What is affiliate marketing and how does it work?

Published Sep 26 2023 Last updated May 22 2024 12 minute read
Contributors
  • Sean Dougherty
    Written by Sean Dougherty

    A copywriter at Funnel, Sean has more than 15 years of experience working in branding and advertising (both agency and client side). He's also a professional voice actor.

Given the plethora of choices for digital marketing these days, it can be hard for marketers to keep track and take advantage of everything. One of those choices you may be overlooking in the e-commerce space is affiliate marketing.

So, let’s break down exactly what affiliate marketing is and how this technique can help you drive online sales. 

At its core, affiliate marketing involves promoting products or services on behalf of a company in exchange for a commission on any resulting sales.

There are many types of affiliate programs that your brand could participate in, from product review sites to email newsletters and influencers on social media.

This guide provides an in-depth overview of affiliate marketing, affiliate income, how it works, and how brands can get started with affiliate programs today to boost revenue. We'll cover everything from the benefits of affiliate marketing to tips for optimizing your affiliate strategy.

What is affiliate marketing?

Affiliate marketing is an e-commerce sales strategy where a third party promotes your products in exchange for commission. 

You see this sales strategy employed a lot on Amazon, social media, and blogs (though not this one). For instance, a travel blogger may be covering their top trips for winter travel in Australia. As a part of the article, they may mention that they redeemed miles from a specific credit card and provide a link to said credit card company. 

This affiliate link will take readers to a unique landing page where they are encouraged to create a new account. Should the person fully enroll in the credit card offer, the article's writer receives a form of compensation — normally a pre-set percentage of the profit. 

You also see this a lot on social media and other influencer spaces. When you hear someone say, "click the link in the bio," you can assume it's an affiliate marketing link.

Why would a brand use affiliate marketing? 

Adding affiliate marketing to your sales strategy can offer your brand access to new types of customers. These affiliates can also hold more sway with your prospective audience and drive sales more quickly than traditional advertising. 

For instance, a new electronics company may try to distribute its advertising all over social media. This advertising will eventually have an effect, but the brand will need to overcome low awareness and low trust on the part of consumers. However, suppose the brand employs a social media influencer to feature their product in one of their posts. In that case, the trust and respect that person holds with their audience can be imparted to your product — thereby driving sales faster. 

Affiliate marketing strategies can be particularly effective for brands with lower awareness or may not be able to penetrate a particular market. 

Affiliate marketing and Black Friday

Employing an affiliate marketing strategy can be especially useful during peak sales seasons like Black Friday. At this time of year, every brand is trying to break through with deep discounts and sizable media investments. A trusted third party can help your brand reach customers by extolling the value your good or service delivers. 

You'll need to push the boundaries, though. Many brands in your category may likely be using affiliate marketing, too. Just look at all of the holiday shopping guides that emerge every year. These guides often contain links that direct readers to buy those products online using UTM tags – a sign of affiliate marketing. 

However, depending on your category or audience, there may be less traditional ways to utilize affiliate marketing to realize a boost in sales. Influencers can be a great way to break through.

As an added bonus, as your marketing tactics help you reach customers more effectively than competitors, you can rely a little bit less on deep Black Friday discounts to get people in the door. That means higher profit margins at a time when every dollar counts. 

Types of affiliate marketing 

There are several main types of affiliate marketing programs that affiliate marketers can partner with. Let's take a look at seven common ones.

1. Review sites

Brands can provide affiliate links to product review sites. Review sites may feature branded products more prominently in exchange for commissions on resulting sales. High-quality reviews also lend credibility and build trust with potential customers. Some popular product review affiliate sites include Wirecutter and Consumer Reports. High-quality reviews build reader trust and credibility for referral income.

2. Price comparison sites

Price comparison websites allow users to search for a particular product, like a TV or appliance, and see current pricing across multiple online and offline retailers. These sites make money through affiliate marketing programs when users click through their links and complete purchases. They help consumers find the best deals and lowest prices. Examples include Google Shopping, PriceGrabber, and Nextag. Brands benefit by participating in affiliate programs with these sites, which may drive more product visibility and sales through linked price listings.

3. Coupon sites

Coupon and discount code websites provide promotional codes and links for percentage discounts or dollars off at major online retailers. The coupon sites get paid an affiliate commission each time an online shopper purchases using one of their codes. For consumers, these sites make it easy to save money. Examples include RetailMeNot, CouponCabin, and Honey.

Coupon and discount code websites can be effective partners for brands looking to acquire new customers with special promotional offers. Affiliate commissions incentivize coupon sites to actively promote branded codes and deals.

