Affiliate Marketing 101 : What is it and How does it work?

Affiliate marketing is not a new concept in the online economy and has its roots in other traditional business models. However, it is with the advent of Web 2.0 and particularly with the rise of social media that affiliate marketing has now become a viable business opportunity for any entrepreneur, even those with limited knowledge of web development and SEO.

What is affiliate marketing?

Affiliate marketing is simply selling the product or service on behalf of a business. Affiliates will promote the product or service and will be paid a commission if their referral takes action, either by opting to know about the product (lead) or actually purchasing the product (sale). Affiliate marketing is a widely popular online business model globally and has grown in leaps and bounds in South Africa since 2010.

Most affiliates need to have an online presence, such as a website or social media profile, in order to qualify to promote the products of an established business. In South Africa, most affiliate opportunities lie in the financial services sector, such as short- and long-term insurance as well as banking products. However, there are various other industries that are realising the benefits of affiliate marketing and bringing their products/services to affiliates.

How does affiliate marketing work?

Whether you are a webmaster, blogger or social media influence, there is always an affiliate marketing opportunity that can help you profit from your online presence. By becoming a publisher or affiliate, you are committing to promoting or even selling the products/services of an established business.

Most businesses do not manage their own affiliate programs. Instead they use intermediaries (affiliate marketing agencies) who liaise with affiliate marketers (webmasters, bloggers and social media influencers), monitor conversions and manage payouts.

The affiliate marketing agency provides the creatives (banner ads, text links or iframes) which can then be posted on a website, blog or social media account. Whenever a visitor or follower clicks on the link, the affiliate marketer may be paid according to one of three options:

  • CPC (Cost Per Click) – Payout to the affiliate (you) is for every click on the ad.
  • CPL (Cost Per Lead) – Payout to the affiliate (you) is for every form that is completed and submitted (lead).
  • CPS (Cost Per Sale) – Payout to the affiliate (you) is for every valid sale of a product/services.

Another option, which has become less popular in recent years, is the CPM (Cost Per Thousand) option where ‘M’ is the Roman numeral for thousand. Here the payout is based on every 1,000 views of an ad. It is best suited for the high traffic website with varied visitor demographics.

How do affiliates make money?

In order to generate an income, affiliates have to attract hundreds, thousands and even tens of thousands of website visitors and social media followers to their web property. Affiliate marketing agencies track the action of visitors/followers on an affiliate website and pay out to the affiliate according to the CPC, CPL or CPS model. However, not all affiliates are active marketers.

Those affiliates with high traffic websites, blogs and social media accounts may opt for a more passive approach to affiliate marketing with well placed banner ads and text links on their web properties. There is no active promotion of these affiliate products/services. These affiliates are mainly publishers of web content rather than marketers.

Affiliate marketers on the other hand actively promote and sell products/services for a business. They use all online channels at their disposal to reach out to their target market, such as search and social media ads, SEO and email/SMS marketing. The key in active affiliate marketing is to manage the cost, such as ad spend, to ensure that the operation is profitable.

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