What is Affiliate Marketing and How Does it Work? (Beginners Guide)

If you want to generate income online but do not have a product to sell, then affiliate marketing may be a great option for you.

With this marketing tactic, you are able to promote other people’s products in exchange for a commission.

In this affiliate marketing for beginners guide, I will walk you through everything you need to know about affiliate marketing and how it works.

What is affiliate marketing?

Affiliate marketing is a type of marketing in which an individual or business markets another company’s products or services. In exchange for promoting the company’s products, affiliates earn commissions for their work bringing visitors and sales to the business.

It is similar to the commission a salesperson earns. However, affiliates do not work for the company whose products they are promoting.

Affiliates typically promote products through their website, blog, social media accounts, podcasts, or other online platforms.

The company will track all the sales that come from the affiliate in order to credit them with the commission.

Affiliate marketing types

There are two types of affiliate marketing.

With the first type, you promote other people’s products and earn a commission for each sale that you refer.

The second type of affiliate marketing is when you create your own products and set up an affiliate marketing program where other people can earn a commission by selling your products.

When you see a description of the affiliate marketing meaning, most times it is in reference to the first type of affiliate marketing.

This is also the type of affiliate marketing that we will focus on in this guide.

What is an affiliate marketer?

An affiliate marketer is a person that promotes someone else’s products in exchange for a commission.

They are often a content producer that has an audience that they can use to share the company’s products.

What is an affiliate merchant?

An affiliate merchant engages in the second type of affiliate marketing. They create an affiliate program along with their own products to be marketed in the program.

They then find affiliates to join the program and begin promoting their items.

When setting up an affiliate program, the merchant needs to implement a sales tracking system and a way to monitor affiliate results and commission payouts.

Benefits of affiliate marketing

Here are some of the benefits of using affiliate marketing:

Easy to start and scale

Affiliate marketing is an attractive option for many as it is easy to get started.

You do not have to go through the lengthy process of creating a product yourself.  As such, you can find success with affiliate marketing without being an expert in a particular niche.

With the ability to generate passive income over time, affiliate marketing is also highly scalable.

You do not need to worry about creating new products as your business grows. Nor do you need to handle post-sale customer service concerns.

Once you grow your audience base, you can also find new products and services to promote to increase the lifetime value of your customers.

Passive income

Affiliate marketing can provide a steady stream of passive income. By this I mean you can set up your traffic sources once and continue to generate new sales as more users come through.

One of the most common ways to promote affiliate products is through a website with content such as blog posts.

These could be reviews in which you go through the pros and cons of an item for potential customers.

Or it could be a how-to guide in which you add an affiliate link to a tool that would help the reader.

Once you create the content, you can employ search engine optimization (SEO) tactics to get the site to rank in Google’s search engine.

When your pages get high enough in the rankings, you will start to see visitors to your site. If you are able to maintain this position you can get residual income without having to continually work to bring in new visitors.

Additionally, you can earn even more passive income from affiliate marketing if you get recurring commissions.

Low risk

Affiliate marketing is a low-risk way to generate income online. The initial costs to set up your website and traffic sources are minimal when compared to launching a product.

If you find that certain products are not working with your audience, you can quickly pivot to begin promoting new items.

Flexibility

Like other ways of making money with digital marketing, affiliate marketing affords great flexibility. You can use affiliate marketing anywhere so long as you can access the internet.

Plus, you get the ability to work and promote your products independently.

Your affiliate program will undoubtedly have guidelines that you need to follow but it is ultimately up to you how you choose to engage with your audience.

More reach

Affiliate marketing is equally beneficial to the companies creating the affiliate program.

One of the biggest advantages of running an affiliate program is the ability of the company to extend its reach.

With it, businesses are able to access customers that they would have otherwise missed out on.

Plus, it takes time to build an audience of your own.

Affiliates have their own platforms and active audiences. If their business is aligned with that of the merchant, they quickly become a valuable source of traffic.

Since affiliates are only paid for the value they bring (typically sales) there is no cost to this added marketing once the program is up and running.

What are affiliate marketing programs?

Affiliate marketing programs are the in-house systems used by merchants to run and manage their affiliate marketing strategy.

The foundation of any affiliate marketing program is the arrangement between the merchant and its affiliate.

In the arrangement, affiliate merchants and marketers come to terms with the specific details of their working relationship.

This includes what qualifies for commissions, how commissions are paid, how the affiliate is allowed to promote the products, and more.

The specifics of the agreement are often determined by how many new customers the affiliate is able to bring to the business.

If the affiliate has a larger audience and can consistently drive more sales, the affiliate merchant may offer higher commissions.

Affiliate program examples

Amazon Associates is one of the most popular affiliate programs. As an Amazon affiliate, you get to promote the massive amount of products that are available in the Amazon catalog.

To enroll in the program you need to have a qualifying website or mobile app.