4. Email marketing

Email marketing programs leverage subscriber lists to promote affiliate offers. Emails containing affiliate links are sent out to lists of engaged subscribers. This allows publishers to monetize their email lists by generating affiliate sales while providing their subscribers with relevant deals and offers. It can be an extremely effective affiliate marketing business model.

Brands provide unique links and creatives for email publishers to include in broadcasts. This expands promotional reach through trusted recommendations.

5. Loyalty programs

Major loyalty essentially function as large affiliate marketing schemes. Banks issue branded credit cards and earn interchange fees from each transaction. To incentivize card use, they offer rewards points, miles, or cash back.

However, the monetary value of these points is often less than what they cost the bank to redeem. The bank profits over time as customers accumulate points but don't fully redeem them.

Brands pay commissions to the banks when customers use points for purchases. This encourages banks to actively promote their cards and loyalty programs. Customers see value in earning points, but banks ultimately profit the most from these affiliate partnerships.

6. Influencers

Social media influencers have become massively popular affiliate marketing partners. Influencers on platforms like Instagram, YouTube, TikTok, and Snapchat often promote products they use and love to their engaged follower base. The influencers provide affiliate links or discount codes for their audiences to purchase the featured items, earning commissions on any sales. This allows influencers to make money from their content while promoting relevant products to their followers. 

7. Content affiliate programs

Bloggers and content creators can participate in affiliate marketing programs related to their niche or audience. For example, a website focused on running could promote relevant products like shoes, fitness trackers, workout clothes, and nutrition products throughout their content. When readers make purchases using the affiliate links, the website earns commissions.

How to get started setting up affiliate marketing channels

Are you an aspiring affiliate marketer? In order to start with affiliate marketing yourself, you'll need to follow a couple of steps:

  1. Research your audience
  2. Find suitable third parties who can feature your brand
  3. Set a compensation package
  4. Build the digital infrastructure
  5. Carefully monitor and track all activity

 

1. Research your audience

As with any marketing activity, you'll need to start by researching the audience you're trying to reach. You'll want to determine where they digitally congregate. In other words, what platforms do they use? 

Identify any existing patterns in their shopping behavior. Ask yourself if there is a natural point at which you should introduce your product to these individuals. 

Smart affiliate marketers determine if any psychological triggers push a prospect closer to conversion. For instance, does your audience respond positively to flash sales? Do they prefer to do their own research and spend time-consuming a lot of product reviews? 

 

2. Find suitable third parties who can feature your brand

Once you've determined where to find your audience, you'll need to identify a reputable third party who can promote your brand in their channel. You'll want to find websites or personalities that draw a large amount of impressions and are trusted by your audience. 

Ideally, this person or people will also have experience participating in an affiliate marketing program. You want the pitch to feel natural for the audience. 

Conversely, if you engage an affiliate who has never promoted a brand on their channel before, it can come off as disingenuous. 

 

3. Set a compensation package

Some affiliates are paid upfront, while others are paid a commission for each successful referral. In either case, you'll need to closely examine your business plan and pricing structure to determine how much to offer affiliates. 

Some influencers will already have a set rate structure that depends on the promotion they will do on your behalf. And, of course, rates can vary widely depending on the popularity of the platform and its propensity to drive sales. 

 

4. Build the digital infrastructure

The entire affiliate marketing process relies on trackable unique links that you provide your affiliate. These custom links will indicate which conversions were driven by each affiliate you've engaged.

Once clicking the link, a user will land on a landing page for your product or service with an embedded UTM link (more on UTMs here). This page will also drop a cookie on the user's browser. This cookie will help ensure that each affiliate conversion is properly accounted for if, for instance, a shopper is interrupted while making a purchase only to come back later and finish buying.

Having this tracking infrastructure is essential for brands looking to start affiliate marketing initiatives. It allows you to fully measure and optimize your partnerships.

 

5. Carefully monitor and track all activity

It wouldn't be one of our blog articles if we didn't take a moment to discuss the importance of data. In order to ensure that all conversions are properly attributed to an affiliate, you'll need to accurately measure every sale, abandoned cart, etc. 

Later, by analyzing your performance data, you can also gain perspective on which affiliate channels perform best. By comparing affiliate performance against other marketing activities, you can determine how best to allocate your marketing spend going forward. 

What are affiliate marketers?

