How Does Affiliate Marketing Work? A Complete 5-Step Guide

Affiliate marketing is a very popular, and potentially lucrative way to earn money online. So, how does affiliate marketing work? In this article we’ll cover what it is, and how you can start your own affiliate marketing business.

What’s Affiliate Marketing?

“Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.”

Wikipedia

It’s a win-win situation for both the merchant / business and the affiliate marketer.

Note: Many affiliate networks don’t use the term merchant. They use “advertiser” or “vendor” instead. It’s the same thing. Some affiliate networks also don’t use the term affiliate. They use “publisher” instead. Once again, it’s the same thing.

Merchant = Advertiser or Vendor

Affiliate = Publisher

Benefits for Merchants

The main reasons why merchants love affiliates, include:

  • They only have to pay an affiliate when the customer the affiliate referred to them makes a purchase. This way they don’t have to spend their own money trying to attract new customers. It’s good for their cash flow.

Note: Some merchants also pay for leads. However, most affiliate programs only pay their affiliates a commission based on sales.

  • Easier to control Return on Investment (ROI). Trying to get a good ROI on traditional advertising methods is often a hit and miss. There’s no guarantee that an advertising campaign will be profitable.
  • They can focus more on other parts of their business such as product development, and customer service.
  • Lower overhead costs. By not having to employ someone to bring in new business merchants can save a lot of money on overheads.

Benefits for Affiliates

The main reasons for becoming an affiliate marketer, include:

  • Choose between millions of products to promote. Whatever topic you may be interested in, chances are you’ll find an affiliate program for it.
  • Don’t need your own products. You don’t need to go through the time and effort to create something from scratch. There are also many products you won’t be able to create even if you wanted to.
  • Can change merchants very quickly. If you’re not happy with a merchant or you find a better offer to promote, you can change merchants very quickly. You’re not tied into a long-term contract.
  • You are your own boss. You can do as much or as little work as you wish, whenever it suits you. It’s possible to turn affiliate marketing into a successful business.
  • You don’t need work experience or qualifications to become an affiliate marketer. No merchant will ask for your resume.
  • No selling, cold calling, or face-to-face contact required.
  • Work from the comfort of your own home or from anywhere in the world. As long as you have a stable internet connection you’re good to go.

Based on the above benefits, you can see why affiliate marketing is so popular. Many digital products pay more than 50% commission. There are also many merchants that’ll pay you a recurring monthly commission. You can build up a great passive income this way.

How Does Affiliate Marketing Work?

The best way to explain how affiliate marketing works is to break it down into easy to follow steps.

Step 1. Find products you would like to promote.

Finding the right product(s) to promote may seem like looking for a needle in a haystack. According to ScrapeHero, Amazon.com alone had a total of 119,928,851 products in April 2019.

Here are some tips to help you narrow down your search:

  • Do you have a website or are thinking of building one? If yes, it would make sense to look for products that are relevant to your audience. If you’re not sure how to proceed, have a look at what products your competitors are promoting.
  • Instead of focusing on specific products, rather search for topics or product categories. This can include broad categories like home & kitchen, health & beauty, and finance.
  • Search for affiliate programs on Google. By using search terms such as “best affiliate programs 2020” you’ll find many affiliate programs to promote. If you have a specific niche in mind, search for “best [NICHE] affiliate programs.”

Affiliate Networks

Many merchants don’t have their own in-house affiliate program. They use large affiliate networks to host their affiliate program instead. These include:

CJ Affiliate

ShareASale

FlexOffers

The above affiliate networks have thousands of merchants on them. Unfortunately you won’t be able to view their details until you sign up as an affiliate. More about that later.

Step 2. Apply to join suitable affiliate programs.

Once you’ve identified to suitable affiliate programs it’s time to apply. With some affiliate programs approval is instant. With others you have to wait for them to approve your account while they evaluate your application.

Many merchants are cautious about allowing just anyone to join their affiliate program. It’s normal for them to enquire about how you’re planning on promoting them. They want to avoid affiliates that may make them look spammy, and damage their credibility.

Always make sure you read the terms and conditions of any affiliate program you’d like to join. And, abide by the rules. If you’re not sure about anything, rather contact their support desk than make assumptions.

Note that some affiliate networks also require that you must have an active website. And, some also you require you to not only apply with them but also with individual merchants.

CJ Affiliate (previously Commission Junction) – Requires you to have an active website.

ShareASale – Requires you to have an active website. They normally also require an email address that’s linked to your domain name. For example, if your domain is abc.com then your email should be name[at]abc.com.

FlexOffers – Requires you to have an active and verified website.

