Affiliate marketing is a third party marketing strategy where the publisher earns a commission when he sells the advertiser’s products on his website.
Affiliate marketing is a very popular form of online advertising and involves four key players: the advertiser, the network, the affiliate and the customer. The advertiser is the merchant who is selling a good or service. This party seeks to advertise its product or service and is willing to pay for it. The network acts as the intermediary between the advertiser and the affiliate and its role includes the processing of payment, providing marketing reports and providing access to product APIs. The Affiliate is the party that provides a platform where the merchant’s products can be advertised to the customer.
Affiliate marketing differs from referral marketing. The key difference between the two is that in referral marketing, the referrer knows the new customers personally while in affiliate marketing; the affiliate does not know the customer personally. Another difference between the two is that while the affiliate’s motivation is financial, the referrer’s motivation is altruistic.
A merchant will approach the network seeking to advertise his product. The network then provides the merchant a host of options and payment plans to choose from. After this the advertisements are placed on the affiliate websites and the affiliate gets paid.
There are varying payouts for the affiliates. Affiliates can be paid per click, paid per sale or paid per lead.
- Pay per click occurs when the affiliate is paid by the merchant simply when a customer who was visiting the affiliate’s website happened to click on the banner that was advertising the merchant’s product. This rate will range depending on the network from $0.1 to $0.3. For example; if the rate of cost per click is $0.1 and 1000 people visiting the website click through then the affiliate will be paid a total of $100 that is (0.01*1000)
- Pay per sale is when the affiliate earns a commission when the customer buys the merchant’s product. The rate of a pay per sale commission also varies from 1-20% of the cost of goods sold depending on the merchant and network.
- Pay per lead is when the affiliate is paid a commission for any sales lead he provides the merchant. The rates of the commission received in this arrangement also differ greatly based on the merchant and the network.
Affiliate marketing is good for advertisers because they pay for performance. They only pay when the customer sees the advertisement or buys the product and for this reason they get their money’s worth.