What is Affiliate Marketing

If you'd like to earn money on your website by driving traffic to another website's product or service, affiliate marketing may be for you. There are many ways to describe affiliate marketing, but the clearest way to understand it is by understanding its components and giving some concrete examples of how it works.

What are the Components of Affiliated Marketing?

Two basic components of affiliated marketing are the merchant, and the affiliate. Other names for the merchant are retailer, and brand. The merchant is the one with the service or product and has his own website. Another name for the affiliate is publisher. The affiliate also has his own website and uses it to help the merchant market his product or service.

The following is an example of the relationship between a merchant and an affiliate.

In this example, the merchant sells ski apparel. The affiliate sells ski equipment. The affiliate agrees to run a banner ad on his website for the merchant with a link, that when clicked upon, takes a potential buyer to the merchant site. The merchant and the affiliate have an agreement on how the affiliate is going to be compensated for doing this for the merchant.

A third and vital component is the customer.

A complete transaction works like this. The customer goes to the ski equipment site (the affiliate) and sees an ad for ski apparel (the merchant's ad). She clicks on the ad and is taken to the merchant's site where she purchases a pair of ski boots for £100. The merchant has agreed to give the affiliate a ten-percent commission on completed sales, so the affiliate has just made £10 free and clear.

A fourth component is the affiliate network. The affiliate network is a third-party business that offers the services and technology (software) to the merchant and the affiliate that enables the above-cited transaction to occur.

It provides the merchant with a host of services, including but not limited to the following: potential affiliate sites; tracking traffic from the affiliate to the merchant site; reporting tools; payments to the affiliate; and all necessary software.

The affiliate network can provide the affiliate with registration assistance; reporting tools; and commission payments from the merchant.

The merchant is charged a fee to participate in the affiliate network whereas the affiliate usually is not charged.

What are the Pros and Cons of Affiliate Marketing?

One of the greatest advantages affiliate marketing affords the merchant is the ability to better target his potential online audience. Other online advertising methods such as Pay-Per-Click (where you have to pay for each time a visitor clicks on your site whether he buys something or not) are much more hit-and-miss and therefore more expensive. By tying a product with a relevant affiliate site or sites, the chances of capturing the desired visitor are greatly improved.

Choosing the correct affiliate(s) will greatly heighten the merchant's online presence and can result in more leads, sales, or registration for services.

The greatest advantage to the affiliate is additional income without any financial investment. Bookkeeping and customer service are jobs for the merchant to handle.

The disadvantages to both the merchant and affiliate are unscrupulous practices by one or the other. Types of problems that can occur are the merchant failing to pay the commission promised or pay at all; the merchant decides to lower the commission; the affiliate misrepresents the merchant's goods to get a commission; and other well-known practices that have plagued businesses from time immemorial.

What are the Solutions for Affiliate Marketing Problems?

Many of the problems that can occur between merchants and affiliates can be avoided or resolved with the use of reputable in-house affiliate program software, or network affiliates, both of which closely manage the businesses involved.

Do your homework and talk or blog with other businesses who have experience with this marketing trend before you make any final decisions to jump in. Affiliate Marketing, when understood and properly researched, has amazing profit potential.