ClickBank – A great affiliate network for digital products. They don’t require affiliates to have a website but they highly recommend it.

Amazon – Does not require affiliates to have a website. If you have good original content and at least 500 followers on Facebook, Instagram, Twitter, YouTube or Twitch.tv you should get approved.

Note: At Brand Builders we specialize in building high quality Amazon affiliate websites with a 96% success rate. Have a look to find out how we can help you.

Step 3. Receive your affiliate link and marketing tools.

Once you’ve been accepted to an affiliate program, you’ll be given an unique affiliate link and marketing tools. You’ll also be able to check statistics on how well you’re doing in your affiliate dashboard. Let’s break it down.

Affiliate Link

Every affiliate has a unique affiliate link. This is how the merchant can link sales or leads to you and compensate you accordingly.

A typical affiliate link may look something like this:

merchant.com/?aff=name (many affiliate links are a lot longer and uglier)

Try to shorten or cloak your affiliate link, for the following reasons:

  1. To make it look better / shorter.
  • You can use Bitly to shorten your affiliate links.
  • Where possible, don’t post the naked URL, e.g. merchant.com/?aff=name. Rather use anchor text. Anchor text is the visible, clickable text in a HTML hyperlink.
  • If you’re using WordPress.org as your blog platform, use a plugin such as PrettyLinks or ThirstyAffiliates to cloak and shorten your affiliate links.
  1. Some people don’t like clicking on affiliate links.

Customers don’t pay more for a product if they find the merchant via an affiliate link. However, for one or other reason, some people just don’t like clicking on affiliate links.

By cloaking your affiliate link, users may see it’s an affiliate link after they’ve clicked on it. However, it would have triggered a “cookie” on the merchant’s site. This means that even if they don’t buy something straight away you’ll still get credit for the sale.

Different merchants have different cookie lengths. Normally a cookie will last for at least 30 days. So, even if a customer only makes a purchase 30 days later you’ll normally still earn a commission.

Note there are exceptions to the above explanation about cookies.

If a user clears all cookies on their computer the merchant may not be able to link the sale to you. If a user clicks on someone else’s affiliate link after they’ve clicked on yours, the last cookie may override yours.

Note: Amazon does not allow their associates / affiliates to shorten or cloak their affiliate links. In addition, with Amazon you need to clearly identify yourself as an Amazon affiliate:

“As an Amazon Associate I earn from qualifying purchases.”

  1. Easier to track and manage your affiliate links.

Good url shortening or cloaking service providers all show the number of times your affiliate link has been clicked on. You’ll be able to match it to the number of clicks reported by the merchant in your affiliate dashboard.

If there’s a huge discrepancy you’ll know something is wrong. Just remember that bots and your own clicks may skew the results.

Google expects affiliate links to have the rel=”sponsored” or rel=”nofollow” attribute. This applies to all outbound links that Google considers as advertisements or paid links.

If you have a self-hosted WordPress blog, you can easily mark affiliate links as “nofollow” using plugins like ThirstyAffiliates or PrettyLinks.

Marketing Tools

Any good merchant will provide you with marketing tools to help you promote them. At the very least, these tools will include banners in various sizes you can add to your site.

Be cautious when using banners. They often look spammy and don’t really add value or contribute to a good user experience. Many people have become blind to banner ads.

According to WordStream, the average click-through rate (CTR) for banner ads is only 0.25%. That means, on average, only one out of every 400 visitors to your site will click on a banner ad.

If you’re promoting affiliate offers on your blog, rather use anchor text to link to the merchants you’re promoting.

Affiliate Dashboard

It’s standard practice for merchants to provide their affiliates with an affiliate dashboard. Here you can view the number of people you’ve sent to the merchant. Your affiliate dashboard is also where you can see the number of sales you’ve generated for the merchant.

Merchant Conversion Rate

It’s very difficult to determine what a good conversion rate is. That’s how many sales you can expect from every 100 visitors you send to the merchant.

There are simply too many variables involved. Any number of factors can play a role, from the source of the traffic to how well the merchant’s page converts.

In general, 2% is a good conversion rate. This is not based on visitors to your website but visitors you’ve referred to the merchant. So, if you get two sales for every 100 visitors you send to the merchant you’re doing okay.

Note: According to MonitorBacklinks, the average affiliate conversion rate for a website is generally between 0.5% and 1%. This means if your website has 5,000 visitors per month you can expect between 25 and 50 affiliate sales per month.

Step 4. Start promoting products as an affiliate.

First and foremost, as an affiliate marketer you need to understand the difference between your role and that of the merchant.

