Sales Strategy

How Affiliate Marketing Works?

Liucija Adomaite
LAST UPDATED
August 28, 2024
READING TIME
7 min.

If you have never done it, affiliate marketing may sound tricky. You may wonder if it’s even legit.

Be assured, it really is an excellent way to gain passive income, build your audience, and promote products or services.

However, the affiliate industry is very competitive, and gaining traction here is a real challenge.

In order to become a profitable affiliate, you must start by understanding how affiliate marketing works.

In this article, you will learn the mechanism behind affiliate marketing and how it actually functions.

How does affiliate marketing work?

In case you wonder what affiliate marketing is, let me tell you that it's a straightforward process.

Typically, affiliate marketing works in this way:

1 Step: Apply to the affiliate program

First, an individual applies to the chosen affiliate program and waits to be approved by the company.

When choosing an affiliate program to participate in, it’s important to identify your niche and target audience.

Evaluate the commission rates, cookie durations, and the reputation of the company you’re about to promote.

Depending on the affiliate marketing type you want to do, make sure you try the product or service (which is especially relevant in an involved affiliate relationship) to see if you really like it.

If you’re just starting out, it may be a good idea to join well-known affiliate networks like Amazon Associates or ShareASale.

2 Step: Acquire affiliate links

Upon approval, you will receive a welcome email with login details and program guidelines.

Log in to your affiliate dashboard to familiarize yourself with the tools and resources available.

Here, you need to set up your payment method (bank transfer, PayPal, etc.) and tax information.

Once approved for the affiliate program, the affiliate receives unique links to promote the company's service.

You can also obtain your unique tracking links by generating them for the particular products you like.

Make sure you browse the merchant's product catalog within the affiliate portal and choose the ones you want to promote.

These unique links contain tracking IDs that attribute any sales or actions to you.

Optionally, generate banners, widgets, or other promotional materials provided by the merchant.

3 Step: Create and promote content

Sharing affiliate content on your channels is easier said than done.

That's why planning your affiliate marketing strategy considering your audience and channels (blog, social media, email marketing, YouTube, etc.) is key to the success.

Make sure you create high-quality, relevant content such as product reviews, tutorials, comparisons, or listicles.

Incorporate your affiliate links naturally, and be transparent about your affiliate relationship with the audience.

If you do unattached or involved affiliate marketing, you must rely on SEO techniques to make your content discoverable on search engines.

Working on driving traffic to your channels so you can promote your affiliate links is crucial when you don't have a solid follower base yet.

You may also consider paid advertising options like Google Ads or Facebook Ads to drive targeted traffic.

The most effective affiliate marketing method to boost sales is using multiple communication channels at once. Don't rely solely on your blog or website.

Use social selling on LinkedIn, build authority on social media channels, send out regular newsletters, participate in webinars, create podcasts, attend workshops, share reviews and personal experiences you have with products, film YouTube videos, Instagram reels, and more.

This multichannel tactic is used by the most successful affiliate marketers around the world.

4 Step: Customer conversion

In short, this step is when the customer sees the affiliate link, gets interested, clicks on it, and purchases a service or a product.

When customers click on your affiliate links, they are redirected to the merchant's website.

If a customer completes a purchase or desired action (e.g., signing up for a trial), the affiliate tracking system attributes the conversion to you.

Use detailed reports in the affiliate dashboard to display sales, conversions, and commissions.

5 Step: Get paid

Earn money based on the affiliate program's commission structure (percentage of sales, fixed fee per sale, or payment per action).

You can easily review your earnings in the affiliate dashboard.

Most merchants typically follow a payment schedule (monthly, bi-monthly, or quarterly) with a minimum payout threshold.

Payments are processed and received through your chosen payment method.

How do you get paid in affiliate marketing?

Affiliates earn money based on the program's commission structure, which could be:

  • Percentage of Sales: You earn a specific percentage of the sale amount made through your affiliate link.
  • Fixed Fee per Sale: You receive a fixed amount for each sale generated.
  • Payment per Action (PPA): You are paid for specific actions such as sign-ups, clicks, or leads, regardless of whether a sale is made.

Use the affiliate dashboard provided by the merchant or network to:

  • Monitor real-time data on clicks, conversions, sales, and earnings.
  • Review detailed reports on performance metrics to understand which products or campaigns are performing well.

Sometimes there's minimum payout threshold. It means that affiliates must reach a minimum payout threshold before receiving payments. This amount varies by platform but common thresholds are $50, $100, or higher.

