Before we get into the nitty-gritty of how affiliate marketing works, let’s first look at the history of collaborative marketing. Businesses have been promoting and selling their own products since the first butcher or artisan pitched their wares on the city streets of the ancient world. Want the best wine? The Tiberius’ Winery is usually set up on the corner of Athena Street. Looking for a top-quality pot? Visit the ceramic masters at Creations by Claudus.
Then a new type of business model emerged when Tiberius realized that most of his customers preferred to store his wine in the pots from Creations by Claudus. So he began to recommend those pots to all his clients. When Claudus saw the influx of sales and heard references to Tiberius’ Winery, he asked Tiberius what was happening. Tiberius explained that he was referring people to Claudus, who then happily offered to pay a referral fee for any future customers.
Symbiotic partnerships like these have been around for centuries. They’re the business versions of the relationships that exist between species such as remoras and sharks or clownfish and anemones. When multiple parties combine forces for mutual benefit, the individual always comes out ahead of where they would’ve been if they’d gone solo.
In a way, these partnerships prove the dystopian math of George Orwell’s 1984 to be not so flawed after all. Through collaboration, 2 plus 2 actually can result in 5.
But referral marketing has its limits. If a doctor refers a patient to a specialist, they often get a kickback. The same goes for a builder who refers a customer to an electrician. These types of referrals are easy to track, so the individual responsible for the sale is likely to be paid.
History of Affiliate Marketing
Things got a bit murkier with the advent of online shopping. You could spend all day posting in chat rooms about how great the jewelry was from CustomJewelryByDanielle.com, but you’d probably never get a referral kickback. How could the owner of that website ever quantify your efforts? There was no way to know which sales resulted from your recommendations and which spawned from any of the thousands of other reasons that a customer might visit the website and make a purchase.
A solution was presented in the mid-‘90s by an inventor/entrepreneur named William J. Tobin. He had started a business called PC Flowers, Inc. back in 1988, which became one of the world’s first profitable ecommerce ventures.
Building on the success of that first business, Tobin launched PC Flowers and Gifts in 1994. Ever the tinkerer, Tobin invented the technology that made it possible to track sales. When another website sent a customer to PC Flowers and Gifts and that person made a purchase, the source was noted and the bonus was paid. Simple as that.
This model was taken to new heights by Amazon just a couple of years later. Amazon Associates started as a program when the website was only selling books. By simplifying the enrollment and payment process, the program attracted a herd of willing participants. There was finally a platform offering affiliate marketing for beginners.
While PC Flowers and Gifts had thousands of affiliates directing traffic to their website, Amazon soon had hundreds of thousands within the network. This approach is credited with powering the herculean growth of Amazon over the years. Remember, online advertising was in its infancy in the ‘90s. It took affiliate marketing to capture consumers’ attention and ultimately convert them into paying customers.
These days, any program where a business compensates someone for directing new customers their way is considered affiliate marketing. The details of affiliate program agreements differ, but usually the commission is only paid out if the inbound visit results in a sale. In other cases, you might be compensated when users sign up for a free trial, download an app, install software, or schedule a sales consultation.
The crucial element is having a link that’s unique to you. When it gets clicked, cookies or other tracking mechanisms will follow the users’ actions to see if a purchase is made.
The amount you’re paid also varies widely. Some programs pay a flat-rate bonus, while others reward you with a percentage of the users’ purchases. Lower-paying programs might only dole out 2-3 percent of sales, while elite programs could reward you with as much as 50% of the purchase amount.
Given the range of opportunities, it’s unsurprisingly that affiliate marketing is gaining in popularity. Research suggests that affiliate marketing spend in the United States alone will reach $8.2 billion USD this year, more than $5 billion higher than it was just 5 years ago.
How Does Affiliate Marketing Work from a Cash Flow Perspective?