Your role is to promote a product, not to sell it. Leave the selling up to the merchant. What you need to do is to warm up the leads. This way, when they visit the merchant they are no longer cold traffic.

Mention the features of the product and how it can benefit them. Share any personal experience you have using the product. Give them helpful tips and advice that may not be mentioned on the merchant’s site.

Most affiliate marketers only use one of two ways to promote products as an affiliate, namely:

  • Paid Advertising
  • Free Organic Traffic

Very few affiliate marketers really use both paid advertising and free organic traffic.

Both options have advantages and disadvantages.

Advantages & Disadvantages of Paid Advertising

Advantages of Paid Advertising

  • No need to spend time and effort building an authority site with a lot of content.
  • Can potentially make money the same day you start your advertising campaign.
  • Quick and easy to reach your target audience.

Facebook is one of the favorite advertising channels for affiliate marketers.

Facebook Ads

It’s quick and easy so choose a marketing objective.

Facebook Audience Insights

Facebook also allows you to target your ideal audience.

Facebook is not the only good paid advertising platform. It may be one of the largest platforms but there are many others, including:

Disadvantages of Paid Advertising

  • Paid ads can be very expensive. Unless you’re promoting a merchant that pays large commissions it’s often not worth it. Based on this, you’re practically excluded from many affiliate programs.
  • Paid ads often require a lot of testing and tweaking to perfect. It can be an expensive learning curve. It’s not “set and forget.”
  • The moment you stop advertising and getting fresh leads your income drops.

Advantages & Disadvantages of Free Organic Traffic

Advantages of Free Organic Traffic

  • Free organic traffic.
  • Passive income. Even if you don’t touch your website for a month it will still generate traffic and make money for you.
  • By building an authority site you’re building a valuable asset you can sell based on the income it generates.

Let’s take a moment to consider the value of free organic traffic from Google.

According to Ubersuggest a keyword such as “weight loss workout” has a monthly search volume of 22,200. It has a SEO Difficulty of only 29/100 so it’s relatively easy to rank for. A paid ad on Google for this keyword would cost you about $2.89 per click.

Ubersuggest example for weight loss

According to Backlinko the #1 organic result in Google gets about 31.7% of all clicks.

Backlinko CTR screenshot

This means that if you rank #1 in Google for weight loss workout you should get about 7,037 visitors a month. (22,200 searches x 31.7% = 7,037 clicks in #1 position)

At a Cost Per Click (CPC) of $2.89 you’ll pay about $20,336.93 for 7,037 clicks. By ranking organically in #1 for that keyword you pay nothing. It’s a huge saving!

Disadvantages of Free Organic Traffic

  • Getting organic traffic takes time. It can take months before you’re able to start generating a decent income from it.
  • Building an authority site that ranks well in Google requires a lot of high quality content. It can be a lot of work if you want to do everything yourself.

Some people say free organic traffic vs paid advertising is all about time vs money.

A common suggestion is the following:

If you have a lot of time but not a lot of money, it’s a good idea to go after organic traffic.

If you don’t have a lot of time but have money, it’s a good idea to use paid advertising.

What they suggest is not necessarily the best way to build an affiliate business.

Even if you don’t have a lot of time but have money, paid advertising is only one option.

Another option is to rather spend money on content creation than paid ads. This way you can still reap the benefit of free organic traffic if you don’t have time to create the content yourself.

Some sites where you can outsource your content creation to freelancers, include:

Note: At Brand Builders we offer a premium quality, SEO optimized content creation service. Click here for more details on how we can become your “outsourced in-house writing team.”

Step 5. Build your list.

Most successful affiliate marketers will tell you “the money is in the list.” Whether you use paid advertising or rely on free organic traffic, the sooner you start building your list the better.

You want to capture as many email addresses from your target audience as you can. Having a responsive email list that agreed to receive emails from you is a valuable asset.

On average 16.22% of your email list will open your email and 7.17% will click on links in your email. This is the industry average, according to Constant Contact.

If you have a huge, responsive following you can make a lot of money from your email list.

You don’t own the traffic you get from paid advertising or organic sources. They come and go, often never to be seen again. However, your email list is traffic you own.

You can reach out to people on your email list whenever you want to. And, if you’ve built up some credibility with your list, you’ll find they are a lot more responsive than cold traffic.

