If you’ve ever came across Tim Ferriss’ iconic book on how to just work four hours per week, you’ve probably dreamed of sipping a Mojito on a beach while your money worked for you in the background while you sleep. One of the main ideas he constantly talks about is the concept of passive income.
After all, having an income chart like this is the main goal of many online entrepreneurs:
For many entrepreneurs looking to build an online business, or marketers looking to monetize their web traffic, affiliate marketing is often how they got started with generating income.
Affiliate marketing is one of the world’s most popular methods of generating passive income online, and there are many tried & tested strategies when you are just starting out.
If you’re looking for a complete guide to affiliate marketing, read more to find out how you can promote products as an affiliate to create an additional source of income.
What is affiliate marketing?
Affiliate marketing is a performance-based marketing tactic in which a retailer, typically an online one, rewards a website with a commission for each customer referred via the website’s promotional activities. The website, often called an affiliate, will only get paid when their promotion results in a transaction.
There are typically four parties involved in affiliate marketing:
- The affiliates – the promoters of the product
- The product creators – the creators of the product
- The networks – the networks managing the affiliates
- The consumers – the end users of the product
Image via Digital Ads Online
You don’t always need a network to become an affiliate, but the other three parties (the affiliates, the product creators, and the consumers) form the core of an affiliate program.
Who are the affiliates?
An affiliate, also known as a publisher, can be an individual or a company. Typically, these are other bloggers or content creators operating in the industry of the product they are creating.
They help promote the product or service by creating content like blog posts, videos or other media.
They can also promote their content to get transactions by putting up ads, capturing search traffic from SEO, or building an email list.
When one of their visitors creates a transaction, which could be a purchase or submitting a lead form, the affiliate gets a commission. How much commission is structured depends on the affiliate program terms.
Who are the merchants?
A merchant, also known as the product creator or advertiser, is typically the creator of the product or services. They offer revenue sharing and commissions to people or other companies (affiliates), which have a significant following on their brand.
The merchant can be a company like HubSpot, which offers a commission to every affiliate who’s able to get their visitors to make a purchase.
Or it can be an individual like Pat Flynn, who offers an affiliate program with his podcasts.
The merchants can be anyone from a solopreneur to a big company, as long as they are willing to pay their affiliates to help them gain a transaction.
Sometimes the merchant does not even have to be the product creator, as in the case of the Amazon Associates Program.
Who are the affiliate networks?
An affiliate network acts as an intermediary between the merchants and their affiliates. In some cases, a network is not necessary, but some companies choose to work with a network to add a layer of trust.
The network manages the relationship and provide third-party checks and balances. Third-party checks can be important because they bring down fraud rates.
Some merchants choose to work with an affiliate network because they lack the time or resources to track, report, and manage payments to the affiliates. They might also choose to work with multiple affiliates or publishers within the affiliate network.
Who are the consumers?
The consumers or the customers are the one who makes the transaction. They are the ones who purchase the product or submit the lead form in order for the affiliate to gain the commission.
How does affiliate marketing work?
Image via Digital Ads Online
As an affiliate, you are typically paid whenever your visitor creates a transaction. The transaction could be anything from a click, lead form submission, or a sale. In the majority of cases, affiliate marketing is performance-based, which means you only get paid as an affiliate if your visitor takes an action.
Here are some common affiliate marketing models:
Pay-Per-Click (PPC): The affiliate gets paid for all clicks that were generated, regardless of whether a lead or sale happened. This is fairly rare, since all the risk is on the product creator.
Pay-Per-Lead (PPL): The affiliate gets paid for every lead they generated. This could be an online form submission, trial creation, or any pre-purchase. This is a shared risk on both the merchant and the affiliate.
Pay-Per-Sale (PPS): The affiliate gets paid for every sale they generated. This is the most common model, since all the risk is on the affiliate.
To become an affiliate, you first need to sign up for a program like the Amazon Associates or HubSpot Affiliate Program. After signing up, you will get an affiliate link which contains a unique ID. You can then use this link in your promotional content.
Whenever your visitor clicks on your unique affiliate link, a cookie is inserted in their browser to track actions.
When they make a transaction that is a qualified action (could be a sale or lead form submission, depending on the terms of the program), the merchant is able to record this action and attribute it to you as an affiliate so they can make a payout.
There are different structures when it comes to payout, which varies based on affiliate program terms.