Affiliates often use their websites to write dedicated product reviews or comparison roundups in which they break down multiple affiliate products.

You have very likely come across an Amazon Associate site at least once while browsing the internet.

Affiliate marketing is not limited to only physical goods. Many affiliates choose to promote digital products.

These products are often in less saturated niches and you have the ability to earn recurring commissions on your sales.

Affiliate marketing commissions

Affiliate commissions are a key component of any affiliate program. They are the amount of money that you earn from marketing the merchant’s products.

Your exact commissions vary depending on the specific products that you promote.

The lower end for commission rates is around 5% of the sales price.

These low percentages are often part of programs focused on physical products where purchases are much more frequent.

Some affiliate marketing programs pay a flat dollar amount instead of a percentage.

There are several types of commission models used by affiliate programs. These determine what actions earn a commission.

Per sale: With the Cost-per-sale (CPS) commission model, you receive a commission for each sale that comes from your affiliate link. This is the most common type of affiliate commission model.

When you promote this type of affiliate program it is important to select products that convert well.

Otherwise, you could generate consistent traffic but not have any revenue to show for it.

Per lead: Cost-per-lead (CPL) is a commission model in which you receive payment for every lead that you bring to the business.

These leads could be someone that subscribes to an email newsletter or someone that enrolls in a free trial for a product.

Your commission rates in a CPL program will typically be lower than those in a CPS program.

But, it can be a good way to start making income as you will attract leads before sales.

CPS and CPL affiliate models usually follow a once-off payment model. This means that you receive a single commission for the sale and do not earn any residual revenue.

Per click: Some affiliate programs use a cost-per-click (CPC) commission model. With this type of commission, you are paid each time someone clicks on one of your links to go to the merchant’s site.

Because clicks are far more common than leads or sales, the average payout is much lower.

This can still be an effective model for making money with affiliate marketing. You won’t need to worry as much about closing the deal, simply getting enough interest in the items to get a solid amount of clicks

Recurring commissions: Recurring commissions pay affiliate ongoing commission over time. They are often part of subscription products where the customer is repeatedly billed.

For example, a software product with a monthly membership fee.

With this model, the affiliate continues to earn income over time so long as the customer keeps their subscription active.

What are affiliate networks?

Affiliate networks serve as intermediaries between affiliate merchants and affiliates.

Networks will consolidate and manage multiple affiliate programs to the benefit of both affiliates and merchants.

When a merchant joins an affiliate network, they will provide the details for the program and the network will use their system and tools to get the program set up.

The affiliate program is then available to affiliates that sign up for the network. Affiliate programs within a network can require approval. Or they can grant open access to anyone that is part of the network.

Networks can be an effective tool for affiliates looking to partner with several different merchants. With a network, you get a single place to track and monitor your campaigns without having to switch back and forth between different accounts.

Some of the largest affiliate networks include Shareasale, CJ, Rakuten, and Awin. These have hundreds of thousands of merchants and an extensive selection of affiliate products to promote.

While these networks offer tons of products, keep in mind that not all products will be worth promoting.

You’ll want to narrow your focus to a specific niche. And then the best products within that niche.

How does affiliate marketing work?

Affiliate marketing begins when the affiliate marketer joins an affiliate program. Once in the program, there is a standard process that is typically followed to begin driving sales for the affiliate products.

In this example, we will assume that the affiliate program uses a CPS (Cost Per Sale) commission model in which you only earn revenue for sales.

Here’s how affiliate marketing works:

1. Add affiliate links to your online platforms
2. Customer clicks on your affiliate link
3. Customer visits at the merchant site
4. The customer makes a purchase from the merchant
5. The affiliate tracking system records the purchase
6. Purchase is confirmed by the company as a valid sale
7. You are credited the transaction
8. You receive a commission

1. Add affiliate links to your online platforms

Upon joining your program as an affiliate, the merchant’s software will generate a unique affiliate link for you to use.

Once you have this link, you can begin adding it to the places where you want to promote your content.

The most common places to promote affiliate products are websites, blogs, and social media profiles.

If you have a blog, you can place your links throughout your content. Or if you promote through social media you can create a sponsored post that includes the link.

2. Customer clicks on your affiliate link

As you start to bring visitors to your content, some of the users will click your affiliate links.

When they do, your affiliate links will create tracking cookies in the user’s browser. These are what allow the merchant to tell which (if any) affiliate helps bring in the customer.

The cookies are stored on the browser for a specified amount of time. For you to receive credit for the sale, the customer will need to complete their purchase before this time period expires.

Cookie windows can be as short as 24 hours or as long as 60 days.

For example, Amazon’s affiliate program uses a 24-hour cookie window, meaning you want to find visitors who are ready to buy.

3. Customer visits at the merchant site

After the customer clicks your link, they will be taken to the merchant’s website.

The type of page that they land on will depend on the business’ particular offering.

