Affiliate marketing is a form of performance marketing in which companies (merchants) pay partners (affiliates) to refer customers or sales. It is a win-win situation in which affiliates are compensated for their marketing efforts while companies gain access to a wider audience without having to invest in advertising up front.
Where does affiliate marketing come from?
Affiliate marketing has its origins in the mid-1990s, when the Internet gained popularity. The first known application of the concept is attributed to William J. Tobin, who developed the affiliate program for his company PC Flowers & Gifts in 1994. This idea was quickly adopted by Jeff Bezos or Amazon.com , which launched one of the first major affiliate programs in 1996, can be said that the affiliate program was one of the building blocks for Amazon's rise to success.
How does affiliate marketing work?
Affiliate marketing works according to a commission-based model. Affiliates place advertising material (such as banners, links or product descriptions) on their platforms (e.g. price comparison platforms, websites, blogs, social media). As soon as a user clicks on this link and performs a defined action (e.g. makes a purchase or registers), the affiliate receives a previously agreed commission.
Which companies benefit from this?
Affiliate marketing is particularly beneficial for e-commerce companies, digital services (such as hosting providers), travel providers, financial service providers and now also many start-ups. These companies use the model to increase their reach and acquire new customers without having to invest large advertising budgets up front.
How does affiliate marketing work in detail?
The process of affiliate marketing includes several steps:
1. Registering in the affiliate program : Companies (merchants) offer an affiliate program in which affiliates can register. After registration, they receive access to promotional materials and personal affiliate links.
2. Integration and promotion : Affiliates integrate these links and advertising materials on their platforms and promote the products or services.
3. Tracking and Tracking: Clicks on these links are monitored by special tracking technologies (cookies, tracking IDs) to ensure that sales or leads with the correct revenue are attributed to the correct affiliate.
4. Compensation: If the referral is successful, the affiliate will be paid a commission. This can be based on either pay-per-sale, pay-per-click or pay-per-lead.
What tasks are there to do in affiliate marketing?
In affiliate marketing, there are various tasks to make the program lively and successful, including:
- Affiliate recruitment : This means searching for and acquiring suitable partners. The merchant can do this actively or use an agency or an affiliate network. You look for sites that are a good fit for your own products. A tour operator, for example, can approach travel blogs as affiliates. There are usually also sites that you want to exclude as partners, for example if the content contains violence, pornography, politics, etc.
- Content creation : The development of attractive content or digital advertising materials in various sizes and formats that present the advertised offers, discounts, products or services. They should be attention-grabbing, but also integrate well into the affiliates' websites and not be unpleasantly disruptive.
- Tracking and reporting : Monitoring the performance of affiliate links and creating reports. Depending on the merchants' payment terms, commissions for successful sales or bookings are paid to the affiliates. However, not every purchase is completed correctly. Returns must be refunded or canceled payment transactions must be corrected.
- Partnership management : Building and maintaining relationships with affiliates helps to motivate partners and also adapt advertising materials to the needs of partners.
- Optimization : The constant analysis and optimization of campaigns helps to maximize effectiveness. Advertising materials wear out over time and achieve fewer clicks. New offers and campaigns require new advertising materials in the .
What are affiliate networks and what do they do?
Affiliate networks such as Awin, CJ Affiliate or ShareASale act as intermediaries between companies and affiliates. They offer a platform on which companies can offer their programs and affiliates can register. These networks take care of tracking, reporting, billing and sometimes support for both sides. They also offer a large reach because they have an extensive pool of affiliates. An overview of these networks is provided by OMR, among others.
What resources do you need for affiliate marketing?
For successful affiliate marketing you need:
- Technology: An affiliate tracking system or access to an affiliate network that provides the technology and supports its integration or better connection to your own systems (such as website and accounting).
- Personnel: A team or at least one person to manage the program. Even if you use an agency, there must be a person in the company who is responsible for the program.
- Budget: For commission payments and, if applicable, for the use of an affiliate network. However, this should be a result of sales and not require any additional investment. No sale - no commission.
- Content: High-quality advertising materials in various sizes and formats and content such as blog articles that affiliates can use. These can either be developed in-house or external graphic designers or media designers can be commissioned
- Analysis tools: For monitoring and optimizing campaigns. These are usually provided automatically by the affiliate networks.
How do you organize and manage affiliate marketing in-house and how do agencies help?
Having an in-house affiliate marketing team allows companies to maintain full control over their programs. However, this requires the provision of the necessary resources and expertise in the field of affiliate marketing.
Agencies can help by taking over the entire process or just parts of it - from strategy development to affiliate recruitment, the technical integration of tracking and reporting to advertising production, optimization and billing. They bring specialist knowledge and usually have existing relationships with affiliates or affiliate networks and they have access to the required technologies, which is particularly advantageous for companies without a large internal marketing department or IT department.
How does the compensation work and what does affiliate marketing cost?
Compensation in affiliate marketing is usually based on commissions paid per sale, per lead or per click. The amount of the commission varies depending on the industry and product, as well as the frequency of sales, margins and sales dimension, but can range from a few percent to 50% or more of the sales price. The costs of affiliate marketing include:
- Commissions to affiliates e.g. 5 to 30%.
- Affiliate network or tracking software fees 1 to 5%.
- Internal administration costs or fees for agencies e.g. 2 to 5%.
Ultimately, the merchant gives parts of his margin to the affiliates, who bring him sales that would otherwise not have been achieved.
Is affiliate marketing worthwhile for companies?
Affiliate marketing can be very worthwhile for many companies, especially those who want to increase their reach without having to make large upfront investments in advertising. If it goes well, the company gains new customers who later make repeat purchases directly in the shop, for which no commission payments are then incurred. This is a particularly good way to gain new customers when you are new to the market. It is particularly effective because it is performance-based - companies only pay for real results or sales.
However, affiliate marketing requires careful planning, technological integration, regular monitoring and adjustment, and good relationship management with affiliates. When implemented correctly, it can be a very cost-effective means of increasing sales and customer acquisition. However, companies should ensure they have the resources to either manage it in-house or bring in an experienced partner.
Author:
Dr. Frank Lampe, independent online marketing consultant, author, lecturer and long-time marketing executive for technology B2B companies and startups.
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