The Affiliate Marketing Business Model ExplainedBy Josh Snow
Affiliate marketing is a billion dollar industry and growing. In its simplest form, this passive online business model means placing a link to someone else’s product on your website, and earning a commission from them every time you make a sale.
With different affiliate programs to choose from and no limits on how many products you can market, affiliate marketing can have huge earning potential. As this business model doesn’t involve producing, storing or shipping any physical products, you don’t need much upfront capital to get started. Therefore the affiliate marketing business model can appeal to a whole host of different people. But be aware, it does come with its downsides too.
So whether you are looking to start making money in the online world, diversify your portfolio of sites, or buy, sell or improve your current affiliate business, this article will dig into everything you need to know about affiliate marketing.
How does affiliate marketing work?
So what exactly is affiliate marketing, and how does the model work?
As we mentioned, affiliate marketing is where you, the affiliate, market products for a third party on your website and once you gain a sale, or the required action, you earn a commission. Affiliate marketing can either be done through a network or directly with a company.
An affiliate network is a platform that acts as an intermediary between the seller and the affiliate, a bit like ‘Amazon’ but for affiliate links. Simply sign up to the platform as an affiliate, browse the affiliate offers available from sellers, and start adding the links to your website. Obviously the more relevant the products are to your niche, the more likely you are to gain a sale.
Some affiliate programs you might want to check out are:
- Amazon Associates
- CJ Affiliate (formerly Commission Junction)
- eBay Partner Network (EPN)
- Rakuten Marketing (formerly LinkShare)
If you don’t want to go through a network, you can go directly to the company. In fact a large number of affiliate offers and deals are made this way. You can usually find these offers directly on companies’ websites.
So once you have your links, then there is just the matter of promoting them. You will either need to have an existing website or blog, to create a website or to purchase a website. You can then add these links onto that site, and promote the products in a variety of ways. Usually this means creating content where you can naturally add your links.
Finally, you can sit back and watch the sales roll in. You may need to drive traffic to your website with either organic or paid methods and keep an eye on deals that might expire, but otherwise affiliate marketing is a pretty passive business model! It even keeps generating income when you sleep!
How much can you earn with affiliate marketing?
The commission that you earn for every product is set by the seller and can vary drastically. But in general profit margins can be high in the affiliate marketing world. Commissions might range anywhere from 1% to 80%, but a good ballpark to aim for could be between 5% and 30%.
Obviously the size of your payout can vary depending on the price of the product you are marketing, and how many you can sell. Different niches will also have more or less profitable commissions depending on their popularity. Some of the more highly profitable niches to consider are:
- Health, wellness and beauty
- Wealth and money
- Romance and dating
Affise estimate that low-level affiliate marketers can earn up to around $300 a day, while intermediate ones can earn up to $3000 a day, and super high-level affiliate marketers can even earn up to $10,000 a day.
There are different ways to get paid for affiliate marketing; the standard system where you earn a commission for every sale, every time a lead completes a desired action, or even every time someone clicks on the link in question.
What is the difference between affiliate marketing and Amazon Affiliate?
Amazon Associates is one of the most commonly known affiliate programs but how does it compare to other affiliate marketing? The Amazon program allows you to promote products sold on Amazon.com on your website, and for every sale you make through a link, Amazon pays you a commission. It has a huge range of products to choose from and better yet, people trust Amazon, so it has super high conversion rates. At the same time it can involve less link management than other affiliate marketing.
The main problem, however, is profit margins. Amazon has typically low commission rates, from around 1% to 10%, particularly due to recent commission cuts to many niches at the start of 2020. Other affiliate marketing can reach much higher potential for earning than Amazon, with commissions up to 80% per sale. Such low commission rates mean that, with Amazon, you really need multiple sites to create a profitable business model, while similar revenue can be achieved by other affiliate marketing with just one site. You can read more about Amazon Associates here.
What are the benefits of the affiliate marketing model?
No physical assets
One of the best things about affiliate marketing is that you don’t need to deal with, or most importantly pay for, producing, storing, packing or posting any physical products. This means you don’t need a vast amount of capital up front to get started, or even any! And with no suppliers and carriers to liaise with, it means less time and agro spent on making your business work. And more time for doing what you love or growing in other areas.
No customer service
Don’t fancy dealing with unhappy customers? No problem. As well as no physical assets, you also don’t need to have anything to do with customer service for the people buying through your affiliate links. This is all down to the company providing the goods.
