Affiliate marketing is a working relationship whereby a merchant (online shop or advertiser) has consumers driven to it by adverts on an affiliate (website). If a consumer visiting the affiliate’s site clicks on an advertisement and goes on to perform a predetermined action (usually a purchase) on the advertiser’s site then the affiliate receives a payment.

This predetermined action can range from a sale to a referral, a newsletter sign-up to a click. It is this cost per action model that defines affiliate marketing and sets it apart from other channels.

How affiliate marketing began

The most famous story about how affiliate marketing began places Jeff Bezos, founder of Amazon, as the father of the channel. Around 1996 he was chatting to a woman at a party about how she wished to sell books about divorce on her website without becoming a merchant in her own right. Bezos reputedly came up with a method of linking her site to Amazon and receiving a commission on any books sold.

1999 saw the birth of the affiliate network in the UK with DGM, Commission Junction and Tradedoubler setting up within a few months of each other.

Implications for advertisers

The benefit for the advertiser is obvious; they only pay out on results. From the affiliate’s perspective, they only need to become experts in driving relevant traffic to merchant websites in order to maximise return for themselves. Remember, the affiliate spends their own time and money driving traffic to the merchant and only gets paid if they deliver results.

Making money and the importance of tracking

The affiliate model requires all clicks and sales to be tracked in order that the correct revenue is assigned to each affiliate. Tracking can either be run in-house by the merchant, or more commonly it will be independently tracked by an affiliate network. An affiliate network is a third party that offers services for affiliates and merchants such as account management, campaign advice, independent tracking and maintenance of relationships with the affiliate base.

The affiliate needs to use special links and creative banners from the merchant or affiliate network with code embedded in them that allows for tracking. These links and banners are then placed on the affiliate site and allow all clicks through to the merchant site and subsequent sales to be tracked. It’s then the responsibility of the merchant to validate these sales as legitimate before the affiliate can be paid their commission.

It’s not the size of the affiliate, but what you do with it that counts

Affiliates come in all shapes and sizes. Similarly many sectors benefit by using a network of affiliates. Vertical sectors that traditionally see great success through the affiliate channel include financial services, travel, retail, telecoms, broadband and gaming. This is far from an exclusive list and whatever the merchant is looking to achieve they will virtually always find someone willing to promote them. - providing the price is right.