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- The Affiliate Marketing Business Model Explained
Affiliate marketing is one of the foundational business models that almost everyone who has made money online has some experience with. It can be incredibly lucrative, but provides its own set of benefits and flaws, as every business model does.
At its basic level, affiliate marketing is simply where you sign up with a company or a network (a network is just a company that houses many offers from different businesses) to sell their products or services. You get paid typically every time someone either buys something or executes the desired action.
You are paid a commission every time you succeed, and this money is more or less from the marketing budget of the company who is offering the affiliate program.
Some affiliate programs will pay you long after you make the sale as well-known as rebills. These products can be harder to sell, but with the right angle, they can be worth it in the value they offer with their monthly paychecks.
While there are far too many affiliate networks out there to list them all, here are a few common ones that many people use:
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If you want an explanation of how affiliate marketing works and a proactive plan that can help you make money in this business model, then check out our Youtube video below:
Affiliate Website Examples
It is often hard to visualize what affiliate websites would look like, so I gathered a few here for you to gain inspiration from when you go about designing or redesigning your own affiliate site.
Money Saving Expert
MSE is a great example of an affiliate site that has become an authority site. It is not offering thin content and barely veiled “reviews” that are trying to sell something. Instead they are offering actual actionable advice and maintaining a strong code of ethics in the often dirty personal finance niche. They make their affiliate commissions by linking out in their posts and pages to affiliate products they have agreements with.
Dating Advice is another affiliate site that makes money by promoting their affiliate links to different dating apps and websites (like Match and eHarmony). The dating niche is an incredibly profitable niche for internet marketers of all stripes. They often attracts people who want to make a quick buck, unfortunately, selling gimmicky info products or shady memberships.
This website takes a different tack on that, and offers good advice while keeping its ethics alive by promoting quality offers that aren’t out to scam those who buy.
The design is also a great design, one that you might be inspired by when you go about creating your own affiliate site.
The Pros of an Affiliate Marketing Model
There are many benefits of an affiliate marketing model. For one, it is a fairly passive model if you go the SEO route with your website. Unlike Amazon affiliates, there is a bit more of link management to do, which we will get into below.
Affiliate marketing can be incredibly lucrative with just one website and a bit of content. This is different than the Amazon affiliate model, which often takes several sites to create a great income with their sliding tier of commissions. In addition, there is an incredible variety of products to promote and sell. Almost every business has an affiliate program of some kind, you just scroll down to the bottom of their site and their affiliate program will be hyperlinked right next to their Contact Us link.
While every affiliate program is different, you are less likely to be hit by a ban hammer in the affiliate space than in the Adsense space. In general, affiliate networks can be a bit more lenient with their terms of services. You also have the benefit that many networks are hosting the same offers, so if one does ban you, you can usually replace that income with the new network offer.
Or you can do what many affiliates do and go direct to the company.
The vast majority of affiliate offers come direct from the company rather than affiliate networks.
In addition to all of this, you don’t really have a store to look after. You have zero products to ship or be held responsible for. You are literally just the marketing arm, unlike the ecommerce business model where you are sourcing the products that you are selling and dealing with the customer service portions of the business, along with logistics.
With affiliate marketing, you have next-to-zero need to do any kind of customer service. That is taken care of by the company that created the offer in the first place.
Unlike an Amazon affiliate business model, affiliate marketing tends to be more lucrative in terms of the profit margins you can earn per sale. This makes paid advertising easily profitable, so it can be a valid choice to grow your website. Many affiliate marketers focus almost 100% on paid traffic. They create a landing page, a sales letter, and off they go with Facebook ads or Google Adword campaigns.
While you should not invest in paid traffic without knowing a little bit about it first, having this opportunity can really boost your sales quickly, and almost overnight, versus having to wait around for rankings like you do with SEO.
Finally, one of the major benefits of affiliate marketing is that you can get paid a commission, even if you don’t sell a single thing.
