Affiliate marketing: what is it, and how does it work?

A colleague was recently sharing a cab with a senior sales director working for a traditional broadcaster and was amazed he had no idea of what affiliate marketing was.

It’s perhaps not as uncommon as my colleague might have thought, and many of our readers might be in a similar position. So, to spread a little light, here’s a simple explanation (those of you in the Affiliate Marketing world, turn away now!):

Put simply, affiliate marketing exists to drive and accurately monitor sales. It allows someone to make money by sending consumers using one website to a second site. On this second site, they’re usually offered a product purchase or service sign-up and asked to enter some personal data (which is valuable stuff).

In order for this process to happen, there are four key parties. The first is advertising site (the one with a product or service to sell) and the second is the consumer to whom the product or service is marketed. The next two parties are where it gets interesting. They are:

- The publisher: the person or firm on whose site the ads and links sit

- The affiliate network: the tech and service provider that facilitates the process

How does Affiliate Marketing differ to more traditional advertising methods?

The biggest difference – and a key benefit – is tracking conversion accuracy (or sales). Earlier advertising methods rewarded publishers every time a consumer clicked on an advertisement – Cost Per Click (CPC) – or when an advertisement was paid-for on the basis of being shown to one thousand viewers (CPM). The main problem with these models for advertisers is that, irrespective of whether or not they lead to a sale, the publisher still receives the same reward.

Affiliate marketing uses significantly more accurate tracking than earlier methods. Popular examples include Cost Per Lead (CPL) and Cost Per Acquisition or Action (CPA). This ensures publishers only make money from successful conversions, and while this may sound exclusively beneficial to the advertiser (and it’s true the publisher may initially have to work harder to make money) the accuracy of the tracking data means publishers can, through a system of trial and error, move the ads around until they hit the ‘sweet spot’ where conversions accelerate and maximise profitability for all parties.

How does it actually work?

The affiliate network enables the process with a technology ‘hub’. This facilitates the nuts and bolts of the process, providing the publisher with reporting tools, tracking technology, payment processing and more, as well as offering ready-made access to many advertisers and offers for their goods or services. The publisher can then select the most relevant ads, artwork, and links to use across their website to ensure as many visitors as possible click through and convert. Once the consumer clicks a link on the publisher’s site, they are taken to the relevant advertiser’s page where they can complete the transaction. This journey is tracked and if the desired outcome is achieved (eg: a purchase), the publisher and the network make a commission.

There you have it, simple. Of course, there are also often more intricate processes that are used – but let’s save those for another time.