What Is Affiliate Marketing – An Overview

affiliate marketing transactionThe official Wikipedia definition of affiliate marketing is…

“Affiliate marketing is a method of promoting web businesses in which an affiliate is rewarded for every visitor, subscriber, customer, and/or sale provided through his/her efforts. It is a modern variation of the practice of paying a finder’s fee for the introduction of new clients to a business. Compensation may be made based on a certain value for each visit (Pay per click), registrant (Pay per lead), or a commission for each customer or sale (Pay per sale), or any combination.”

This is an accurate but very broad definition of affiliate marketing. Today affiliate marketing is growing by leaps and bounds and successful affiliates run the gamut from one-person part-time businesses to very large corporations with hundreds of employees.

Why?

From a merchant/advertiser’s point of view, affiliate marketing is like having a virtual sales team that works on 100% commission. No benefits to pay, no infrastructure to provide. It’s really mostly all positives from an online business’ point of view. Why pay just for clicks, or invest in SEO, when you can have thousands of affiliates talking about you and sending you targeted traffic 24/7?

And your virtual sales team can have an impact on, not only sales, but on a company’s credibility and trust. The fact that an affiliate is often seen as an independent third party means their recommendations hold a lot of weight, especially if they are good marketers.

And some affiliates do no more than ad simple banner links to their sites. But the successful ones do detailed product reviews and sophisticated branding for merchants. One way works far better than the other.

Affiliate Marketing is still a relatively new area in E-commerce.Variations of using one web site to drive traffic to other web sites have been around since the mid ’90s but it’s only in the last few years that the concept has reached critical mass and experienced wide acceptance online as a way to promote your product or service. Actually it is continually growing and will for a long time as new merchants realize the benefits.

The payment models vary from simple commissions on sales, to flat-fee payments for membership sign-ups to payment for sending clicks of traffic to a merchant. By far the most common is CPA or pay for a sale or action.

Affiliate Marketing Growth

The reasons for its growth are varied. The simple concept of providing traffic to another web site via links makes good business sense. A merchant only pays when an affiliate click results in a sale or action. This makes the arrangement very attractive to merchants who can easily track sales and therefore costs.

The arrangement is much like a sales person who gets paid only from commissions earned on actual sales. From the merchants’ point of view, with no health benefits or expenses to provide, affiliate marketing has a very low customer acquisition cost.

Here’s Some Data…

USA — Old, but entertaining data: in 2005 affiliate marketing-driven sales were expected to account for some “20 percent, or $53 billion, of e-commerce sales”
Worldwide — In 2006 affiliate commission payouts were estimated at $6.5 billion worldwide.
/MarketingSherpa • Feb 22, 2007/
USA — Affiliate marketing spending stats & forecast: 2009 – $1.94bn, 2010 – $2.15bn, 2011 – $2.53bn, 2012 – $2.99bn, 2013 – $3.47bn, 2014 – $4.01bn
/Forrester Research • Sep 25, 2009/
USA — Affiliate marketing is a “multi-billion marketing channel, which comprises more than 200,000 businesses and individuals”
UK2004-2010 growth: 2004 – £0.6bn, 2005 – £1.35bn, 2006 – £2.216bn, 2007 – £3.13bn, 2008 – £3.82bn, 2009 – £4.13bn, 2010 – £4.62bn
/Econsultancy • Aug, 2010/
UK — “Affiliates are driving increasing volumes of sales for merchants in a sector expected to drive more than £5bn in e-commerce revenue during 2011
/Econsultancy • Oct 19, 2011/
USAValueClick (owner of Commission Junction, and a number of affiliate sites) reported the following affiliate marketing revenue: 2010 – $124,126k (net profit – $69,552k), 2011 – $139,409k (net profit – $84,573k)
/ValueClick • Feb 7, 2012/

affiliate marketing spending chart

Although affiliate marketing offers great opportunity it is getting more sophisticated and complex all the time. Payment models are changing, marketing techniques are more varied and what it takes to drive traffic to a web site is always evolving. Staying abreast of the latest developments and learning advanced concepts is becoming a full-time job.

Web 2.0 and Social Media has added new wrinkles to promotional strategies. Social networking sites like Twitter and Facebook and YouTube.com have changed the marketplace and brought new ways to reach prospective customers.

If it feels like the train is moving down the track before you’ve even had a chance to get on, your not alone. But you better get to work.

We would recommend a thorough review of the language and terminology of affiliate marketing here on our Glossary Page. Move through the basics to advanced concepts as you feel ready. Good luck on your journey.

If you need some help along the way, feel free to contact us here.