How does Affiliate Marketing work?

Before we define what affiliate marketing is and the way it works, it’s important to first have some context and perspective.

You see, the various players who structure this marketing model engage with it differently.

For example, if you’re someone who is looking to be an affiliate– also mentioned as a partner or publisher – then you’re likely to require to understand about what it means to hitch a brand’s affiliate program, best practices for promoting their products or services, how you’re compensated for doing so, etc.

However, if you’re a brand (aka, a company, merchant, retailer), then please read on because the information on this page is written with you in mind.

We also highly recommend downloading our Ultimate Guide to the Affiliate Marketing Model. This free guide offers more detail for every of the sections featured during this post and explains how all of them work together within the affiliate model.

Table of Contents
What is Affiliate Marketing?
Who are the Key Players within the Affiliate Marketing Model?
How Do Affiliate Programs Work?
Tracking Performance in Affiliate Marketing
Affiliate Program Management

WHAT IS AFFILIATE MARKETING?
Affiliate marketing, while often mentioned as a “channel,” is basically a model or framework that creates it possible for brands to partner with individuals or companies (referred to as “affiliates,” “partners” and “publishers”), to trace and measure their performance and do so in an efficient, scalable, and cost-effective way.

For example, let’s say you’re a Direct-to-Consumer company that sells engagement and wedding rings. Through your affiliate program, you would possibly partner with…

Websites focused on having budget-friendly weddings
Engagement/wedding ring review sites
Publishers who have the capabilities to market sign-ups for your “free ring sizer kit,” thus driving high-value leads for you.

Whatever you’re wanting these partners to try to to – drive sales, leads, new customers, etc. – you pay them after they’ve delivered thereon desired action.

In other words, you’re paying for actual outcomes.

WHO ARE THE PLAYERS within the AFFILIATE MARKETING MODEL?
Brands (Advertisers/ Merchants)
Companies that sell a product or service. Industries include retail, direct-to-consumer, subscription services, financial services, travel, telecom, broadband, gaming, e-commerce, marketplaces, B2B and more.

Affiliates (Publishers, Partners)
Marketing partners to brands. they will be bloggers, active social media posters, niche content sites, personal website owners, product review websites, shopping sites, mobile apps, app-to-app marketing platforms, mass media sites, loyalty, coupon and reward websites and even other brands.

To get a more in-depth breakdown of those differing types of affiliate partners, download our Ultimate Guide to the Affiliate Marketing Model and/or inspect the list on our Publisher Development page.

Affiliate Networks
In an affiliate program, affiliate networks typically handle all tracking, reporting and payment to affiliates. additionally to providing tracking technology, some affiliate networks also provide full-service management or self-service management of a program. Affiliate networks also give brands access to a network of affiliates who apply to hitch their network, which also gives these affiliates access to hundreds, even thousands, of affiliate programs.

Software as a Service (SaaS) Platforms
In an affiliate program, SaaS platforms also provide companies with performance tracking, reporting and payment, however, they are doing not manage affiliate programs or provide companies with access to a network of affiliates. Their focus is simply on the technological aspects of an affiliate program.

Brands select either an affiliate network or a SaaS platform as their technology partner, not both. For greater insight into networks and SaaS platforms and therefore the sorts of companies that fall into each type, download our free Quick Guide to Affiliate Networks and SaaS Platforms.

Affiliate Agencies (see Affiliate Program Management below)
Oversee and manage the day-to-day operations, and strategy of a program on behalf of brands, including partner relationships, partner recruiting, activation and optimization. They work directly with affiliates and with the affiliate network or SaaS platform that services the technological needs of the program.

Customers
The audience that affiliates look to influence to form a sale , submit a lead form, check in for a newsletter, test out a service, become a replacement customer, etc.

HOW DO AFFILIATE PROGRAMS WORK?
To those on the surface , the inner workings of affiliate marketing programs are often mysterious and confusing. Some marketers even think it’s a channel that you simply can activate and switch off such as you can with paid search or paid social (spoiler: it’s not).

While affiliate partnerships are multifaceted, it’s a structure that’s built on transparency and real relationships, not one-off transactions.

The overall goal of an affiliate program is to make a win-win framework for both brands and their affiliate partners – a structure that, when established properly and strategically managed, can structure a big portion of a brand’s online revenue, with high ROAS and low CPA.

Example of affiliate marketing getting used to drive a sale:

Affiliate Marketing 101
Affiliate partner promotes a brand’s products or services on their site.
Consumer clicks on brand’s promotion on the affiliate’s site and a cookie is then stored on the consumer’s browser (see subsequent section below for more on cookies); this is often what makes it possible for the affiliate network or SaaS platform to trace the consumer’s progress from the affiliate’s website through to the brand’s handcart .
Consumer is redirected to brand’s website.
Consumer purchases a product/service from the brand.
The network or SaaS platform then automatically pays out a commission to the affiliate (based on the principles set by the brand) for driving that sale.

TRACKING PERFORMANCE IN AFFILIATE MARKETING
Affiliate Marketing uses tracking cookies and a pixel placed on the brand’s site so as to trace and measure their partners’ marketing activity. The metrics generated from this tracking structure tend to be more tangible than other sorts of marketing and may cause a highly reliable ROI calculation for the brand, including:

Registrations, email sign-ups, giveaway entries
Sales, orders, subscriptions
Conversion Rate
New vs Returning customer
Average Order Value
Cost Per Action (CPA)
Customer Lifetime Value (CLV)

AFFILIATE PROGRAM MANAGEMENT
On average, companies either manage their affiliate programs in-house or they partner with an affiliate management agency (sometimes mentioned as an OPM) to manage the day-to-day needs requirements of an effectively run program. There also are brands, particularly enterprise brands, who take a “hybrid” approach to the management of their program where they oversee elements of it in-house and partner with workplace to manage the day-to-day aspects.

In-House affiliate program management tends to figure best for:

Companies that have intentionally decided to run alittle , private affiliate marketing program with only a couple of select partners. An in-house manager can generally manage this sort of affiliate program without much difficulty.
Companies that aren’t looking to grow their program. Partnering with an affiliate agency is an investment; if a corporation isn’t investing in their program, the spend might not be worthwhile.

Affiliate agency program management tends to figure best for:

Companies (typically on a growth path and who have $8M+ in online sales) who lack the in-house resources, operational and industry expertise, platforms and affiliate partnerships to manage their affiliate program effectively.

Hybrid affiliate program management (in-house + agency) tends to figure best for:

Enterprise brands who need a considerable team to run their program.
Brands who want to use workplace for particular purposes or to strategically expand their geographic footprint.

When managed well, with the proper partners, affiliate marketing is arguably one among the foremost efficient and cost-effective marketing models for driving new revenue, new customers, high-value leads and incremental sales.

The growth of affiliate marketing, now over 20 years old, may be a testament to the model’s adaptability and flexibility . It’s also why it’s an integral a part of the marketing and acquisition strategies for the world’s industry-leading brands.

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