Wouldn't it be great to sit on the beach and earn money while working on your laptop? Since the phrase "digital nomad" has become mainstream, it has been a dream for many people. One popular way to earn passive income is affiliate marketing. It is a marketing model that rewards you for referring a product or service to another user. The big question: Is it legit? Let's dive in and discover what affiliate marketing is and how it works.
Affiliate Marketing Definition
The idea of affiliate marketing is simple enough. The company rewards you for your effort in getting their product or services in front of more people.
If you want a precise definition, here it is:
Affiliate marketing is a marketing strategy where the affiliate (sales partner) receives a commission by promoting a company's product or service.
The commission can be a percentage of the sales price or a flat fee, depending on the affiliate agreement. Affiliates are often rewarded for generating sales, but sometimes, they are paid for driving leads, app downloads, or website clicks.
In many cases, an affiliate is an influencer or an industry expert with a large following on social media (e.g., Instagram, Twitter, Facebook, etc.) They may endorse or publish a review about a company's product on their site with an affiliate link. When users click the link and perform the desired action, the influencer receives a payout from the product owner.
Affiliate marketing is not word-of-mouth marketing. Affiliate marketing is a performance-based, monetization marketing model, whereas word-of-mouth marketing can occur without any monetary interest.
Affiliate marketing mostly takes place online. As a result, it drives traffic (visitors to a website) using digital marketing strategies such as SEO (Search Engine Optimization), email marketing, content marketing, social media marketing, paid advertising, etc.
Now you may wonder who is engaged in the affiliate process. The answer may differ depending on the source you look into. Wikipedia describes the four parties involved in affiliate marketing as merchants, distributors, customers, and affiliate networks.
Let's break them down.
Merchants are product owners, sellers, or suppliers. These are the people who create the product.
For example, a book publisher who distributes books to the public is a merchant.
Distributors are the sales partners of merchants or affiliates in the case of affiliate marketing.
As the name suggests, these people are responsible for distributing the merchant's products or services. Distributors can drive traffic to the product owner's website through blogs, social networks, etc.
For example, an affiliate can write a blog post to review a company's product with an affiliate link to a landing page.
Customers are people who buy products/services from affiliate marketing campaigns.
Without customers, there would be no sales, which means either affiliates or product owners can earn a profit. For an affiliate to earn a commission, customers must take action. This action could be buying a product, visiting a landing page, signing up for trials, or filling in a form.
Networks are databases of products. They also act as intermediaries between sellers and distributors.
Amazon is the most extensive network so far. It boasts a vast collection of products, including toys, books, housing equipment, clothing, accessories, etc. The affiliate program by Amazon is called Amazon Affiliate. It is a popular program joined by thousands of creators, publishers, and bloggers join. Amazon affiliates can earn up to 10% of products' sales price.1
You can think of a network as a meeting place for affiliates and product owners. Instead of searching for products to promote, affiliates can join a network, type in the product they want to sell, and then get a list of sellers in return. The next task is to popularize these products and get rewarded.
Affiliates needn't necessarily join a network to promote a product. In many cases, affiliates are passionate users of a product or service and recommend it to their audience at will. The monetary reward only comes as a bonus.
Affiliate Marketing Importance
So why is affiliate marketing important? There are two main benefits to affiliate marketing: income streams and cost-effectiveness.
Affiliate marketing: income streams
Like any marketing strategy, affiliate marketing aims to drive sales. Affiliate marketing is a program that brings revenue to both the brand and affiliates. The brand gains sales, traffic, and leads, while the affiliate earns a commission by successfully referring customers to a product or service. Furthermore, unlike the in-house marketing team, whose work is limited to eight hours a day, affiliates can be anywhere in the world and contribute to the sales funnel 24/7.
Affiliate marketing: cost-effectiveness
Another incentive for businesses to enter affiliate marketing is cheap costs. In traditional marketing, brands have to pay to get their products in front of an audience. For example, the company has to bid in real-time auctions to get its ads displayed on Google search results or Facebook pages. In affiliate marketing, no payment has to be made in advance. The brand only shares its profit when the affiliate successfully drives a sale. As a result, there are fewer marketing costs. Affiliate marketing can be a big help to small businesses with a tight budget.
In addition to economic incentives, affiliate marketing can help companies build customer loyalty and improve brand reputation.
Affiliate Marketing: Advantages and Disadvantages
Being a performance-based model, affiliate marketing has both pros and cons. Let's first look at affiliate marketing advantages.
Affiliate marketing advantages
There are incentives for both brands and affiliates to engage in affiliate marketing.
For brands
For brands, affiliate marketing incentives come from cheap costs and extra income.
Cheap costs - As mentioned earlier, the business can reduce marketing expenses by running affiliate marketing programs. As affiliates only get rewarded when they successfully refer a lead or generate a sale, the company does not have to pay anything in advance. They can save money on hefty ads and rely on sales driven by influencers.
Extra income - Affiliate marketing alone does not constitute a business's revenue, though it is an excellent addition. For high-value or subscription products, referral deals can bring long-term business benefits.
An example is the web hosting provider Bluehost. Bluehost pays a fee of $65 for every qualified referral signed up via an affiliate link. $65 might seem like a lot, though you must remember that Bluehost does not get paid once but many times from the same customer. A blogger can host her blog with Bluehost for years, which means she has to pay fees every year for renewal. This brings Bluehost a lucrative recurring income stream. Paying $65 to acquire a lifetime customer is not a bad bargain.
