What Is Affiliate Marketing?

Affiliate marketing, also called revenue sharing, is a method of earning a commission through the sales of products produced by another company using special referral codes (called cookies). If a site visitor clicks these code-based ads and buys the product from the third-party company, the site owner receives a commission.

The concept of affiliate marketing rose in 1989 when William J. Tobin patented a method for tracking affiliate commissions for his company, PC Flowers & Gifts. The original affiliate marketing Mr. Tobin invented helped FTD florists offer flowers and gifts and earn a commission. Shortly thereafter, entire businesses devoted to affiliate programs, including Commission Junction and ClickBank, began offering bloggers and website owners the opportunity to add affiliate products from a wide range of companies.

An independent survey from Rakuten, an affiliate marketing network, predicts that the affiliate marketing industry will reach $6.8 billion by 2020. VigLink surveyed affiliate marketers as well. They found that 9% earn $50,000 or more, with approximately 65% earning 5% to 20% of their annual income from affiliate marketing.

How Does Affiliate Marketing Work?

Affiliate marketing requires:

1. A website or blog
2. Joining a company or affiliate network
3. Simple HTML coding skills

Affiliate marketing works as follows:

1. A website owner or blogger applies to join an affiliate program.
2. The affiliate program accepts the application and sets up an account.
3. The website owner or blogger completes W9 or W8-BEN forms for tax information and sets up a link to their bank account, PayPal account, or another payment method to receive commission payments.
4. The affiliate program assigns a unique code to the site owner or blogger. All ads running on the site for the site owner must include that code for the sale to count toward their commission. Cookies, or unique pieces of code embedded in the ad, help the affiliate network or program serve up the correct ads and track sales.
5. The affiliate program provides the site owner with a variety of ads in HTML code that can be placed on the site.
6. Once placed, if a site visitor clicks the ad and makes a purchase, a percentage of the sale is paid into the affiliate account.
7. The payout is based on either a time period ― for example, monthly or quarterly payments ―or reaching a dollar amount threshold, such as reaching a balance of $10, $25, $100 and so on.

Affiliate programs may offer varying levels of advertising customization. Google AdSense is perhaps one of the most famous advertising affiliate programs. It offers little customization other than choosing the ad size and type like text and image, text only, or image only. Other programs, such as Amazon Associates, provide a higher degree of customization. Advertisers can select not only specific products but sizes, colors, and types, and place ads on their sites featuring exactly the products they choose from Amazon’s site.

Example of How It Works: Amazon Associates

Let’s look at one of the most popular affiliate marketing programs, Amazon Associates. Run by ecommerce behemoth Amazon, the affiliates program offers almost any product on the Amazon site to advertisers to display on their own sites and earn a commission.

For our example, we’ll use the fictional example of a fashion blogger named Charlotte. Charlotte runs A Plus Fashion, a blog dedicated to plus-sized fashionable clothing. Her blog is six months old and is hosted on WordPress. She writes about chic, fashionable clothing, beauty products, and the latest trends in fashion, hair, and makeup.

1. Charlotte visits Amazon Associates and completes an application to be an affiliate or associate.
2. Once her application is approved, she logs into her Amazon Associates account.
3. She chooses a product from more than 1 million Amazon products to display in her latest blog article on coat styles for winter.
4. She selects a black wool coat with a velvet collar to display on her site.
5. She clicks on the special code and chooses the type of code she wants ― image only.
6. She copies and pastes the code into her blog post.
7. She adds a disclaimer to the post (see below) to alert her readers it is an affiliate post.
8. She clicks “publish,” and her post is live with the affiliate link embedded in the image code.
9. If her reader clicks on the picture, the reader goes to the Amazon product page featuring the coat. Completing the purchase nets Charlotte 10% of the sale. If the coat retails for $199, Charlotte earns a commission of $19 on the coat sale.
10. The amount appears in her Amazon Associate monthly report and can be paid into her PayPal account once she reaches a threshold of $10.

Affiliate Disclaimers

One thing to note is that the Federal Trade Commission (FTC) requires all affiliate marketers to disclose their affiliate relationship prominently and clearly in all online materials. The FTC offers a shortened guideline here to help you comply with the rules.

In general, to comply with the FTC affiliate marketing disclosure, you should:

1. Include a disclosure in every article where you place your affiliate advertising. A disclosure can be simple. Here is an example:
   Disclosure: This post contains affiliate links. This means that if you click a link and buy a product, I receive a commission at no additional cost to you.
2. The disclosure should be prominent in the post. Readers shouldn’t have to hunt for it.
3. Your blog or website privacy policy and terms and conditions should disclose your affiliate relationships too.
4. Use clear, simple, and direct language to disclose your relationship with an affiliate marketing company.

Pros and Cons of Affiliate Marketing

Pros:

1. Easy to set up for the site owner or blogger.
2. Earns money from your site 24/7.
3. Continues to earn money as long as the post and advertisement are live.
4. Offers an opportunity to earn money from products that you recommend, have used, and like.
5. No cost to join most affiliate networks, and no cost to sell the products. Your only investment is the time to add the code to your site.

Cons:

1. You must choose products carefully. Too many affiliate products in posts look spammy; they do not add value to the reader’s experience and may detract from the site, turning readers away.
2. Not all affiliate programs pay well. You must choose your programs carefully.
3. Affiliate companies can shut down at any time. Participating companies in affiliate networks such as Commission Junction and Rakuten can change their terms, conditions, payouts, or products at will, leaving you with less income.
4. You have no way to verify that the reports provided by the affiliate merchant are accurate.
5. You cannot track customers through the point of sale and cannot help them if they are disgruntled or do not receive their product.

Choosing an Affiliate Program ― Cautions

To begin your affiliate marketing venture, choose a well-known affiliate program such as Amazon Associates or Rakuten. Reputable affiliate programs do not charge a membership fee; you should not have to pay anything to sign up for an affiliate program, receive payments, or access reports.

Publishers with domains older than one year and a demonstrated history of frequently publishing original content are more likely to be accepted into affiliate programs. Some programs are quite choosy about who they accept as affiliates while others have a welcoming, open policy even for new bloggers.

The Bottom Line

Affiliate marketing programs offer site owners and bloggers the opportunity to easily monetize their content by offering targeted product placement within their content. Advertisers expand their reach greatly, and publishers earn money on sales.

Choosing affiliate partners carefully and selecting only a handful of products that excite your readers increases your chances of making a sale and earning commissions. Join a select few programs and focus your efforts on maximizing each before adding new affiliates to your site. Match content carefully with products and reader interests to improve the relevance of the ads and avoid the appearance of spam or random sales pages on your website.

With some effort and excellent content, publishers can earn money from their content through affiliate ads. There are few drawbacks and many positives to adding affiliate marketing to your blog or site. Companies including the Huffington Post and top bloggers worldwide utilize affiliate marketing. You can do this as well.