The term 'affiliate marketer' carries a dual meaning. Within a company, an affiliate marketer is a key individual responsible for overseeing the affiliate marketing program. This role involves selecting and partnering with external affiliates, distributing marketing assets such as advertisements and tracking links, and serving as the primary liaison for all participating affiliates. These affiliate marketers play a crucial role in strategizing and maintaining the effectiveness of the company's affiliate marketing efforts. In some cases, the affiliate marketers may actually work at a marketing agency and help the company from that role. 

Conversely, the term can also refer to the external partners themselves, those who promote the company's products or services. However, for clarity in this blog post, we will refer to these external promoters as 'affiliates' or 'partners.' This distinction helps differentiate between the marketers managing the affiliate programs and the external affiliates who execute the marketing activities. 

The role of affiliate networks

Affiliate networks provide a platform for brands to recruit, manage, and pay affiliate marketing partners at scale. They offer tracking software, attribution models, payment processing, and reporting to streamline and optimize partnerships. This allows brands to efficiently scale their affiliate marketing programs. Examples include Rakuten, CJ Affiliate, ShareASale, and Impact.

The benefits and promotional opportunities of affiliate networks, but before jumping in, it's important to thoroughly research potential affiliate networks and partners to ensure they are reputable, drive results, and align with your brand and content strategy.

Amazon affiliate program

Almost everyone who does affiliate marketing work will know Amazons affiliate program. The Amazon Associates affiliate program is an affiliate program that lets publishers earn commissions by linking to Amazon products.

As a seller on Amazon, you can encourage customers, influencers, and fans to join the program and promote your Amazon affiliate products with customized links, earning payouts on resulting sales at no extra cost to you. This leverages Amazon's built-in affiliate infrastructure to expand your reach and boost Amazon sales through trusted referrals. Just make sure to weigh the pros and cons, as it also drives more sales away from your own e-commerce store.

Tips for successful affiliate marketing 

Here are some top tips and affiliate marketing tools to help ensure your affiliate marketing efforts are successful:

  • Vet potential affiliates thoroughly: Carefully assess potential affiliate partners to ensure they match your target audience and brand values. Look for websites, influencers, and content creators that align with your niche. Relevant affiliates will drive better conversions compared to random placements.
  • Focus on quality over quantity: Having just a few highly engaged affiliate partners with an audience that closely matches yours often trumps having a large number of disengaged, irrelevant partners.
  • Provide value to your affiliate's readers and followers: Give your affiliate's readers and followers additional incentive to use your links, like exclusive coupon codes, time-sensitive deals, or bundles.
  • Use influencers strategically: Influencer marketing can be extremely effective for boosting product discovery and driving sales. Influencers with a niche audience specifically, can be great partners for your affiliate campaigns.
  • Leverage search engine optimization (SEO): Brands can use affiliate links and product names in their website content to help pages rank for relevant affiliate-focused keywords. Optimizing for keyword opportunities related to your niche can increase visibility and drive more conversions through your affiliate program.
  • Provide prominent placement: When working with influencers, content creators, or publishers, negotiate to have your affiliate links, banners, and other creatives prominently displayed in their content. Prime positioning will help drive more visibility and clicks.
  • Provide marketing assets: Supply your affiliates with branded banners, emails, social posts, and other marketing creatives they can use to promote your products. Test different positioning and messaging with your affiliates to see what resonates most with their audiences.
  • Track and analyze performance: Use affiliate marketing analytics to identify your top converting partners and channels. Double down on what works by allocating more time and resources there.
  • Focus on long-term partnerships: Look to establish long-term affiliate relationships versus short-term wins. Vet partners thoroughly and aim for those focused on high-quality content and engagement. This sustains growth versus quick commissions.
  • Leverage content marketing and social media to promote content: Support your affiliates by promoting their content featuring your products and links across your social channels. This helps increase their reach and motivation to continue promoting your affiliate program.

The benefits of affiliate marketing

Affiliate marketing works well for many different brands and companies. It offers a number of benefits, which we discuss below.

Increased brand awareness

Affiliate partnerships are an excellent way to get your company's product in front of many new potential customers and increase overall brand awareness. Affiliates promote products to their own engaged audiences, allowing brands to tap into an existing following. In fact, according to a study, 81% of brands use affiliate programs specifically to boost brand awareness and drive sales. The extensive reach of affiliates provides incredible exposure for brands trying to establish themselves and get discovered by the right audiences.

Higher conversion rates

Using affiliate marketers can also help improve conversion rates compared to other digital marketing campaigns. When a consumer is referred to a product by a trusted affiliate publisher that they already follow and engage with, they are much more likely to trust that referral and make a purchase than if they had seen a generic display ad or social media post.

