Affiliate Marketing - Explained
What is Affiliate Marketing?
Written by J. Mance Gordon
Updated at April 17th, 2024
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What is Affiliate Marketing?
Affiliate marketing is one of the major components of online marketing. The retailers seeking a way to sell their products and services often create advertisements that are then listed with an affiliate marketing firm. For each click the advertisement receives from a prospective client, the advertiser pays the marketing firm a specified amount. To increase the earnings, the marketing firm tends to promote the advertisements on the popular websites where the advertisement are posted for a large base of viewers. Eventually, the marketing firm and the website share a pre-agreed percentage of the revenue the advertiser pays.
Positives and Negatives of Affiliate Marketing
Benefits of affiliate marketing:
- Affiliate marketing benefits all. The retailers get wider market reach, marketing firm gets commission while the website also gets its share from the affiliate marketer.
- It is not essential to pay for the customer service during the campaign.
- There is least risk since company enjoys an expansion in terms of market and sales, without any risk of investment damages.
- Affiliate marketing results in higher customer satisfaction, which leads to more products referrals and increasing affiliate confidence.
The downsides of the Affiliate Marketing are:
- The company and its products need enough promotion.
- Since there is an intermediary involved in the shape of an affiliate firm, strong relationships between the advertisers and the websites might be difficult to achieve.
- Affiliate marketing is mainly suitable for short term campaigns and outcomes only.
How commission works in affiliate marketing?
There are various approaches for setting commission structure in affiliate marketing; some are:
- CPV (Cost per sale) or cost per acquisition (CPA): In this approach, commision is given based on the number of sales generated from the affiliates website banner or ad.
- Cost per lead (CPL): The commission is based on the achievement of potential customer via newsletter or similar channels.
- Cost per thousand impressions (CPM): In this approach, the commission is charged on per thousand readers who have gone through the ad.
- Cost per click (CPC): The commission depends on the visits and the clicks the ad receives.