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What is Affiliate Marketing?

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Brick-and-mortar retailers have long rewarded customers who refer new customers. But the Internet and social media transformed the practice by introducing affiliate marketing programs in the 1990s. What is affiliate marketing? In short, affiliate marketing enables people to earn a reward or commission for sales that result from endorsing and promoting a company’s products or services. Today’s affiliate programs are a highly effective and relatively low-cost strategy for driving increased direct-to-consumer sales and expanding a company’s distribution reach.

Affiliate marketing jumped into the mainstream after Amazon introduced its program, the first to be available to the general public. From there, all types of businesses put their spin on the concept, with affiliate marketing programs rapidly evolving and adapting alongside technological capabilities. Today eight in ten brands have some type of affiliate marketing program in place, and an estimated 16 percent of all Ecommerce sales in the U.S. and Canada come from affiliate links.

How affiliate marketing works

There are three entities involved in affiliate marketing:

  • The selling company, which produces the products or services, develops a brand identity, and provides the digital commerce platforms and technology needed to support the affiliate marketing programs.
  • The affiliate, who enrolls with a company to promote products and services by sharing a customized affiliate link or promotional code with their network. The affiliate earns rewards, such as a commission, for any sales made using their affiliate link or code.
  • The consumer, who responds to the affiliate’s marketing message by purchasing the product or service.
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Affiliates usually have an affinity for the brand, products, and services they choose to endorse. Often, they are already loyal customers who see affiliate marketing as a way to expand their ability to share the product or service – and earn rewards at the same time.

The real-life stories from affiliates about why they recommend the product and how it works for them offer powerful testimonials for their family, friends, and social media followers. Research shows this type of word-of-mouth marketing is effective because more than nine in ten people believe suggestions from people they know over marketing messages from a company. With the Internet and social media, people can share these endorsements with a much broader audience.

Today’s affiliate programs can take many different forms based on the product, the company’s strategies, and the way affiliates share the information. For example, some programs rely solely on Ecommerce and social commerce, with affiliates sharing customized links through social media posts, personal blogs, and email. Other programs combine these methods with the ability for affiliates to purchase products at wholesale prices and then sell the products at retail rates through one-to-one consultations or at events, including fairs, trade shows, or parties.

How affiliate marketing representatives get paid

Affiliates are rewarded by the company when sales or other defined actions occur based on their efforts. The most common reward is a commission that’s paid for each retail sale generated through the affiliate’s unique URL link or promotional code. Other affiliate compensation models include “pay per click,” which pays affiliates based on the number of clicks generated from the links in an affiliate’s content to the company website, and “pay per lead,” where affiliates earn compensation when someone clicks through from their link to the company’s site and takes a defined action, such as filling out a contact form or signing up as a subscriber.

Direct-to-consumer companies can also build affiliate programs around rewards outside of commission payments. For example, an affiliate could earn exclusive discounts on a company’s products and services, or gift items based on referrals or sales generated through their affiliate links.

Advantages of being an affiliate

Affiliate marketing programs give people the opportunity to earn rewards for endorsing, sharing, and promoting products and services they believe in. In many cases, affiliates are already loyal customers and brand advocates, and affiliate marketing provides an option to get paid for something they are already doing – sharing their favorite products and services with their family, friends, and social media community.

There are minimal requirements for getting started and virtually no operational engagement for affiliates. Someone is able to enroll in an affiliate program, usually by filling in a form online. The company then provides a unique URL link or promotional code to the affiliate, who simply begins sharing it and getting paid for sales. The affiliate is not responsible for creating or manufacturing the product or service, or building and maintaining the Ecommerce infrastructure, payment platform, or customer service to support the sales process.

Along with the ease of getting started, a main appeal of affiliate marketing is its flexibility. People can share their affiliate links as much as they want to, based on their schedules, social media reach, and the content options they choose, including social media posts, blogs, and emails. Often, affiliate marketing representatives will enroll with the intention of making a few social media posts as a way to supplement their income. Then, as they see initial commission payments come through, they will adopt a more strategic approach and expand their efforts.

Advantages of affiliate marketing for companies

Affiliate marketing programs give direct-to-consumer companies a way to capitalize on – and significantly expand – word-of-mouth recommendations from their customers. Affiliate programs are relatively low risk for companies, and the acquisition costs for the new customers generated are much lower compared to traditional marketing strategies. That means that most companies see a high return on their investment in affiliate marketing.

Successful affiliate marketing programs are able to tap into a loyal customer base that already has a strong connection to the company’s products or services. By transforming a portion of these customers into affiliates, the company gains a low-cost way to reach the targeted, pre-qualified audiences who are part of the affiliate’s community. Because affiliates have an established connection to the product and are sharing personal endorsements with networks of people with similar interests, the conversion rates for affiliate marketing are quite good, with estimated averages ranging from 1 to 10 percent based on the products being promoted and the size of the affiliate program.  

Managing a successful affiliate marketing program

As direct-to-consumer companies explore options to create or enhance an affiliate marketing program, streamlining and automating the set-up and ongoing management of the program is a key to sales success. A software platform that can support the unique tracking and attribution requirements of an affiliate marketing program, while also integrating with back-end functions like inventory management and reporting, is essential.

Affiliate marketing software tools should enable:

  • Set-up ease for new affiliates to enroll and obtain custom affiliate URL links or codes.
  • Integrated Ecommerce capabilities for presentation, purchase, and drop shipment of products and services.
  • Automated tracking and attribution of affiliate-generated sales.
  • Automated commission calculation, with different payout options available for affiliates.
  • Mobile-friendly design and dashboard access for affiliates to check activity and track earnings.
  • Comprehensive end-to-end reporting at both the individual affiliate and company levels for easy monitoring and optimization of affiliate marketing strategies.
  • Integrated 1099 management and reporting.

By having the right behind-the-scenes technology in place, direct-to-consumer companies are well-positioned to rapidly scale affiliate programs and set affiliates up for long-term success.

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