If your earnings do not meet the minimum threshold in a given period, they will carry over to the next payment cycle until the threshold is met.

When you get paid also depends on the payment schedules of a specific affiliate program. It can be done in regular Intervals, and payments are typically made on a scheduled basis, such as:

  • Most commonly, payments are distributed once a month.
  • Bi-Monthly: Payments are made twice a month.
  • Quarterly: Payments are made four times a year.
  • Pay Cycle: Understand the pay cycle and payment dates to plan your finances accordingly. For example, earnings generated in January might be paid out at the end of February.

The last step is payment processing. You can usually select a preferred payment method from options such as:

  • Direct Bank Transfer (EFT/ACH): Earnings are directly deposited into your bank account.
  • PayPal: Payments are transferred to your PayPal account, which you can then withdraw to your bank.
  • Checks: Some merchants offer physical checks sent by mail.
  • Other Methods: Options like wire transfers or digital wallet transfers may also be available.

When setting up your payment method, it's important to ensure your payment details are correctly set up in the affiliate dashboard to avoid delays. This includes entering bank account information or linking your PayPal account.

Another important aspect you want to know of when getting paid as an affiliate is transaction fees.

Be aware of any transaction fees associated with your chosen payment method. For instance, PayPal may charge a fee for receiving money, which is deducted from your earnings. Banks might charge for international transfers or other services.

Moreover, provide necessary tax information as required by the merchant or affiliate network. This could include submitting forms like W-9 (for U.S. affiliates) or equivalent forms for other countries.

It's crucial to keep thorough records of your earnings for tax purposes. You will receive a 1099 form if you're a U.S.-based affiliate and earn above a certain threshold.

Who is involved in affiliate marketing process?

There are three main actors participating in affiliate marketing:

1. The affiliate is the individual or entity that promotes the company's product or service.

Once accepted to an affiliate program, the affiliate receives access to a unique affiliate link or a set of links connected to the company's products or services. These links track the affiliate's performance using cookies.

The affiliate earns a commission based on the agreed terms of the affiliate program, which could be a percentage of the sale amount, a fixed fee per sale, or a payment for other actions (like clicks or sign-ups).

2. The merchant is the entity selling the product or service that the affiliate promotes. The merchant provides the actual products or services that are available for purchase.

The merchant establishes an affiliate program to encourage others (affiliates) to promote their products or services. They set the terms of the program, such as commission rates, payment methods, and the duration of tracking cookies.

The merchant is responsible for tracking sales or conversions driven by affiliate links and pays the agreed-upon commissions to the affiliates for their marketing efforts.

Sometimes, there's an intermediary between an affiliate and a merchant's affiliate program called the affiliate network. It is a common channel for creating affiliate relationships.

3. The customer is the individual who purchases a product through an affiliate. Merchants partner with affiliates to connect with the affiliate's audience and convert them into customers.

Key takeaways

Affiliate marketing, while initially seeming complex, is a legitimate and effective way to earn passive income, build an audience, and promote products or services.

But to make it work, you must understand the process very well.

The key steps include applying to a suitable affiliate program, acquiring and promoting unique tracking links, and converting customer interest into sales, all tracked through detailed reports.

Earnings are based on the program's commission structure and are paid out through chosen methods according to a specific schedule, provided the minimum payout threshold is met.

Key players in this industry are the affiliate, who promotes the products, the merchant, who offers the products, and the customer, who makes purchases through affiliate links.

