What Is Affiliate Marketing?
Affiliate Marketing is commonly associated with Amazon nowadays, and a great many people believe that Amazon was the company that came up with the idea in the first place. It’s a story that the company hasn’t denied, but the truth is that affiliate marketing was created before the internet existed.
Back when people didn’t have the option of online shopping, businesses would pay customers to refer their friends and family to bump up sales. Although profitable, the practice wasn’t widespread because it was difficult keeping track of the referrer, and thus difficult to determine payouts.
When Tim Berners-Lee introduced the internet to the world in 1991, it wasn’t long before entrepreneurs were looking for ways to cash in on the new invention. William J. Tobin was the first to identify the need for a middleman between stores and customers, and he consequently created the first store, PC Flowers and Gifts, to utilize what we refer to as affiliate marketing today.
Affiliate Marketing: Definition
To put it succinctly, an affiliate marketer is a salesperson working for multiple businesses who only get paid commissions on the leads they create or the products that they sell. Using Amazon as an example, an affiliate marketer would set up a review page for a certain product and they include links to the Amazon store page. If any readers click the link and purchases a product on Amazon, the affiliate marketer would make a preordained percentage of that sale.
There are a number of different ways that businesses can set up their affiliate programs:
- Cost Per Sale (CPS)
By far the most common method of affiliate marketing, Amazon is the most prominent example of a CPS system. In a CPS system, the affiliate program pays out a flat fee or percentage based on the marketer’s sales. (eg. 25% of the total revenue they generate for a business)
- Pay Per Call (PPC)
There are still a large number of companies that use the PPC system. By having a PPC affiliate system in place, affiliate marketers have the job of convincing visitors to call into businesses. For each call an affiliate marketer creates, they’re compensated accordingly by the company. In this instance, it doesn’t matter whether or not the call turns into a sale or not, the marketer is paid either way.
- Cost Per Lead (CPL)
Similar to the PPC system, CPL pays affiliate marketers based on how many people they refer to their business. Although not as popular as CPS amongst businesses, the CPL model is widely used in higher-paying niches such as finance. As with the PPC, the marketer is paid even if the business fails to close the lead.
- Cost Per Install (CPI)
The new guy to the field; CPI is fairly self-explanatory. Mainly used by businesses that own paid apps or software, affiliate marketers are paid based on how many people they refer to install.
How do businesses know who referred the customer?
HTTP cookies, or browser cookies, were created in 1994. Cookies are stored in a user’s browser when they visit a site, and they can be used to track the user’s actions. The first cookies were used to track whether or not customers were new to a site or if they had visited the site before.
Nowadays, affiliate programs issue specialized links to their marketers. Upon clicking the link, a personalized cookie is installed in the user’s browser, and if it is present upon making a purchase, a commission is issued to the marketer responsible for the referral.
This may get a little bit confusing, but there are companies out there that make commissions off of affiliate marketers that are making commissions from selling products.
How is that even possible?
Creating an affiliate program is not an easy task. There are a large number of business owners that want to get a piece of the affiliate marketing pie without having to deal with setting up separate accounts, recording sales data, and paying out their affiliates. Instead, they enroll in affiliate networks that perform all the dirty work. Instead of charging a flat fee, affiliate networks exchange their work for a commission off of each sale that the marketers make.
Some businesses double-dip by directly offering affiliate programs to marketers as well as offering them through affiliate networks.
Logically, participating in a direct partnership with a business rather than working through a network is the best decision an affiliate marketer can make.