Affiliate Marketing 101 – Yahoo Finance
Marketing as an affiliate is an increasingly popular way for people to write on digital platforms about goods and services to earn money on sales that stem from their positive reviews. U.S. affiliate marketing spending is due to reach $8.2 billion by 2022, up from $5.4 billion recorded in 2017. Reviewers, known as affiliates, get a commission when readers click on the seller’s link in the review and make a purchase. Affiliate marketing is also an increasingly important part of business owners’ marketing. Here’s how it works and how reviewers and business owners can get started.
Affiliate marketers promote products or services produced and sold by other companies and gain commissions on sales or traffic resulting from their efforts. Low entry costs and opportunities to earn income from part-time, flexible work attract people seeking a better work-life balance. Low cost of sales and ability to accurately track sources of income appeals to companies that use affiliate marketers.
How Affiliate Marketing Works
Affiliate marketing is a way of using an online sales and marketing channel. Affiliate marketers use websites, blogs and social media platforms to recommend products. Companies that pay affiliate marketers employ browser cookies to identify customers referred by specific affiliates and software to track sources of sales.
An affiliate marketing transaction begins when an affiliate marketer recommends a product on a website, blog or social media platform. Shoppers who read the review can click on a link to be directed to a website where they can make a purchase or learn more about the product.
When the shopper follows the link to make a purchase through the seller’s website or an e-commerce marketplace such as Amazon, the purchase is credited to the affiliate marketer whose review the customer read. The affiliate places a tag in the shopper’s web browser identifying it as being referred by that marketer. The seller then pays a commission to the affiliate for referring someone who makes a purchase. However, some firms pay by click or impression.
Affiliate marketers are also known as publishers. They may be bloggers, owners of websites providing information about specific products and activities or influential personalities whose opinions can sway consumer purchasing behavior.
Companies that pay affiliate marketers include brands, advertisers and merchants. They may be in the retail, software, gaming, travel, financial services and other industries. Affiliate marketers are active in business-to-business as well as business-to-consumer arenas.
Affiliate Marketing Appeal
Over the last 20 years or so, affiliate marketing has become popular as a sideline for people seeking second income. They can do so by selling offerings from other companies without the need to invest money in creating and producing their own products and services. Further, there is no need to hold inventory, and affiliates enjoy the freedom to work when and where they choose.
Among sellers, affiliate marketing has become a significant channel. Businesses ranging in size from sole proprietorships to global corporations employ affiliate marketing as a way to sell their products. Some sellers rely primarily or exclusively on affiliate marketing while for others it is part of a mix of marketing channels. The low cost of sales and ability to accurately track sources of income account for much of the appeal that affiliate marketing holds for brands.
For both sellers and affiliates, their work is simplified by affiliate networks, which take care of tracking, reporting and paying affiliates. A network gives brands access to a group of affiliates who have applied to join their network. Likewise, these networks give affiliates access to large numbers of sellers or brands.
A number of lists exist of well-regarded affiliate networks. Networks tend to fall into three categories: high-paying/low-volume (often for niche products); low-paying/high volume (often for products with mass appeal); and high paying/high volume (products with mass appeal and high commissions, like credit cards).
Limits of Affiliate Marketing
Affiliate marketing usually requires considerable hard-won expertise to do well. Successful affiliates are effective communicators and also have mastered search engine optimization, keyword research, link building, landing site optimization and other online marketing skills.
Affiliate marketers also need to choose the right offerings to recommend. Promoting poorly designed, unreliable or otherwise bad products makes it difficult to generate sales commissions. Choosing the right products requires good research skills and understanding of customer preference trends and market trends.
Affiliate marketing is a highly competitive business. The low barriers to entry, promise of earnings with little effort and eagerness of many companies to sign up affiliate marketers means there are many rivals for sales in almost any product category. Affiliate marketers need to have a high level of competence to generate significant commission income.
Privacy regulations provide another potential stumbling block. The General Data Protection Regulation (GDPR) that took effect in the European Union in 2018 requires some affiliate marketers not located outside the EU to get consent from consumers before obtaining and using their data. Affiliate marketers have to be aware of regulations that could apply to them and use appropriate privacy policies and cookie notices.
Additionally, the Federal Trade Commission requires affiliate marketers to disclose that they receive commissions from sales resulting from their plugs of other companies’ offerings. FTC guidelines also restrict endorsers from making dishonest or misleading claims.
The Bottom Line
Affiliate marketing is a significant marketing channel for many makers and sellers of goods and services. It’s also a popular way for bloggers, website owners and social media influencers to earn income by recommending products or services from companies that pay them commissions on the sales, clicks or impressions. While being affiliate marketers affords people the opportunity to work when and where they like, it requires diligence and digital savvy to succeed.
Tips on Self-Employed Ventures
A financial advisor can help guide you through the complexities of handling taxes as a self-employed marketer. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
Being an affiliate is not the only way to make money in marketing. Another way is starting a franchise. It’s more complicated and expensive because it requires you to hire a lawyer and seek financing, among other initial steps. However, it has the potential to be more lucrative than an affiliate program.
Photo credit: ©iStock.com/Bill Oxford, ©iStock.com/Weedezign, ©iStock.com/Mazirama
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