Liucija Adomaite
Liucija Adomaite is a viral content writer and organic traffic expert on a mission to help turn ambitious businesses into big names.
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G2 Rating
Price
Best for
Standout feature
Con
4.9
star
star
star
star
star
$30/mo
$75/mo
$2,999/mo
Large, distributed sales teams
AI evaluation precision, gamified KPIs
Lack of tracking system
4.6
star
star
star
star
star-half
Not publicly available
Sales operations and finance teams
Powerful configurability
Limited training resources and complex to navigate
4.4
star
star
star
star
star-half
Not publicly available
Mid-market and enterprise businesses
Comprehensive incentive management
Potentially high cost and steep learning curve
4.7
star
star
star
star
star-half
$15/user/mo
$40/user/mo
Enterprise: custom price
Complex sales structures and businesses of all sizes
Complex sales structures and businesses of all sizes
Steep learning curve
4.6
star
star
star
star
star-half
Not publicly available
Collaborative teams
Connected planning
Complexity and steep learning curve
4.6
star
star
star
star
star-half
Not publicly available
Companies with complex sales structures
Complex incentive compensation management (ICM) with high efficiency and accuracy
Complexity for smaller teams and potentially high costs
4.7
star
star
star
star
star-half
Not publicly available
Companies who want to automate commission calculations and payouts
Simplicity and ease of use
Lack of features like redirection
4.7
star
star
star
star
star-half
$30/user/mo
$35/user/mo
Custom: upon request
Businesses that need a comprehensive and user-friendly sales compensation management software
Ease of use and adoption
Lack of ability to configure the product based on user needs
4.8
star
star
star
star
star-half
Not publicly available
Companies with modern sales culture and businesses who want real-time insights
A built-in dispute management and real-time visibility
Users say it works slowly, customer support is slow
4.9
star
star
star
star
star
$30/user/mo
$50/user/mo
Smaller sales teams
Powerful automation
Lesser user base and average user interface
4.7
star
star
star
star
star-half
Not publicly available
Companies with scalable needs
Automated Commission Calculations
Lack of filtering by date, no mobile app
ERP vs. CRM
ERP
CRM
Summary
Backbone of a business's internal operations.
Backbone of customer-centric interactions and operations.
Goal
To centralize and streamline core business processes in a company.
To increase customer experience, satisfaction and loyalty, and boost sales.
Focus
Internal operations and processes across departments (finance, accounting, inventory, supply chain, HR, and sales).
All interactions with leads and customers.
Manages
Internal business data like financial data, inventory levels, production details, supply chain, HR info.
All customer data like contact info, purchase history, communication history, customer preferences and more.
Users
Finance, accounting, operations, supply chain, and HR departments.
Customer-facing teams like sales, marketing, and customer service.
Benefits
Streamlines operations, improves data accuracy, enhances decision-making, boosts collaboration, increases productivity.
Improves customer relationships, increases sales, strengthens customer service, personalizes marketing campaigns, provides insights.
Price
$150 per user per year on average.
$10 to $30 per user per month on average.
PRM Tool
Rating
Feature
Pro
Con
Mobile App
Integrations
Free Plan
Pricing
4.65
star
star
star
star
star-half
Org-wide alignment
User-friendly layout and database
Suboptimal as a personal CRM
square-check
Lack of tracking system
square-check
Team: $20/month
Business: $45/month
4.7
star
star
star
star
star-half
Social Media Integration
Easy contact data collection
No marketing/sales features
square-check
Lack of tracking system
square-xmark
7-day trial
$12/month
4.75
star
star
star
star
star-half
Block Functions
High customization capability
Not a dedicated CRM
square-check
Limited
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Plus: €7.50/month
Business: €14/month
N/A
Open-source
Open-source flexibility
Requires extensive manual input
square-xmark
Limited
square-check
Self-hosted
$9/month or
$90/year
3.1
star
star
star
Simple iOS app
Ideal for non-tech-savvy users
iPhone only
square-check
iOS only
Limited
square-xmark
1-month trial
$1.49/month or
$14.99/month
3.6
star
star
star
star-half
Smart Contact Management
Feature-rich and flexible
Reported bugs
square-check
Rich
square-xmark
7-day trial
Premium: $13.99/month
Teams: $17.99/month
4.4
star
star
star
star
star-half
Customizable Interface
Customizable for teamwork
Pricey for personal use
square-check
Rich
square-xmark
Standard: $24/member
Premium: $39/member
4.7
star
star
star
star
star-half
Integrated Calling
Integrated Calling
Too sales-oriented & pricey
square-check
Rich
square-xmark
14-day trial
Startup: $59/user/month
Professional: $329/user/month
4.8
star
star
star
star
star
Business Card Scanning
Business Card Scanning
Mobile only
square-check
Limited
square-check
$9.99/month
4.45
star
star
star
star
star-half
160+ app integrations
Comprehensive integrations
