What is affiliate marketing and how does it work?

Affiliate marketing receives a mixed reaction, which may be why many brands and retailers shy away from this channel. However, affiliate marketing is no longer just cashback sites and coupon codes, it’s a great marketing tactic that can drive sales and significantly increase your online revenue.

So, what is affiliate marketing, how does it work and what are the different types?

What is affiliate marketing?

Affiliate marketing is the use of affiliate partners to promote a business’s products and or services online. Affiliate partners are the individuals who earn a commission for promoting these products and or services. Affiliate marketing is a great strategy for putting your products and or services in front of the right people, at the right time.

How does affiliate marketing work?

1. The first step in affiliate marketing is the recruitment of affiliate partners. A merchant (brand) will hire an affiliate to promote their business online. This is, of course, in exchange for a commission depending on the sales of their product and or service.
2. Step two consists of creating an affiliate URL. This is a unique URL created using UTM code. This link will usually send a potential customer to a merchant’s page to buy their product and or service.
3. An affiliate will then begin to promote the merchant’s webpage with the affiliate URL.
4. This will then lead to a potential customer clicking the link.
5. An affiliate tracking cookie is then stored within the customer’s browser.
6. If a customer makes a purchase via the affiliate link, the affiliate commission is tracked.

Finally, the merchant will then pay the affiliate their earned commission once their validations process is complete to account for returned/cancelled orders.

Types of affiliate marketing

Voucher sites

Affiliates often utilise exclusive offers and voucher codes in exchange for clicks. Affiliate marketing is most popular on these sites as it provides that extra “pull” that advertisers need to drive sales.

Cashback websites

The second most popular sites are cashback sites. These, again, give money-related incentives for customers to click on and get money back from purchases.

Display advertising

This is online graphic advertising through banners, text, images, video, and audio. The main purpose of digital display advertising is to post ads on third-party websites.

Influencers

Influencer marketing can be utilised as part of an affiliate programme with KPIs tracked through the affiliate network for a comprehensive view of performance. To clarify, influencer marketing is the use of partnerships, endorsements and product placements from social media individuals who have a dedicated social following and are experts within their chosen niche/sector. 

Social media

Social platforms are an up-and-coming platform for affiliate marketers to use, as links to products and or services can now be published and featured on posts and ads.

Comparison websites

These websites feature deals and links to many different sites that find the best prices on products for customers. Examples include Google Shopping, Confused.com, Compare the Market and GoCompare.

Brand partnerships

Brand-to-brand partnerships are increasing in prominence in the affiliate industry as of late. Brand partnerships enable you to partner with a different brand and provide a reward to their customers. This can be especially useful for newer brands who are wanting to build up their brand awareness as they can ‘piggyback’ off the brand awareness of a different brand.

Pros and cons of affiliate marketing

Pros

1. Reach – With affiliate marketing, you have the ability to scale quickly through approved third-party affiliate sites, reaching a much wider audience than solo marketing efforts would be able to. You can advertise on both general and niche affiliate sites to drive qualified and relevant traffic
2. Conversion – Affiliate marketing is a conversion-led channel, with an incentive for publishers when a sale/specified goal is achieved. You have the ability to establish CPA/CPL before the action is undertaken.
3. Sustained ROI – There is little to no initial investment required, and no requirement to pay for traffic in advance, unlike paid search or display. You can also validate sales to ensure that you are only paying out for sales that meet the terms and conditions of your programme

Cons

1. Time-consuming – Effective management of an affiliate programme can be time-consuming as it requires close management in terms of approval and rejection of invitations to join the programme. Not every publisher who applies to join the programme is going to be a good fit for your brand and publishers need to be vetted prior to being accepted.
2. Transparency – Some affiliates aren’t always transparent in demonstrating what is driving their performance – sometimes there can be bots apparent. This is why it is vital to have a comprehensive screening and vetting process before a publisher can join your affiliate programme.
3. Incrementality – The incrementality of affiliate marketing has been increasingly called into question as of late. An argument underpinning this is that affiliate partners could be cannibalising traffic and sales that would have converted without affiliates involved in the customer journey, and voucher sites for example are often the last click in the journey. A way around this is to examine publisher performance on different attribution models, not only last click, in order to determine incrementality.

How to start affiliate marketing

1. Choose an affiliate network, these include Awin, Rakuten and ClickBank.
2. Devise a strategy, from the steps listed below.
3. Decide on which affiliate partners you want to focus on. Are you open to working will all types of affiliate partners? Or would you prefer to focus on a smaller group of affiliate types?
4. Devise a commission structure. Is your program going to be a flat structure or will you offer different commission rates for new vs. existing customers, different product types and or different publisher types?
5. Decide upon an offer matrix. Are you going to provide any exclusive offers to affiliate partners, or will you be requesting that they just promote your on-site offers on their platforms?
6. Once a strategy is decided upon, your programme is ready to go live! Now it’s time for the management of the programme and approving and declining appropriate publishers onto your programme.

How to track affiliate sales

Affiliate sales are tracked through your chosen affiliate network. However, these are tracked on a last-click basis, which may result in over-reporting of revenue if you are running other marketing channels.

Google Analytics, therefore, is a great way to track affiliate marketing as it de-dupes sales. You can also set up your programme terms and conditions to ensure that you only pay out for sales that have been de-duped during the validation process.

Affiliate marketing networks

There are many different affiliate marketing networks which help to connect you with affiliate partners and track all of your sales. It’s important to do your research in terms of which would be the most appropriate network for you to use. For example, certain networks have more prominence in certain countries and across certain verticals.

Is affiliate marketing worth it?

Definitely! Affiliate marketing is an incredible way to increase your customer base and build brand awareness.

However, it shouldn’t be used separately with no other marketing channels being optimised, or just switched on and left alone. It requires management to ensure you are making the most of the opportunity.

If you would like to speak to our team about your existing affiliate programmes, or if you’re looking to get started and need some support, drop us an email to team@modo25.com and we’d be happy to discuss your goals.