This business model has the potential for high earning and high profit margins. Commissions can vary greatly depending on your niche and affiliate program, but some affiliate networks, like ClickBank for example, offer commissions up to 80% per sale. As there are no limits on how many products you can promote, this model is also highly scalable.
Another great pro of the affiliate business model is that it is a relatively passive income model other than a little link management. Once you set up the initial links on your site, you have a system in place to make money every time someone clicks on your link without investing more time, effort and money. This is especially true if you are using SEO to organically drive traffic to your site as you won’t even need to invest time into running paid ads.
You can use paid ads
As we discussed, the affiliate marketing model has relatively high profit margins meaning it is completely viable to run paid ad campaigns to send traffic to your site. This can be a great way to boost link clicks and drive sales on the products you are promoting, even without having high levels of organic traffic or investing time into SEO. In fact, some people completely rely on paid traffic alone and run a profitable business.
Cost Per Action (CPA) Marketing
Finally affiliate marketing offers you the opportunity to make money even when you don’t get a sale. How is that possible? Cost per Acquisition, or Cost per Action, marketing is a type of affiliate marketing where companies offer a commission, not for a sale, but for a client to complete a specific action. Take an insurance company for example, that pays you every time a potential lead fills out an insurance quote form, or a software company looking for people to sign up for a free trial.
Scaling your business means scaling your revenue
The results of affiliate marketing are totally performance based, meaning you will get out what you put in. The more work you put in, and the more you hone your skills, you can see your revenue shoot up with it, unlike a standard 9 to 5.
What are the negatives of affiliate marketing?
It has a bad reputation
Although affiliate marketing can be ethical and helpful, that hasn’t stopped it getting a bad reputation. As there is a low barrier to entry to get started with affiliate marketing, it means that pretty much anyone can start promoting products. These could be products the promoters might not know much about, and people can be as pushy as they like with their sales tactics.
Some people may even push bad quality products to make sales. With so much affiliate marketing out there, people can view it as being a little sleazy. The key is wisely choosing products that can genuinely help your audience and finding authentic ways to promote them.
It’s highly competitive
Affiliate marketing is also very competitive. The fact that it is easy and cost effective to get started means it is a highly popular business model. There will likely be thousands of other people promoting the same products in a similar way to you, so it can be hard to stand out from the crowd. Can you target a less-popular niche? If you are in a competitive niche, are you able to specialize in a niche within your niche, targeting hyper-targeted long-tail keywords? Can you provide real value to your potential customers with helpful content?
Some companies cap your sales
When you start promoting an affiliate link, make sure to check all the conditions of the deal. Some companies only put a limited budget towards gaining more customers or leads, effectively meaning there is a cap on how much you earn. Once the budget is used up, you won’t gain any more commission from people clicking on the link. If you don’t check this carefully, this can lead to you giving away free sales for nothing in return!
You need to manage your links
Although a fairly passive business model, it is worth remembering that when you do find an affiliate offer for your website, it might not last forever. These offers can come and go and if you find yourself promoting offers that don’t exist anymore, your website will be losing both sales and credibility.
There is no guarantee of revenue
Another downside is that unlike a 9 to 5 job, affiliate marketing has no guaranteed revenue. You need to achieve clicks, actions or sales to make any money at all, and market or industry changes can mean ebbs and flows in revenue.
Lack of control
Finally, when you do affiliate marketing, you are somewhat at the mercy of every business you promote links for. What do I mean? Well no matter how well you promote your links or successfully channel leads into the top of the marketing funnel, you can’t control what happens next. The seller’s site is run and controlled by them, so a clunky checkout process or poor ux experience could lose you hard-earned sales.
Let’s see some examples of affiliate marketing businesses
Dating Advice is a site aimed to help people with their dating skills and advise on the best dating sites. It is a super helpful site in a popular and lucrative niche. They make money by referring people to different dating sites like Match and eHarmony etc., through reviews, best-of list articles and sponsored posts.
What does it do well? It provides useful and honest content to its users, within a very busy and sometimes ‘spammy’ niche. It does this by focussing on answering real questions with expert advice. It doesn’t use banner ads, helping the site look clean, and creates credibility by featuring logos of the large publications they have worked with. This helps it stand out as a repulatable, authority site and gain trust from the audience.
This is a great example of a hyper-focused site in a highly competitive niche. WebsiteSetup uses step-by-step guides, reviews and other focused content to walk beginners through setting up their own website. With the continual rise in searches for this type of content over recent years, and this site has managed to target and rank #1 for over 1000 competitive keywords. They make money by promoting affiliate links within their content, such as Bluehost, a website hosting provider.