No free app version
square-check
Rich
square-xmark
14-day trial
$29.90/month or
$24.90/month (billed annually)
Capterra Rating
Free Trial
Free Plan
Starting Price (excluding the free plan)
Maximum Price (for the most expensive plan)
Best for
4.5
star
star
star
star
star-half
square-check
14-day
square-check
€15/month/seat billed annually
€792/month/3 seats billed annually + €45/month for each extra seat
Versatility and free plan
4.2
star
star
star
star
square-check
30-day
square-xmark
But it offers reduced price to authorised nonprofit organisations
€25/user/month
€500/user/month billed annually (includes Einstein AI)
Best overall operational CRM
4.3
star
star
star
star
star-half
square-xmark
square-check
Limited to 3 users
Comprehensive incentive management
€52/user/month billed annually
Small-medium businesses and automation
4.5
star
star
star
star
star-half
square-check
14-day
square-xmark
€14/seat/month billed annually
€99/seat/month billed annually
Sales teams and ease of use
4.1
star
star
star
star
square-xmark
square-check
Limited 10 users
$9.99/user/month billed annually
$64.99/user/month billed annually
Free plan for very small teams up to 10
CRM goal
Increase the sales conversion rate for qualified leads from marketing automation campaigns by 10% in the next 6 months.
SMART Breakdown
1. Specific: It targets a specific area (conversion rate) for a defined segment (qualified leads from marketing automation).
2. Measurable: The desired increase (10%) is a clear metric, and the timeframe (6 months) allows for progress tracking.
3. Achievable: A 10% increase is possible based on historical data and potential improvements.
4. Relevant: Boosting sales from marketing efforts aligns with overall business objectives.
5. Time-bound: The 6-month timeframe creates urgency and a clear target date.
Actions
Step 1: Refine lead qualification criteria to ensure high-quality leads are nurtured through marketing automation.
Step 2: Personalize marketing automation campaigns based on lead demographics, interests, and behavior.
Step 3: Develop targeted landing pages with clear calls to action for qualified leads.
Step 4: Implement lead scoring to prioritize high-potential leads for sales follow-up.
Step 5: Track and analyze campaign performance to identify areas for optimization.
Outcomes
Increased sales and revenue
Improved marketing automation ROI
Marketing and sales alignment
Data-driven marketing optimization
Table
CDP Software
CRM Software
Approach
Data-centric
Customer-centric
Focus
Interactions across various channels and touchpoints, both online and offline.
Sales, marketing, and customer service interactions.
Functionality
Automatically collects, organizes, tags, and makes data available in real-time.
Helps businesses track customer interactions, sales pipelines, prospects, and service requests.
Goals
Personalized customer experiences across all channels.
Better customer relationships, streamlined processes, and improved profitability.
Benefits
Data integration, management, and accessibility, allowing for detailed analysis and segmentation.
Better communication within teams and with customers by organizing information about customer interactions and history.
Data Handling
Handles both identified and anonymous data, stitches together various data points.
Deals primarily with identified customer data.
Use Cases
Personalized marketing campaigns, targeted advertising, content customization across multiple channels.
Managing campaigns and leads, enhancing customer service, providing better customer support, increasing customer satisfaction and loyalty.
Examples
Insider, Bloomreach, Salesforce Marketing Cloud CDP
HubSpot, Salesforce Sales Cloud Lightning Professional, and Zoho CRM
CRM
Free plan
Best feature
Best for
Con
1. HubSpot CRM
square-check
Sales automation
Sales teams
Up to 1,000 contacts
2. Insightly
square-check
Custom fields
Basic needs
Not enough info about the free plan
3. Agile CRM
square-check
Deal and sales pipeline tracking
Small teams
Up to 10 users
4. Zoho CRM
square-check
Lead and contact management
Businesses of all sizes
Limited to 3 users
5. ClickUp
square-check
Unlimited tasks and unlimited members
Personal use
Up to 100MB storage
6. EngageBay
square-check
Live chat
Small and midsize enterprises
Up to 1,000 branded emails per month
7. Bitrix24
square-check
Unlimited users and 5 scrum teams
Big teams
Up to 5GB of cloud storage
8. FreshSales
square-check
Easy to use and simple setup
Beginners
Up to 3 users
9. Mailchimp
square-check
Very beginner friendly
Marketing teams
Send up to 500 branded emails per month
Type of Affiliate Marketing
Unattached
Related
Involved
Format
Paid advertising
Social media or YouTube channels
Dedicated website or blog
Focus
Quick income
Your niche
Your audience
Engagement with your audience
square-xmark
square-check
square-check
square-check
square-check
Very close connection with your audience
Pro
Little effort
Higher credibility thanks to your niche
Long-lasting and scalable
Con
Paid ads cost a lot
Potential for bias since you don’t use the thing you promote
Require time, effort, and dedication

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