For affiliates
Affiliates also have much to gain from affiliate programs:
Passive income - Affiliate marketing can earn affiliates a recurring income. For example, a blogger can publish a blog review with an affiliate link on their website. Every time readers click the link and purchase the recommended product, the blogger earns a commission. A good thing about using blogs is that they can drive a lot of traffic over time (if the content is relevant and helpful). So, the one-time effort can go a long way.
Flexibility - Another benefit of affiliate marketing is that affiliates are limited in the time and space where they work. They can be on a beach writing a blog, publishing a social review, recording a video, etc. Also, they can choose which products or services to promote. If it is a product they have been using or know a lot about, it's easier to build authenticity and authority and drive traffic. The real bonus of affiliate marketing is that successful affiliates get to do what they love while earning passive income.
No customer service - Once affiliates "close a sale", they don't have to handle any step after. The product owner does payment, invoicing, customer service, etc.
There are three types of payments for affiliates:
- Pay-per-sale: get a percentage of the sales price when customers purchase a product.
- Pay-per-click: get paid whether people make a purchase or not - as people click on the link, you get a commission.
- Pay-per-lead: get paid when a visitor becomes a lead - for example, fills out a contact form or subscribes to a free trial.
Affiliate marketing disadvantages
Affiliate marketing may seem like a dream for digital nomads and entrepreneurs. However, its blessing is also a curse. Here are several affiliate marketing disadvantages:
Income is unreliable - While affiliate marketing provides affiliates flexibility and convenience to work anywhere they want, the income stream is not always guaranteed. The Internet is highly competitive, and customers are hard to convince. There's a good chance promotion efforts go to waste, and affiliates do not make any income. A steady income stream from affiliate marketing takes time and a lot of work.
Affiliate promotion is not suitable for everyone - Influencers or industry experts might have an easier and better time doing affiliate marketing as they already have an audience willing to take their advice. If you just started or have no specialized expertise in an area, it will be harder to build brand authority and convince people to click on affiliate links.
Affiliate programs may change or discontinue - Affiliates earn a commission for as long as affiliate programs are still in place. If the product owner decides to stop the affiliate program and change the commission rate, the affiliate will have no choice but suffer a profit loss.
Difference Between Marketing and Affiliate Marketing
The main distinction between marketing and affiliate marketing is that affiliate marketing is a type of marketing. While marketing comprises multiple strategies and channels to get the product in front of an audience, affiliate marketing is just a strategy nested under the umbrella of marketing.
Another thing to note is that in-house teams and external parties carry out many marketing activities. In contrast, affiliate marketing is restricted to a third party (influencers, affiliate partners). Affiliate marketing is also a performance-based marketing model where the sales partner gets compensated for the number of sales they generate.
Finally, affiliate marketing uses many digital marketing methods to drive traffic, including content marketing, social media marketing, display advertising, etc.
We also need to distinguish affiliate marketing from word-of-mouth marketing.
Word-of-mouth marketing is the process of telling other people about a product or service you use.
So while word-of-mouth is peer-to-peer marketing that happens spontaneously, affiliate marketing is strictly based on monetization. Affiliates get incentives for recommending the company's product, whereas customers who distribute the products via word-of-mouth may not get a commission at all. Further, due to the performance-based model, affiliate marketing is often seen as inauthentic compared to word-of-mouth.
That being said, affiliate marketing does feel like an artificial scheme. Many brands nowadays build affiliate marketing campaigns around trust and happy customers. They make sure customers genuinely enjoy the product and recommend it at will. The affiliate link acts as a bonus that rewards influencers for their efforts. Influencers introduce relevant products to their networks and enhance their authority while companies make more sales and loyal fans. Authenticity is vital for affiliate marketing to work in the long run.
Affiliate Marketing Examples
There are many examples of affiliate marketing networks in real life. Let's take a look at a few of them.
Skillshare
Skillshare is a platform for online courses in various subjects, including web development, business management, photography, etc. Skillshare also offers an affiliate marketing program that rewards you 40% of sales for every user that becomes a paid subscriber through your affiliate link. Many recommenders are course creators and learners who benefit from Skillshare, so the Skillshare affiliate network carries a lot of authenticities.2
Airbnb
Airbnb is a vacation home rental service for holidaymakers. Airbnb has affiliate programs for both guests and hosts. Guests earn a commission for every new user booking, while hosts earn a commission for every new host sign-up.3
Converkit
Converkit is an email marketing platform for content creators. Convertkit provides lucrative affiliate programs where creators can earn a 30% recurring commission every time someone becomes a paid subscriber or renews their subscription. They also offer many assets like videos, graphics, and webinars to help with the conversion.4
Affiliate Marketing - Key takeaways
- Affiliate marketing is a marketing strategy where the affiliate receives a commission by referring to a company's product or service.
- Four parties are involved in the affiliate marketing process: merchants, distributors, customers, and affiliate networks.
- Two main benefits of affiliate marketing are income streams and cost-effectiveness.
- There are incentives for both brands and affiliates to engage in affiliate marketing. For brands, the incentives come from cheap costs and extra revenue. For affiliates, the incentives include passive income, flexibility, and no handling of customer service.
- The main disadvantage of affiliate marketing is that it does not guarantee a reliable income source.
- Affiliate marketing is nested under the umbrella of marketing. It is also different from word-of-mouth marketing.
References
- Amazon Associates. Amazon Associates - Amazon's affiliate marketing program. 2022. https://affiliate-program.amazon.com/
- Skillshare. Become a Skillshare Affiliate. 2022. https://www.skillshare.com/en/affiliates.
- Airbnb. Airbnb Associates program. 2022. https://www.airbnb.com/help/article/2646/airbnb-associates-program.
- Converkit. Converkit Affiliate Program. 2022. https://convertkit.com/affiliate.
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