Affiliate Marketing – How Does It Work?
Definition of Affiliate Marketing
Affiliate marketing involves a relationship between two actors – 1) the Merchant (aka the advertiser, or partner), and 2) the Affiliate (also known as the publisher). If we think about the Affiliate Program as a whole, we must bring in a third party, the Customer, as well.
The Merchant makes available the product for purchase, and the Affiliate acts to sell that product for the merchant and/or send traffic back to the merchant’s website. In return, the Merchant agrees to pay the Affiliate a commission for sales and/or agreed upon results.
Payment Arrangements
Payment arrangements are typically performance-based (which is a form of risk mitigation by the Merchant) and arrangements are normally structured as Pay Per Click (PPC), Pay Per Sale (PPS) and Pay Per Lead (PPL) – or some blend.
Affiliate Program Classes
If we separate affiliate marketing based on depth, we have three different classes: 1) single-tier, 2) two-tier and 3) multi-tier programs.
Single-Tier Affiliate Marketing
In a single-tier affiliate program, 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 Program
In Two-Tier Affiliate Marketing, the Affiliate gets a commission for every action performed by his direct referrals, plus he gets paid additional commission when one of those people he’s personally referred gets the commission. Thus, he has a two-layer commission structure and the Affiliate gets paid both directly and indirectly.
Multi-Tier Affiliate Program
Multi-Tier Affiliate Program is very similar to Two-Tier Marketing, but here, the Affiliates get the commission for the sales made by their affiliated affiliates in multiple, unlimited, tiers.
Residual Income Marketing
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 at the Merchant’s site. The only requirement is that on the first time visit, the visitor must come from the Affiliate’s authorized affiliate link. Then, whenever the same person returns to the Merchant website (even without using the affiliate link), the Affiliate will get paid for every sale performed by the visitor.
Cookies are what make this strategy work. A “cookie” is placed on the first-time visitor’s computer. This cookie stores the affiliate id of the Affiliate. Cookies ordinarily expire after 3 months; however, some may persist beyond three months.
When a visitor hits the Merchant’s site, his computer is checked to see if there is a 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
As long as the affiliate marketing relationship is well-planned and well-executed, everyone wins:
- The Merchant gets greater visibility and market penetration, attracting 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 fulfil orders.
- The Customer acquires desireable and useful products that s/he would otherwise not find – at least not easily.
Properly done affiliate programs are Win-Win-Win situations.
If you like what you’ve just read, and would like to learn how to leverage your efforts, put your income on autopilot, and become a millionaire, get the FREE Infinite Income Plan report here. Follow me on Twitter: @MaxProMe.
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