It may also be determined by your choice as some programs give affiliates multiple landing pages to choose from.

While on the page the customer will review the product to learn more about it.

4. The customer makes a purchase from the merchant

Once they have time to weigh their decision, some of the people that land on the merchant’s website will choose to complete their purchase.

There may be others that do not buy right away but eventually come back to complete their purchase.

5. The affiliate tracking system records the purchase

When the customer places their order, the affiliate tracking system will record all the details for the purchase.

It will also look to see which affiliate should be credited with the sale.

In a situation where the customer only clicked one affiliate link, this is easy to determine.

Things get more tricky if the customer clicked multiple links before buying.

Affiliate programs use different attribution models to decide who gets the sale. A common attribution model is a last-click model.

With this model, whoever’s link was clicked most recently gets the sale.

It is also common for programs to use a first-click model where the first affiliate that gets the person to the merchant site is credited.

6. Purchase is confirmed by the company as a valid sale

Affiliate programs also review transactions to ensure that they are legitimate.

They need to take this step to make sure that you are not buying your own products or doing anything else dishonest.

For example, breaking the terms of the program by bidding on branded keywords in paid ad campaigns.

Typically there is a set amount of time it will take the affiliate company to officially recognize the sale.

7. You are credited the transaction

After the merchant verifies the qualifying sale is legitimate, the transaction will be credited to your affiliate account.

The amount you earn will be based on the terms of your affiliate agreement.

For example, if your terms state that you receive 10% of every sale and a customer buys a $100 item, you will receive $10.

You will then likely have to wait until the scheduled commission payout to receive your funds. This will vary based on the program and can be anywhere from instant to 30 or 60 days.

8. You receive a commission

Once the affiliate merchant officially credits you with the sale, you will receive your commission payout.

Again, when the commission is paid out will depend on the particular affiliate program.

In addition to following a payment schedule, many programs have payment thresholds.

If a program has a payment threshold your commission balance must be equal or greater for you to receive payment.

These thresholds usually aren’t too high. Amazon for instance has a $10 threshold.

How much money can you make with affiliate marketing?

So much money can you actually earn with affiliate marketing?

If we take a look at the commission rates for some popular programs, we can get a sense of how much you can make if you were to achieve a certain number of sales.

In this example, the commission rates are on the lower end so you need to get more sales to earn a good profit.

But, these types of items often convert better meaning more of the people that click your link become customers.

Let’s look at another example, specifically software as a service (SaaS) products such as web hosting, online course platforms, eCommerce platforms, or digital marketing tools.

These affiliate products will often pay more for sale.

Some pay a lump sum upfront while others offer recurring commissions.

For example, with the Bluehost affiliate program, you can earn $70 for each web hosting plan that you sell.

Or the Constant Contact affiliate program that pays $105 per sale.

You can also review the earnings of some of the top affiliates to get a sense of how much you can make with affiliate marketing.

For instance, Pat Flynn, one of the most popular affiliate marketers grew his affiliate marketing income to over $100,000 per month in a few short years.

Another approach is to look at some data to see how much you can potentially earn with affiliate marketing.

According to Payscale, the average annual income for an affiliate marketer in the United States is $52K.

The lower tier of affiliate marketers makes around $39K per year on average while the higher end makes close to $71K.

Glassdoor reports a higher average income for affiliates with an average income of $66K.

Keep in mind that much of this data is based on affiliate marketer positions within companies.

How to succeed with affiliate marketing?

So while we can see that there is a lot of potential with affiliate marketing, there are still steps that you will need to take if you want to be successful.

Here are some tips to help you be a good affiliate marketer:

Focus on targeted traffic

In order to get sales, you need web traffic. Not just any traffic but targeted traffic. You need your products in front of people that are actually interested in buying them.

Before you select products to promote you should make sure there is an active market for them.

You’ll then need to plan how to get in front of the ideal audience.

The best way to bring traffic to your products will depend on what you’re trying to sell.

For some types of products, in-depth content will be most effective. For others, you may be able to use your social profiles to bring highly qualified visitors to your products.

Choose high selling products

Many new affiliate marketers make the mistake of trying to sell anything when they first get started.

Instead, you want to choose items that are related to your niche but also that sell.

If the items you are promoting do not sell well, you will need to bring a lot more traffic to your content in order to make money.

You should carefully review the best solutions in your respective industry to ensure that you are presenting the best possible products to your customers.

Look for products with high commissions

Naturally, you want to sell products that reward you well for your efforts.

With high commission products, you can earn a solid payout for each of your sales or leads.

The most profitable commissions are recurring commissions.

These not only give you a source of passive income but the sums of money they accumulate can add up rapidly.

Conclusion

Affiliate marketing is an effective way to start making money online.

It won’t make you rich overnight. But if you find the right programs to join and take time to grow your audience, you can eventually build a consistent stream of income.