What does it do well? It has found its own micro niche within a super competitive market. It focuses on common questions people have and creates valuable content where users don’t feel like they are being sold to. The articles are written with a personal touch with clear, technical and easy-to-follow steps. They highlight common problems and issues and then promote products to solve them — smart.
Am I well suited to an affiliate marketing business?
So you are thinking about getting started in affiliate marketing, but is it the right fit? Affiliate marketing can attract a wide range of people, but ask yourself the questions below to see if you fit any of the profiles below. This should give you an idea of whether affiliate marketing could be the one for you.
Are you looking for a passive income?
Affiliate marketing, especially if the website uses SEO to drive traffic, is a relatively passive business model. So if you are looking for a business model that is low maintenance day to day, this could be good for you.
Are you looking to add a site to your portfolio?
If you already own a portfolio of sites, such as Adsense or Amazon sites that are also fairly low maintenance, an affiliate site could be a great business to diversify and add to your selection.
Are you a whizz at paid advertising?
If you are great at driving paid traffic to your websites, you could get seriously stuck into creating sales funnels around the affiliate program.
Do you want to monetize an existing website or blog?
Perhaps you have your own blog or site and are looking to monetize it for some extra cash. Choosing products that fit your niche could be a logical next step.
Do you flip websites?
If you love to buy sites, improve them and sell them on, an affiliate site may be a good choice. There are plenty of ways to grow an affiliate business.
How can I grow my affiliate marketing business?
So once you have an affiliate marketing business, how do you grow it, scale up and gain more revenue?
Choose your affiliate offers wisely
Look out for offers with the best Earnings Per Click (EPCs) as this shows the estimated amount of money you should earn for 100 clicks. Shop around at other affiliate networks for similar deals and see which work better.
Negotiate higher commissions
A simple way you can grow your business is by simply asking for a higher commission on products that are selling well. You can do this with your affiliate manager, usually your contact at the affiliate network. A little extra revenue means you can invest in some paid traffic campaigns to drive sales.
Work on keywords and SEO
Research more keywords within your niche and feed these throughout your content to make it easier for people to find your site through search engines. Look into targeting hyper-specialized keywords, using long-tail keywords (longer and more specific words and phrases) that will help you rank more highly against your competitors.
Perfect paid advertising
If you learn some digital marketing skills, you might be able to capitalize on scaling your business through creating a sales funnel. A sales funnel is a marketing technique that allows you to direct customers from one step of the sales process to the next and boost sales. Think about running paid ads to catch leads by offering some useful free content and building out an email list.
Related Reading: How Much is Really an Email List Worth?
Buying an affiliate marketing site
If you are thinking about purchasing an existing affiliate site, consider the following points before jumping in.
Are all the existing affiliate deals being passed over?
If the website owner has negotiated any special deals with their affiliate manager, make sure those deals will be passed over with you. If not you might be looking at a surprise drop in revenue, and every little adds up.
Is it an authority site?
Buying an authority site can help you stand out from your competition and make more revenue. Ask yourself if the site is an authority in the niche, or if it is set up to become one. Could you improve it and build it into an authority site?
Find backup affiliate offers
Do your research into the kinds of affiliate offers the site is currently using. Do they seem like offers that could expire or may start capping you in the future? If so, look for the same offers on alternative networks which you will be able to use as backups going forward.
Selling an affiliate marketing site
And what about if you’re selling a site? Is there anything you should consider to help you find a buyer and get the best price?
Track your sales
Keep tabs on your numbers, clicks, sales, etc. of all your affiliate links with a tool like ClickMagick or Voluum. Buyers usually like to see these figures and it will be useful for any split testing they may want to do. You can also use this data to split test the site yourself, pushing up revenue and driving a higher asking price.
Inform your affiliate networks and pass on special deals
It is important to let your affiliate network know that your business is changing hands. This way you can make sure the new buyer will be approved for the affiliate network. It also lets you negotiate maintaining any special deals you might have with your affiliate manager to pass onto the buyer. Transferring any perks will be a draw for the buyer, and failing to transfer these might mean having to knock the difference off the price of the business.
Make your business hard to replicate
Finally, always look for ways to protect your business from being copied and replicated. Otherwise a buyer could replicate your secrets AND become a competitor.
Ok so there you have it, all the basics of an affiliate marketing business covered. With it being easy to get started and potential profit margins high, what is there to lose?