Affiliate marketing can be defined in many different ways. Investopedia defines affiliate marketing as “an advertising model in which a company compensates third party publishers to generate traffic or leads to the company’s products and services”. Basically, affiliate marketing involves an online business employing third party websites and social media advertisers to drive sales to the business in exchange for a commission. An affiliate is the individual/organization whose website is used to drive traffic (and eventually sales) to the business’s site.

 Being a performance-based model, the business only pays the third party (affiliate) when a sale is made as a result of their efforts. This makes it a very efficient and cost-effective marketing model since the business only spends money when they earn, as opposed to traditional advertising where the advertising budget is spent whether or not the marketing campaign is successful.

Affiliate marketing works under an affiliate program. This is the structure and method that directs the working relationship between the business (merchant) and the affiliate partners tasked with generating leads to the merchant’s business. Affiliate programs use different performance-based criteria to ensure that the affiliates earn for every referral to the merchant that converts to actual sales. According to the model of the business, the affiliate may also be paid for other goals agreed upon such as when the referred customer makes a download or signs up for a newsletter.  

Affiliate Marketing Models

Various methods are used to determine how the affiliate will be paid. While the main goal of the marketing campaign tend to be sales, affiliates can also be paid based on other milestones that are not necessarily sales. The affiliate may be paid based on a wide range of actions taken by the visitor they bring to the merchant website. They include:

• Cost per click: In this model, the affiliate partner gets paid for all clicks on the merchant website generated through the affiliate’s links, regardless of whether the clicks led to a sale. This is typically employed by merchants that require a high volume of generic traffic to their website.
• Cost per lead: The merchant pays the affiliate for each lead generated. A lead can be an action by a visitor such as signing up for a newsletter or registering for a trial version.
• Cost per sale: This is the most common model which involves paying the affiliate partner for each sale generated from their efforts. The affiliate may earn a commission or a flat rate agreed upon beforehand for each sale.
• Cost per install: The merchant pays the affiliate each time a referred visitor makes an app installation. This is typically used when the merchant is promoting a mobile or computer application that needs to be installed by the user.

The Process Of Affiliate Marketing

The affiliate marketing from start to finish can be summarized in 5 broad steps:

1. Referral
2. Conversion
3. Tracking
4. Reporting
5. Payment

1. Referral

An ideal affiliate partner is one who already has a sizeable pool of followers or audience whose traffic can be directed to the merchant’s website. The partner’s website is typically where the user will first see and click on the link that will lead them to the merchant’s website. The main aim is to convert at least some of the visits to actual sales. In addition to the affiliate’s website, the affiliate may also use other platforms such as Facebook, Instagram or Whatsapp to promote the merchant’s products and services.

The success of affiliate marketing is largely linked to the amount of sway the affiliate has over their audience. An affiliate with a large and trusting following will often lead to more leads which are likely to be converted to sales. As the users view the merchant’s links or products being promoted by on a trusted person’s (affiliate) website, they see it like a personal recommendation from them and are more likely to check the products out. This is unlike traditional advertising which relies on advertizing campaigns carried out by companies with little personal connection to the consumers.

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2. Conversion

Once the affiliate drives traffic to the merchant’s website, the next main stage is conversion. In simple terms, conversion refers to any action taken by the visitors on the merchant’s website that contributes towards a ‘success event’ or sale. While the target of most merchants is usually sales, the success event can also include other actions such as service subscription, a download, a booking, an app installation, or any other action that benefits the merchant.

Some of the affiliate’s traffic may not immediately lead to sales but may benefit the merchant in the long run such as by making the user to make enquiries about other products sold by the merchant and later purchase or refer a friend or relative. For the merchant to be able to get this information and reward the affiliate accordingly, it is necessary to track all user activity.

3. Tracking

In order to get the most out of the affiliate program, it is necessary for the merchant to track consumer activity across the website. This helps know more about how users navigate your platform and provides information to improve the website and affiliate program in order to convert more clicks into sales. As much information as possible should be tracked in order to know things like which page the user visited first through the affiliate, the duration they spent on the website before purchasing, and whether or not they became returning customers. Knowing your customer helps you improve your affiliate program and tailor your marketing campaigns around the behavior of the customer to ensure more successful events in the future. 

4. Reporting

Affiliate programs often require reporting software which analyzes user and affiliate behavior and creates a report on the findings. There are two types of reporting:

1. Performance reporting – this provides a record of information sorted according to device, promotion code, or time.
2. Insight reporting – this is an analysis that utilizes the collection of all conversion points to come up with a clear picture of the role and value of each affiliate partner in the program.

Effective insights reporting helps determine what each affiliate contributes, which affiliates bring the best high value customers, which affiliate partner strategies are the most effective, and enables you to streamline compensation  to ensure that each affiliate partner earns in proportion to their level of contribution.

5. Payment

This is the last stage of the process. After carrying out the necessary tracking and analysis to find out the contribution of each affiliate, the affiliate can then get paid based on their performance. Payments are usually done on commission either as a percentage of the sale value or a flat rate per purchase. Flat rates work best where the merchant deals with a single product of fixed value (such as a bread bakery) where the expected profits are fixed. On the other hand, merchants with many different products often pay the affiliate partners a percentage of the value of the products purchased.