marketing has become a multi-billion dollar industry over the past several years, it’s also become increasingly sophisticated. Across the seemingly endless niches are a variety of strategies for generating revenue. With more merchants, offers, and analytics, there’s a lot to the affiliate marketing business.
But while the details have grown increasingly complex, the big picture remains incredibly simple. Success in affiliate marketing ultimately depends on how well you execute three tasks.
Affiliate Marketing For Dummies
If you’re an affiliate marketer, you have a chance to make money every time someone opens up a Web browser. To the affiliate marketer, below is a diagram of how the flow of every Internet engagement unfolds.
You make money on the path that includes three green boxes; on all others–the vast majority of scenarios–you get nothing. So at its simplest, affiliate marketing success comes to those who maximize the number of positive outcomes down the flow chart above.
Three Key Factors
Put another way, think of affiliate marketing as this formula:
Revenue = Visitors x Click Rate x Conversion Rate x Commission
Improving any one of the variables on the right side of this equation will increase the dollar amount on the left side. So affiliate marketing really boils down to optimizing three factors:
Factor #1: Visitors / Traffic
In order to make money from affiliate marketing, you need to convert a visitor to your site to a paying customer for your merchant partner(s). Obviously, the more visitors you have (i.e., the greater the traffic to your site), the more chances you have to make an affiliate referral.
Building up a large base of traffic is in itself a huge challenge. There’s an overwhelming amount of content on the Web dedicated to attracting visitors to your website, and we won’t go into any detail on the topic here. (Check out SEOmoz or Search Engine Land if you really want to read more).
If your website doesn’t have much traffic to speak of, there’s probably not a big opportunity for you now in affiliate marketing. Focus on producing high quality content, building some links, and getting a recurring stream of visitors to your site. But if you have a website that is already attracting a significant number of visitors from referring sites, organic search, and direct visits, affiliate marketing could be a logical way to monetize.
Factor #2: Click Rate
This is where we put the “marketing” in affiliate marketing. It’s up to you as the affiliate marketer to make sure that your audience sees the affiliate links and offers you have on your site. You can’t simply throw them into the right sidebar and hope that your audience seeks them out and clicks on them. There’s a great deal that you can do to increase the likelihood that your visitors click on the links and get in front of the affiliate offer.
This topic is extremely broad; there are countless strategies for increasing visibility (and ultimately click rate) on your affiliate links, ranging from incorporating links into your content to sending emails to your newsletter list. Check out some of the affiliate marketing gurus on our Best Monetization Blogs overview for an extensive supply of tips and tricks for boosting the number of clicks your affiliate links receive.
John Rampton has some ideas on increasing click rate, and Zac Johnson has five simple ways to boost click rates as well.
Factor #3: Conversion Rate
Conversion rate refers to the percentage of referrals sent who ultimately complete the desired action (e.g., purchase something from Amazon).
This is one area that is often overlooked as an “out of my hands” part of the affiliate marketing funnel. Once you’ve sent a visitor to the merchant site, all you can do is cross your fingers and hope they ultimately complete whatever action is necessary for you to get your commission. That’s partially true I suppose. But you have more input here than you may realize.
Part of the affiliate marketing game involves picking out merchant partners and products to promote. If you’re promoting a crap product, you can probably send some traffic through the affiliate link by doing a good job of marketing it to your audience. But once they get to the merchant site and are disappointed in what they see, they’re probably going to abandon.
If you’re promoting a quality product that you think delivers great value to your audience, they’re much more likely to complete the purchase once they’ve clicked.
Commission $ vs. Conversion %
There’s often a trade-off between the quality of a product and the commission being offered. And it’s tempting to gravitate toward the partners and products that pay you the most per conversion. But if those products are unlikely to convert, they might not be the best fit.
Consider two products:
Don’t get blinded by simply commissions. Finding relevant, quality products to promote is one of the most important parts of the affiliate business.
Focusing on any one of these areas increases your chances of affiliate marketing success. But optimizing one area when another is sub-optimal won’t deliver the results you want. In other words, the real success and revenue comes when all three are executed successfully.
For example, building up a big base of traffic won’t deliver much of a reward if you’re working with the wrong affiliate offers. Similarly, doing a great job marketing the ideal offers to an extremely small traffic base won’t translate into much revenue. Each of these three points must be implemented and improved together, or else you won’t see results.
There’s obviously a lot of work that goes into each of the three points above; building up substantial traffic takes months (or even years) of effort, and finding the right affiliates involves never-ending research.