Commission payouts by the company are usually given on a monthly basis, but this varies depending on the affiliate program terms.
It could be a weekly payout or a monthly payment for all the leads or sales you've made.
You'll want to pay attention to the payout structure when choosing an affiliate program to join, which ultimately depends on the goals you have.
Do you need to pay to join an affiliate program?
There are typically no upfront costs when it comes to joining an affiliate program, but your variable ongoing costs will depend on how you want to promote the products.
When it comes to affiliate marketing, most people think it's a process of earning a commission by promoting other people’s or company’s products.
While affiliate marketing can seem straightforward — just find a product you love, promote it, and earn a piece of profit with every sale you make — there are actually a few moving parts you need to take note of.
For instance, you might want to understand the commission structure of the company or product creator. Are you looking for commission per sale or commission per lead generated? Are you looking at recurring commission or a one-off payment?
Depending on your goals, this will affect which product you choose, how you plan to promote the product as well as how much time & resources you want to invest.
For instance, if you choose to promote your content via paid ads, then that’s a cost you have to account for. You will have to compare how much you’ve spent to promote each piece of content or to generate each purchase against how much commission you’re getting for each referred sale.
Or, if you have a blog and website, then you will have to pay for hosting. In this case, this should be a flat fee spread out across all your referred sale.
How much can you make from affiliate programs?
You might be wondering, what are established affiliates earning? (established affiliates are those working full-time.)
A poll was held on the STM Forum on “How much do you earn in a year?”:
Almost 20% of established affiliates report making more than $1 million per year. While this seems like an unattainable figure, reporting on revenue is only one side of the story.
Making money from an affiliate program is more about the profits than the revenue you’re getting.
An affiliate making $5000/day might be worse off than another affiliate making $500/day with no cash outflow because the former might be spending most of his revenue on paid acquisition.
At the end of the day, before becoming an affiliate, you have to align your expectations to your earning potential. What kind of industry or niche you operate in, and what kind of work you do depends a lot on how much you want to make.
If you focus on ads like Adwords or Facebook to promote your affiliate products, how much money you invest is as important (if not more) as how much you make.
How do you choose an affiliate program?
I commonly hear two misconceptions when it comes to affiliate marketing.
- Affiliate marketing is dead.
It seems like every year in the world of online marketing, people have mentioned some variant of X is dead (SEO, Ads, Mobile). The test of time is a pretty good test — if something has stayed around for a while, there’s a better chance of it still staying around for a while.
Everything evolves, and there are tactics that don’t work the exact same way as they did before. Affiliate marketing, of course, is no exception to that rule.
Affiliate marketing has evolved from a get-rich-quick scheme into something that requires affiliate to build real trust with their audience in order to reap the rewards of the work that’s been put in.
- Affiliate marketing is easy to do.
According to Three Ladders Marketing, only 0.6% of affiliate marketers surveyed have been around since 2013, which means that affiliate marketing takes time and effort to build and make money.
Choosing the right product to promote, working with the right company, fostering relationships and updating content are all core essentials of excelling at affiliate marketing.
According to Pat Flynn, one of the pioneers of creating passive income through providing value to his audience, there are two important rules when it comes to affiliate marketing:
- Only recommend products as an affiliate that you’re extremely very familiar with. If you are not confident in the product and do not feel it will help people, do not promote it.
- Never tell anyone to directly buy a product. Always recommend products based on your experience and in the context of what you’ve done.
When it comes to choosing the right products, David Gonzalez — founder of an affiliate management agency, suggests that you should think about these 3 components when choosing a product to promote:
- Your audience – will the product resonate with them and make them grateful you promoted it?
- Product quality & value – would you advocate your best friend buying it?
- Profitability – does the offer have highly competitive conversions & payouts?
At the end of the day, become successful at affiliate marketing requires you to nail down the fundamentals of marketing. Authenticity is hard to fake, especially when it comes to building your own personal brand.
A brand that promotes products incessantly without any regard for bring real value to its audience will find affiliate marketing to be a short-lived source of income. Choosing the right products to promote, stemming from a true passion for what the product does, forms the basis of all your promotional activities.
While there are many tactics to scale your promotion, the golden rule of affiliate marketing stays the same: only promote products you love & treat your audience like humans.
Build your own brand, choose products that you love, create authentic content and you will be on your way to building a real source of passive income.
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