Simply stated, it is revenue-sharing between a site owner and an online merchant. The site owner promotes the merchant’s products or services by placing ads or links on his/her site and the profits are shared.
You can set up your own affiliate marketing program for others to promote your products (you are the merchant), or you can become an affiliate who promotes the products of others. Either way it is a revenue-building strategy that is built on profit sharing.
The profit-sharing plan can vary; but should always be made clear from the beginning. There are typically three methods.
- Pay-per-click – This one is exactly as it sounds. Every time a potential customer clicks on a link placed on the affiliate’s site a payout is made. The agreed-upon commission determines the amount that site owners can earn. The earnings may be paid right away or through a regular schedule.
- Pay-per-sale – For this method, every time a customer makes a purchase on the merchant’s site through an affiliate link, profits are shared. Another option is that the affiliate may earn a commission based on a flat rate or a certain percentage of the product’s price
- Pay-per-lead – With this method, the merchants pays the affiliate based on conversion of leads. For example: there is a pay out when a a sign-up form for a newsletter is submitted, when a file or software is downloaded, or there is a sign-up for a trial offer, or some other desired action.
Affiliate marketing benefits both the merchant and the affiliate. Merchants do not really have to do anything in this arrangement – including no payment is required unless something happens. On the other hand, affiliate site owners could use the revenue they generate to maintain their site. Or, if they are really good at affiliate marketing, they may end up working it full time.
As with everything – there are challenges. Trust and ethical behavior are critical for both partners; and, finding the right partners is not always easy.
- Merchants must be selective about the sites on which they choose to market their products.
- Merchants must also pay fair commissions. When they are too small, the affiliates will not be happy and bad relationships will result.
- Affiliates need to be trustworthy. They should be fair and ethical in their dealings and avoid placing their merchant partners in situations that create bad publicity. Word travels fast on the Internet – circles of business of relatively small and unscrupulous actions will hurt the affiliate as badly as it has the potential to hurt the merchant.