The power of affiliate marketing is that it can provide a recurring source of cash. Some people even consider it a form of passive income. What does that mean? When set up properly, the money will keep rolling in as you work on other business ventures, watch your favorite TV show, get a pedicure, snorkel in Fiji, pick up dinner for a sick friend, or snuggle with your puppy.
Of course, you’ll need to do the work upfront to ensure your program is efficient and your inflow is in order. It’s a “work now, enjoy later” model. And a degree of maintenance is required to keep everything in order and the money rolling in.
Consider this case study of Pat Flynn. As the founder of the Smart Passive Income blog, he knows a thing or 2 about how to make this process work.
While the term passive income may sound like it’s about getting something for nothing, Flynn’s not a fan of “get rich quick” schemes or unrealistic promises. He’s quick to acknowledge that making money online is hard, and that passive income requires a lot of upfront work. His first online business took about a year before it generated enough income to support his family. While there are many different definitions of passive income, Flynn’s definition is: “Building online businesses that take advantage of systems of automation that allow transactions, cash flow, and growth to happen without requiring a real-time presence.”
Note that affiliate marketing and other methods of passive income aren’t “get rich quick” schemes. Rather, they provide an incremental system that brings sustainable growth and success.
You might be wondering how quickly a user who clicks your link would need to make a purchase in order for you to be paid. That depends on the agreement in the program you’re participating in. Some programs have a 30-day duration, meaning you’ll be compensated if a user makes a purchase within 30 days of clicking your link. Other programs have much shorter windows of time.
Let’s review 3 main strategies you can take when considering affiliate marketing for beginners:
1. Involved Affiliate Marketing
This is the purest form of affiliate marketing. As an active user yourself, you endorse a product or service. The idea is that because the product or service is so high caliber, you might make a similar recommendation even if you weren’t being compensated.
This form of affiliate marketing establishes trust with your audience. By putting your reputation on the line, you’ll generate more clicks. And when the product or service lives up to the billing, you’ll also lay the foundation for a sustainable source of income.
An example of involved affiliate marketing would be a beauty blogger who posts a video demonstrating how to use a certain face wash. Throughout the 5-minute video, the blogger discusses the benefits of the product and shows how it helped her skin look healthier after only a week of use. At the end, she shares a link that gives all her followers an exclusive deal on the face wash. As long as they make the purchase through her link, they will receive 30% off the regular retail price.
Not all of the blogger’s followers will use the link to purchase the face wash. But the fact that she shared a substantial promotion ensured that her promotion was largely viewed as a win-win. She earned money through affiliate marketing bonuses, and her followers had the opportunity to save on a purchase if they so wished.
2. Related Affiliate Marketing
Perhaps you want to broaden your affiliate marketing reach so that you’re not limited to products and services you’ve personally experienced. This form of affiliate marketing enables you to do so by sharing things that are relevant to your industry. If you’re an ecommerce pro, you could promote new bookkeeping software. Or a gym owner could share the link for a performance drink.
It’s a tricky balance because your followers could be making a purchase from a link you share. If they trust you, they’ll be more likely to click and convert. But if the product or service is a dud, you’ll lose credibility.
So it’s important to do your due diligence with related affiliate marketing. Only share products and services that meet your standards to avoid being seen as a selfish shill.
An example of related affiliate marketing in action would be if an online jewelry shop posted an article online about 5 of the best jewelry cleaning solutions on the market. Even if the owner of the shop hadn’t personally used each of the cleaners, she could still tout the benefits and use her niche experience to explain why it could be a good choice.
Each of the 5 products in the article would include a trackable link to where customers could buy the cleaners on Amazon. Each purchase would result in a payment for the jewelry store owner.
3. Unattached Affiliate Marketing
Say hello to the easiest and lowest-stakes form of affiliate marketing. Instead of building a sustainable following as with involved affiliate marketing, you’re just looking for opportunities to promote products and services to anyone who might click the link.
Since you don’t need to build credibility with your following or research products, this form of marketing is less time consuming. You just need to find things to promote.
