What is affiliate marketing and how does it work?
Adtraction has got you covered with this short, yet concise post where we explain what affiliate marketing is and how it works.
What is affiliate marketing?
Easily explained, affiliate marketing is a strategy that enables individuals to make money by referring consumers to an online store. Affiliates receive a commission when their marketing efforts result in a transaction. Advertisers on the other hand, receive high quality traffic and pay only for results. Affiliate networks offer a platform to connect advertisers and affiliates, and handle support, tracking and payments.
Affiliate marketing is often referred to as performance based marketing, with CPO (cost per order) being the payment model. This means that when an affiliate contributes with a transaction on the advertisers website, the affiliate gets paid a commission. As of this, it becomes a cost per order for the advertiser. Another benefit of a performance-based setup is the lowered risk it entails for the advertiser.
Affiliate links to one of our advertisers.
on the link.
from the advertiser.
Purchase is tracked
Affiliate receives commission.
Affiliate marketing history
The first brand in history to have an affiliate program was PC Flowers & Gifts in 1989. By 1991 the flower selling shop had driven millions in sales. By 1998 they had almost 3000 affiliates connected to the program. The program further created the framework for what we have come to know as modern day affiliate marketing.
Amazon Associates was launched in 1996 and quickly became a template for brands to launch their own affiliate program. In after years an array of local and global affiliate networks emerged. These enabled advertisers to run typical affiliate programs like we know them today and publishers to generate revenue through affiliate marketing.
The creation of cookies, the launch of e-commerce in the late 90s, the general growth of the internet and the emergence of influencers further impacted affiliate marketing to grow into a worldwide industry worth more than $12 billion.
What is an affiliate?
An affiliate is an individual or a company which sends readers, followers and visitors to an online advertiser. In practice, any individual with an online channel and audience can be an affiliate. Typical affiliate channels are websites, blogs, social media channels, price comparison sites, shopping sites, cashback and loyalty concepts, email marketers, voucher sites and content sites.
What is an advertiser?
From an affiliate perspective, an advertiser is a business connected to an affiliate network. In principal, any business with a website at which users can make a transaction can be an advertiser. However, with affiliate marketing being performance based, affiliates tend to choose to promote well known brands that are likely to convert, rather than smaller brands. Put differently, being an established and well renowned business can positively affect the success of an affiliate program.
What is an affiliate program?
The advertiser has an affiliate program which allows affiliates to retrieve tracking links. The affiliate program is administered by an affiliate network, and enables the affiliate network to track clicks and transactions that originate from the website or channel of an affiliate.
What is an affiliate network?
An affiliate network commonly serves as the link between advertisers and affiliates. The network offers a solution for tracking conversions, while handling support and payments. Affiliate networks are specialized in the field of affiliate marketing, and help advertisers to set up successful affiliate programs that are attractive for affiliates to promote.
How does affiliate marketing work?
The final question to be answered is how these components unite to make affiliate marketing work.
In order for affiliate marketing to function, the affiliate network, the affiliate and the advertiser with its affiliate program need to join forces. The affiliate network offers a managed service and a platform for tracking, allowing the advertiser to set up an affiliate program which affiliates can connect to.
The affiliate receives commission and the network receives payment only when the advertiser receives a sale. Put differently, the advertiser benefits from the fact that the other parties only see money when a sale has occurred.
Affiliate marketing is a digital marketing strategy that facilitates the connection of advertisers and relevant affiliates. The payment model is often referred to as CPO, meaning the affiliate gets paid when he or she contributes with a sale to the advertiser. The advertiser, on the other hand, pays only when a transaction or an agreed upon event has occurred.
The above post provided you with basic knowledge of what affiliate marketing is. Interested in learning more? Check out our whitepaper on how affiliate marketing works.