Email Marketing Tips

  • Abide by the CAN-SPAM Act. Don’t send your subscribers messages or information they didn’t agree to receive when they joined your list. Give your subscribers an easy way to unsubscribe from your list.
  • Provide value – If nearly every message you send is a sales pitch, your subscribers will soon start ignoring your emails. Your first priority should be to provide them with quality, helpful information. You first have to give before you can receive.
  • Regular emails, but not too often – You want to send your list regular emails so they don’t grow cold and forget about you. However, sending them daily emails is pushing it too far. The only exception is if they signed up to receive daily tips on a topic over say a 7-day period.
  • Start a weekly newsletter – Tell your subscribers in advance you’ll email them once a week on a specific day. If you provide a lot of value in your emails, they will look forward to receiving your email. They won’t mind if you include one or two affiliate links.
  • Try to stick to one niche – Try to only have one main niche, for example gardening. It makes it much easier to manage your list. If you try to cover too many different niches it will be difficult to provide real value to all of your email subscribers.
  • Use a good autoresponder service provider – We recommended ActiveCampaign as they have a good deliverability reputation. Another option is ConvertKit. They are very popular with bloggers.

ActiveCampaign’s Lite plan starts at $15 per month for up to 500 contacts. ConvertKit offers a limited free plan for up to 500 subscribers.

Note: It’s against Amazon’s operating agreement for affiliates to include their affiliate link in email marketing campaigns. Whatever product you’re promoting as an affiliate, always make sure you make sure you comply with the affiliate program’s promotional requirements.

The FTC’s Requirements for Affiliate Marketing

The Federal Trade Commission (FTC) is there to protect America’s consumers. This includes helping consumers to make informed decisions.

Suppose you’re interested in buying a new stove. You meet someone at a party that tells you about this fantastic new stove. Would that play a part in your decision making process? Your answer would more than likely be “yes.”

Now let’s assume that the person you met at the party works for the stove manufacturer. Would you like to be made aware of that? Of course you do. That’s what at the heart of the FTC’s endorsement guides.

The FTC expects you to disclose your relationship with the merchant you’re promoting. That way your site visitors can decide how much weight your endorsement carries.

According to the FTC, your disclosure can be something like:

“I get commissions for purchases made through links in this post”

Simply mentioning “affiliate link” isn’t good enough. Not everybody will understand it means you’ll be paid a commission if they click on your link and make a purchase.

The FTC also expects your disclosure to be clearly visible, preferably close to your recommendation. You shouldn’t expect visitors to have to scroll down to the bottom of your page to find it.

Here are some examples:

Making Sense of Cents places their affiliate disclosure directly underneath the main heading.

Affiliate disclosure under heading

Ultimate IT Guys places their affiliate disclosure directly beneath their top navigation menu.

Affiliate disclosure under top navigation bar

A Relaxed Gal places her affiliate disclosure in the body of her posts, close to the top.

Affiliate disclosure in body of post

Take note that an affiliate disclosure isn’t only necessary if you have a website. It’s also required for social media. Some social media platforms such as Twitter don’t allow you enough space to post a long disclaimer. However, using #ad should be sufficient.

Always try to add value when you promote a product. Don’t just mention it. If possible, promote products you understand, or better yet, have used yourself. Write about your personal experience.

Google’s SEO Tips for Affiliate Marketing

Google has shared some good search engine optimization tips for affiliate programs.

They want to see websites with original content that adds value to users. Simply reposting information that can be found on the merchant’s site and many others, isn’t good enough.

According to Google: “Added value means additional meaningful content or features.”

“Thin” affiliate sites that don’t provide added value for users are unlikely to rank well.

“Good affiliates ads value, for example by offering original product reviews, ratings, navigation of products or categories, and product comparisons.”

Google

Additional tips from Google include:

  • Affiliate content should only be a small component of your site if you can’t add value to it. This is the case where someone might as well go directly to the merchant’s site than via your site.
  • Promote products that are relevant to your audience. This way you’ll improve the user experience of your audience.
  • Update your content regularly, when necessary, to keep it fresh and relevant for your site visitors.

If you want to learn more about how to monetize a blog, we’ve written an article on how to make money blogging.

Conclusion

We’ve covered a lot of ground in this article.

We discussed:

  • What affiliate marketing is.
  • The benefits of affiliate marketing for both merchants and affiliates.
  • How to find products to promote.
  • Applying with affiliate programs.
  • How to promote products as an affiliate.
  • The advantages and disadvantages of paid advertising.
  • The advantages and disadvantages of free organic traffic.
  • The importance of building an email list.
  • The FTC’s requirements for affiliate marketers.
  • Google’s SEO tips for affiliates.

We trust it has answered the question: How does affiliate marketing work?

We realize if you’re new to affiliate marketing you may have some additional questions. Book a coaching call with one of our experts now and let’s explore how we can help you succeed.