An example of unattached affiliate marketing would be an entrepreneur who uses pay-per-click ads to promote hard seltzer, high-gloss polish for cars, accounting software for small businesses, and aviator sunglasses for people with larger-than-normal heads.
Notice that there’s no connection between the various products, aside from the fact that the marketer will make money if people click on the links they’re promoting. So this approach is just an effort to get links in front of as many eyeballs as possible.
Beginner Questions for Affiliate Marketing
Which type of these affiliate marketing strategies is best suited for your business? That depends on several factors. Start by asking yourself these 7 questions:
- Am I an established player in my niche?
- Do I already have a following?
- Do my followers look to me for brand suggestions?
- Do I feel comfortable promoting products and services?
- Am I willing to risk my reputation by promoting products and services?
- Am I willing to devote time to research products and services?
- Do I want my affiliate marketing efforts to be tied to my own business?
If you’re considered an expert and have a following, you’re primed for involved or related affiliate marketing. You’ll just need to decide if it’s better to stick with things you have personally experienced, or if you’re willing to risk your reputation a bit by promoting products and services you haven’t tried.
If you don’t have a following and don’t want to spend time testing products or services before promoting them, you might want to use the hands-off approach of unattached affiliate marketing. There’s no risk to your personal brand and you’ll basically just be running ad campaigns or creating content with the hope of driving traffic that’ll convert.
Getting Started with Affiliate Marketing
Once you’ve decided how you’re going to approach your affiliate marketing, you need to identify where to do it. Your choices should primarily be based on where your intended audience spends their time online, as well as which platforms are affordable and easy to use.
Here are 5 methods to consider promoting your affiliate links:
- Written Content: Affiliate marketing often works best when the user receives something of value. So if you create a comprehensive guide on a topic you know a lot about, the information you offered up for free could provide the momentum that drives users to make a purchase. For example, you might write an article evaluating the best headphones for children. This is a topic that a lot of parents search online, so if they find your article and feel like your recommendations are solid, they could decide to click your link and make a purchase right away.
- Video Content: You can also incorporate your affiliate links into engaging videos. As this medium continues to grow in popularity, it has become one of the most effective ways to share relevant links with an interested audience.
- Search Engines: Another key way to get your links in front of an interested audience is to use ads on search platforms. Users are searching for specific information, so when your links appear, they will feel more relevant and possibly drive traffic.
- Social Media: Likewise, you can promote links by targeting keywords on Facebook and other platforms. Your goal is to get the biggest bang for your buck by only putting your links in front of the right people at the right time.
- Educational Resources: Online courses and skill-based workshops provide another natural environment from which to share your links. If it ties in with your content and would be of interest to your audience, feel free to consider adding it.
Using Affiliate Marketing for Your Own Business
The affiliate marketing ecosystem allows you to participate on both sides of the equation. In other words, this isn’t a mutually exclusive scenario. You can promote other businesses’ products and services, while also enlisting the help of affiliate marketers to build your own brand.
If your business is already established within your niche and has a steady stream of customers, you might not feel that affiliate marketing is a necessary strategy right now. But here are some scenarios where you might consider it:
- You are trying to gain a foothold with a new audience and want to leverage the expertise of an established player in that niche
- Your overall traffic is falling and you need to find new sources for customers
- You’ve launched a product and want to get it in front of as many people as possible
- Your marketing resources are limited and you’re looking for a way to enlist inexpensive help
Whether you’re working as an affiliate marketer to make money on the side or are using it as a strategy to build your business, it provides a flexible way to set up recurring results. There are numerous ways to approach this type of marketing, making research an essential step before you launch anything. You can move forward with confidence once you have a good idea of what best aligns with your goals.
Want even more suggestions for building your business? Our library of business courses features in-depth training that can help you avoid pitfalls and reach your goals faster. Don’t miss this opportunity to learn from some of the brightest minds in modern business.