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How Affiliate Marketing Works

Updated: Jan 5, 2022

The Appeal of Affiliate Marketing.

What makes affiliate marketing so appealing is that you don't own products. Instead, you form a partnership with a company/vendor to market or promote products or services for them and if you do a good job, in return, you get compensated. When you sign up as an affiliate, the merchant gives you a unique link so they can track who was responsible for each sale. When someone clicks that link, a small file called a cookie, gets stored on their device. This cookie helps the merchant attribute the sale back to the right person and it usually holds an expiration date. You get paid even if the buyer delays their purchase because your cookie will still take the customer to their website. If the customer makes a purchase from that business, you will get a commission.

Here's an example of how this works.

Imagine that a reader visits a post you are marketing about a great skin care product. They click on one of your affiliate links which leads them to the vendor product page. They don’t purchase at this point, but later, they return to the vendor page where they find the purchase again. At this point, they decide to purchase the cream and a bottle of face wash too. This is where the magic happens. Earlier, when they clicked on your affiliate link, a cookie was stored on their device. Because your vendor has a 24-hour cookie duration, you get compensated for both the face cream and the face wash; even though you didn’t promote the latter.

Receiving payment.

Payments are typically done as a contractor, meaning there are no legal requirements to provide benefits, healthcare, etc. The best thing about affiliate marketing though is that everyone wins. The company wins because they are able to get new customers at a guaranteed rate. Companies only pay affiliates that produce results so the company gets new customers at virtually no risk to them. You, as the affiliate, win because you are able to utilize your audience and expertise to potentially make way more money then you could if you just worked a regular 9-5 marketing job. You are paid on results, so as the affiliate, you are incentivized to work hard and you are rewarded when you succeed. You also have a lot of freedom that being an affiliate marketer gives, not to mention you don't have to deal with all the headaches that owning a product, service business or a brick and mortar store can bring. And finally the customer wins because they are introduced to a product that can benefit them that they probably weren’t aware of prior to clicking on your link.

Your expertise can help you succeed.

Affiliate marketing is a standard practice in both B2B businesses and B2C businesses. So, if you have experience or expertise in a specific small business area, you might want to consider starting an affiliate business where you can help improve other businesses. The same holds true if you have expertise in certain products/areas. Marketing what you know gives you a bit of an inside track. We call this a niche. When you are laying out your business plan be sure to consider your area of expertise and the potential for a market. For example, if you are a hairdresser, you can market products in a B2C business, but you could also market equipment in a B2B business. Whatever product(s) you decide to promote, make sure that it's reputable. You want to work with people who have done an excellent job building their brand.

The earning potential of affiliate marketing.

People ask: How much can I really earn in affiliate marketing within a year? Will it be enough to quit my 9-5 job? Is affiliate marketing still profitable? Will I make enough to travel the world? These are just some of the dozens of questions you will find on forums all across the internet. Excited by the idea of passive income, you can always find newbies, who have tried marketing and failed and are now skeptically debasing this opportunity to earn.

The growth potential of affiliate marketing.

The fact is that the affiliate marketing industry is steadily growing. Statista reported that spending on affiliate marketing, just in the U.S. alone, is expected to rise to $8.2 billion by the end of 2022. There is definitely a space to grow and earn. We see examples of super-affiliates publicly sharing their income reports and telling us about their success stories and with the right knowledge, hard work and time, we too can potentially reach those levels. Broadly speaking, the income in affiliate marketing can vary a lot. There are plenty of bloggers and affiliate marketers out there who earn less than $20.000 ($1.600 per month). But then there are also those who make tons of money. Success can actually be broken down into a few simple categories.

  • There are the total beginners, who are only losing money at the moment

  • Then we have the low-level affiliates, who earn up to $300/day

  • Next, we see intermediate affiliates, who earn from $300/day up to $3,000/day

  • Then, high-level affiliates, who earn above $3,000/day

  • And finally, the super affiliates or, as you can often find them being called, “gurus of affiliate marketing”

What it takes to be a successful affiliate marketer.

Success in affiliate marketing is about persistence, having a business plan in place, learning from your mistakes and doing your research. Over time, you can expect your profits to grow from $2.00 a day to $300 per day and beyond if you know how to analyze your data and make adjustments accordingly. In affiliate marketing, there are plenty of cases when, after earning a somewhat modest income for a long period of time, their earnings skyrocketed overnight because they finally figured out the right niche and the right strategy. And there are also plenty of cases that tell a different story of failure. Like any business owner that is successful, you have to do your homework, know where you want to be five years from now, research best practices and have a passion for what you're doing. I have heard people call affiliate marketing a passive business. In reality, it’s a lot of work to get it up and running and you can expect to spend 20 to 30 hours a week, or hire someone else to do the grunt work, to keep it going. The start-up costs can be minimal if you plan on doing it all by yourself or it can be a tad bit expensive if you hire someone to get you started.

Make it happen.

If you think affiliate marketing is what you really want to do, then do it. But, do it right. Your first step is to create a business plan that will get you started and keep you on task. I hope you will keep following my blog and if you haven’t already subscribed to my email, please do. I will be addressing some of the pitfalls of affiliate marketing as well as some of the tricks to improve email turnover and a whole host of other information I know you are going to want.

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