The credibility of the affiliate acts as a powerful social proof and endorsement for the brand. This winds up converting visitors into paying customers at a higher rate. Affiliates essentially transfer the trust and goodwill they have built up with their following over to the brand. This trust and contextual relevance is very difficult for brands to replicate on their own with typical digital ads.

Leverage marketing skills

Brands can benefit from the specific marketing skills and assets of their hand-picked affiliates. For example, influencers know how to market appropriately on Instagram and YouTube to get engagement. An affiliate review site will be skilled at creating comprehensive product analysis and optimizations for SEO.

By tapping into the unique capabilities of partners, brands can augment their own marketing efforts and drive traffic to their own website. They can leverage affiliates' expertise in crafting compelling calls to action, creating high-converting product pages, driving social engagement, optimizing affiliate sites, and more. The collective marketing skills of all affiliates combine to create a powerful promotion network.

Promote new products

When brands launch a new product, getting it in front of potential customers can be really challenging. There's low awareness and no existing demand. This is where leveraging affiliate partners can come in handy.

Brands can tap into the specific audiences of content creators and influencers that are already interested in that type of product. For example, if a kitchen appliance brand is releasing a new air fryer, it may reach out to food bloggers and YouTube cooking channels.

These affiliates essentially prime their engaged followers for the new air fryer launch. They build hype and demand within the ideal target audience. This makes it much easier for the brand to drive sales of the new appliance rather than trying to simply advertise it to cold traffic.

Great for startups

Affiliate marketing represents a low-cost way for ecommerce startups and other small brands to enter new markets and build an audience. The affiliates assume much of the upfront marketing costs.

Reach target audiences

Brands can leverage affiliates who already have an engaged audience and niche that closely aligns with their target audience. This allows brands to get their products in front of qualified prospects cost-effectively.

The combined power of all the unique benefits is what makes affiliate marketing such an effective customer acquisition and promotion channel for brands of all sizes.

Affiliate marketing FAQs

What is affiliate marketing, and how can it help my brand?

Affiliate marketing is a form of online marketing where brands partner with publishers who promote the brands products or services to their audience. It helps brands expand their reach, generate leads, and increase sales. The affiliate model provides ROI-driven advertising since you only pay commissions on converted sales.

How do I start an affiliate program for my brand?

First, research affiliate networks and affiliate websites like ShareASale or Rakuten to find a platform to manage your program. Define your commission structure, tracking methods, program policies, and creatives for affiliates. Recruit affiliates by reaching out to relevant publishers, influencers, and loyalty programs. Provide assets like banner ads, text links, promo codes, and product photos to promote your online business.

What commission rates should I offer?

Most affiliate programs pay 5-30% commissions, but rates vary by industry. Consider the typical sale price and margins for your products when setting commission rates. SaaS products with higher prices can pay 20-30% recurring commissions, while lower-priced retail items are often 5-15% one-time rates. Set competitive commissions based on your product type, offer tiered rates for top affiliates, and optimize based on ROI.

How can I track referrals and attribute sales?

Use affiliate links with unique IDs to track traffic, implement conversion pixels to attribute sales, and make sure affiliate cookies last at least 30 days. Track sales and referral metrics by channel, referrer, landing pages, coupons, and more. Integrate your affiliate platform with analytics for comprehensive attribution reporting. This allows you to analyze performance metrics to optimize your affiliate program.

Another option is to create unique discount codes to your affiliates. They can share these with their audience. Then, if someone uses that code to buy a product in your webshop, you will know you need to pay commision to the affiliate. 

What are tips to make my program successful?

Offer competitive, attractive commission rates. Provide creatives, promo codes, and marketing assets to affiliates. Develop strong relationships with affiliates and optimize your program based on their feedback. Stay active in affiliate networks and communities to find new partners. Leverage social media platforms like Instagram and Facebook to connect with potential affiliate partners. Automate processes like payments to build loyalty.

Affiliate marketing can be a powerful tool 

As part of a broader marketing strategy, affiliate marketing can be a powerful tool. Partnering with the right affiliates can help introduce your brand to new audiences, convert trust, build your reputation, and drive sales. 

As always, your affiliate marketing strategy must be tailored to your specific business needs and go-to-market strategy. If you're considering a partnership with some affiliates, start with a test period to ensure that a given affiliate is the right match for your business. 

For more information and examples on how to become an affiliate, check out our latest video about affiliate marketing on our YouTube channel. While you're there, subscribe to get all the best tips and tricks to become a more data-driven marketer.

Want to work smarter with your marketing data?
Discover Funnel