Affiliate Marketing - How Does It Work?

Definition of Affiliate Marketing

Affiliate marketing creates an association between two parties - 1) the Merchant (also known as the advertiser, or partner), and 2) the Affiliate (sometimes called the publisher). If we look at the Affiliate Program as a whole, we must include another entity, the Customer, as well.

The Merchant supplies the product for sale, and the Affiliate works to sell that product for the merchant and/or refer visitors to the merchant's website. In return, the Merchant agrees to pay the Affiliate a commission for sales and/or agreed upon actions.

Commission Arrangements

Payment plans are usually performance-based (which effectively shifts some of the risk from the Merchant to the Affiliate) and arrangements are commonly structured as Pay Per Click (PPC), Pay Per Sale (PPS) and Pay Per Lead (PPL) - or some mixture.

Affiliate Marketing Classes

If we look at affiliate marketing in terms of depth, we have three separate classifications: 1) single-tier, 2) two-tier and 3) multi-tier programs.

Single-Tier Affiliate Programs

In Single-Tier Affiliate Marketing, the Affiliates get the commission, only for driving visitors or sales to the merchant's website. Pay/performance and pay/click fall under this category.

Two-Tier Affiliate Marketing

In Two-Tier Affiliate Marketing, the Affiliate gets the commission for every action performed by his direct referrals, plus he gets additional commission when any of the people he's personally referred gets paid. Thus, he has a two-layer commission structure and the Affiliate earns both directly and indirectly.

Multi-Tier Affiliate Program

Multi-Tier Affiliate Marketing is very similar to Two-Tier Marketing, but here, the Affiliates get compensated for the sales made by their affiliated affiliates in multiple, unlimited, tiers.

Residual Income Program

In Residual Income Marketing, the Affiliate marketer is rewarded for every sale that is made by a person referred by him.

In this type of marketing, Affiliates get the commission for every sale that his referral makes on the Merchant's site. The only requirement is that on the first time visit, the person should come from the Affiliate's pre-defined affiliate link. Then, whenever that person visits the Merchant website (even without using the affiliate link), the Affiliate will get paid for every sale completed by the visitor.

Cookies are what make this strategy work. A "cookie" is stored on the first-time visitor's computer. This cookie reflects the affiliate id of the Affiliate. Cookies commonly expire after 3 months; however, some may be effective longer.

Whenever a visitor visits the Merchant website, the visitor's computer is checked for any previously created cookie. If a cookie is found, the affiliate id is retrieved from it and the Affiliate gets credited for any purchase made by the visitor.

Win-Win-Win

Once the affiliate marketing relationship is well-planned and well-executed, everyone wins:

> The Merchant gets greater market exposure and market penetration, locating customers that would otherwise be outside the Merchant's market reach.

> The Affiliate earns a commission for online sales, without the hassles involved with establishing a full e-commerce site or having to manage inventories and fulfill orders.

> The Customer learns about, and can readily access desirable and useful products that s/he would otherwise not find - at least not easily.

Properly done Affiliate Marketing is a Win-Win-Win situation.

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