Affiliate Programs

Here you learn how affiliate programs work.

Introduction

Simply put, affiliate programs, sometimes called "associate programs", are arrangements in which companies pay you to advertise their products. When you make a sale you will get a portion of the revenue from the sale. Affiliate marketing was a niche industry that has grown very fast in the last few years. In 1996, Amazon.com popularized affiliate marketing as an internet marketing strategy by letting web site owners to link to their books and earn a commission if someone clicked through to Amazon and bought a book. These days most large e-commerce sites have affiliate programs. The affiliates' profits are usually based on the number of people the affiliate sends to the merchant's site, or the number of people they send who buy something or perform some other action, like give a company their information, and therefore a sales lead.

Benefits of affiliate programs

There are 3 main benefits of affiliate programs. First, you can't lose money. Most of the sales activity will be positive - visitors buy stuff and you make money - but there will be times when they return items for a refund and your account takes a hit. One of the biggest affiliate industries that suffers from negative revenue are the online casino affiliate programs. If you had customers who ran up a profit and subsequently have a customer win money (i.e. the casino loses money) then you will lose back any profits you made. This is not an unfair scenario because you are effectively in a profit sharing partnership. But the good thing is if you end the month at a loss you don't have to pay the casino money. It simply carries over as a negative balance infinitely into the future until you "work it off" in profits. Amazingly, sometimes negative balances don't even carry over - depending on the casino. A profit sharing partnership that has an infinite upside with zero downside is amazing attractive. There aren't many setups like this in business.

The second benefit is that affiliate programs handle all of the backend processes. They monitor the click-throughs, process and collect the payments from customers, ship the order, and deal with customer service. These are all huge benefits.

The third benefit is branding. Many of the affiliate programs you sign up with will be household names like Amazon or Party Poker. A good amount of the sales you generate for the well-known brands will be a result of these companies' large-scale advertising and brand building. When a visitor sees an advertisement on your site, part of their decision to click on the ad or buy the product will be based on prior information. In cases like this, you get to piggyback off the success of these companies.

Types of affiliate programs

There are many types of profit arrangements with affiliate programs:

Pay-per-sale. In these programs, you make a commission when a visitor on your site clicks through and actually buys something on the merchant site. Amazon.com's affiliate program is an example of a pay-per-sale program. Some merchants will pay the affiliate a percentage of the sale and others pay a fixed amount per sale.
Pay-per-click. In these programs, the affiliate makes a small commission each time a visitor to your site clicks through to the merchant site. In this case they don't have to do buy when they get to the site.
Pay-per-lead. In these programs, the affiliate makes a small commission each time a visitor to your site clicks through to the merchant site and fills out an information request form where the merchant can sell the visitor a product, like a credit card or mortgage.
Residual Programs. In these programs, the affiliate keeps making a commission when a visitor keeps buying from a merchant. These programs have potential to pay out high profits. The two types of sites that typically have residual payments are sites that charge a monthly fee (like a dating site) or online gambling sites.
Two-tier programs. These affiliate programs offer the opportunity for an affiliate to sign up other affiliates (called subaffiliates) for a merchant and make a commission on those subaffiliates.
Pay-per-impression. These programs technically are not affiliate programs because with an affiliate program a merchant only pays its affiliates when it gets a desired result (like a click-through, lead, or a sale). These programs are just ad networks but I will include it here for comparison purposes. Pay-per-impression programs pay affiliates based only on the number of times an ad is shown no your. There aren't too many sites who have these programs because they would rather only pay out if they make a sale because pay-per impression is too risky. If the merchants pay affiliate to display their ads but the visitors don't buy anything then the merchant can lose money on their advertising. But on a profit sharing program the merchants can't lose money.



 
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