This is usually called Cost-Per-Action or CPA offers. CPA offers typically require the visitor to take some kind of action, and if that visitor takes that action, then the affiliate network pays you. Often this action is submitting an email to become an email lead for a company, or filling out an entire form, whether a lead form or a survey data collection form. While CPAs pay lower than offers that pay you per sale, they often convert at a much higher rate, since there is no money that the visitor has to put down for the conversion to be complete. This higher conversion can often more than make up for the lower profits earned on an individual basis.
The Cons of an Affiliate Marketing Model
Affiliate marketing done right can be ethical, extremely helpful to the end consumer, and an overall good thing for both the company that created the offer and the affiliate promoting it (and, of course, the customer). Even still, there are drawbacks to the business model you should know about.
In fact, affiliate marketing often has a reputation for being sleazy, cheesy, or scammy in nature. This is something that affects the industry, mainly because of the low barrier to entry. Anyone can become an affiliate marketer, you just need to sign up for an offer and start promoting.
As you might imagine, this attracts a lot of unsavory characters to the field.
Because of this low barrier, affiliate marketing can also be incredibly competitive. After all, you are all selling the exact same product or service using the exact same sales letter and checkout process. If you don’t find a way to differentiate yourself, it is unlikely you are going to be able to succeed.
First thing to pay attention to, once you decide to go ahead with “good” affiliate marketing, is the affiliate offers themselves. Affiliate offers can come and go. I mentioned above that there is more link management involved with affiliate marketing versus Amazon affiliate sites because of this. If your affiliate link is pointing towards an offer that an affiliate network is no longer offering, you’re missing out on all the commissions you could be earning.
Secondly, while an offer might not disappear, you might be earning far less than you should be, because that offer suddenly has a max cap. In other words, the company that set up the offer only wants to spend a certain amount to get a certain number of customers or leads. The network limits how many paid leads/sales count towards the affiliate marketer in this case. You might end up giving away free leads or sales by accident in this case, so it is something to watch out for.
Finally, you don’t control the entire process.
That ultimately means there is less growth ability. For example you can’t just go in and change a checkout process to split test which one will perform better. You only really control the front or what is also known as “top of” marketing funnel. This makes your options more limited than if you were running a full blown business where you sourced the product yourself and controlled the logistics and check out processes.
What Buyers Need to Know
Before you buy an affiliate site, you should know a few things in advance.
First, find out all the affiliate networks being used on the website and figure out which other networks have the same offers, so you can use these as backups. You may need to move if the offer with the current network goes down or starts capping you. If at all possible, ask yourself if the offers on this site are evergreen or a flash in the pan kind of offer. If you are buying a website, you will likely want to make sure the offers are going to be sticking around for the long term versus only a couple of months after you purchased the website.
If the website isn’t an authority in its niche, ask yourself if it is setup to be one. You should always have this in mind, but especially with affiliate sites. Since affiliate sites have such a low barrier to entry, by buying an authority site, you are significantly putting yourself ahead of your competition who will be entering the game without an authority site. This will help you keep market share and dominate the niche.
Before purchasing the site, ask the seller if they have any special offers with their affiliate managers/networks. If they do, you will want to make sure that you are going to be getting the exact same special deals when you take over the website. These special deals could be something as simple as allowing extra people into a capped offer, or even as lucrative as providing a bump in pay percentage.
What Sellers Need to Know
You know by now the low barrier to entry that affiliate marketing has, so the more an authority your site becomes, the higher chance you have of selling your site for a much larger multiple.
Always be thinking about how you can make your business more defensible and more difficult to copy.
You should also have tracking setup for every affiliate link of yours. You can do this with something like Voluum that can track the sales you are getting and where those sales are coming from. This will be useful data for an analytical buyer who wants to split test the website, not to mention it will allow you to split test the site and possibly push your monthly net profit up which will also increase your site’s listing multiple price.
If you have any kind of special deals with your affiliate manager, make sure that you can…