Affiliate marketing is a process in which an affiliate earns a commission for marketing another company’s or person’s product. The affiliate finds and evaluates a product it wants to promote, markets it to an audience, and receives a share of the revenue from qualifying sales. Sales or conversions are normally tracked through affiliate links that connect one website or channel to another.
How does affiliate marketing work?
Affiliate marketing distributes parts of the sales and promotional process across several participants. This allows individuals and companies to build performance-based marketing strategies while sharing revenue according to agreed terms. Three main participants are usually involved:
- the seller or product creator
- the affiliate or marketer
- the customer
To understand why this model can work effectively, it helps to look at the relationship between these three participants.
1. Seller and product creator
The seller may be an individual entrepreneur or a large business and is the creator, owner or retailer of the product or service. The product can be a physical item, a digital product or a service.
The seller does not necessarily have to participate directly in the affiliate's marketing activity, although it can still manage the program, provide materials and define commission terms.
For example, an e-commerce merchant launching a new business may want to reach a specific target audience. It can pay affiliates or publishers to promote relevant products and send qualified visitors to the store.
2. Affiliate or publisher
An affiliate can be either a person or a company that promotes a merchant’s product in a way designed to attract customers. The affiliate highlights the strengths and relevance of the product or service so that the audience is more likely to consider it. If a referred customer completes a qualifying purchase, the affiliate receives the agreed commission.
Affiliates often focus on a specific target audience and build their marketing strategy around that audience’s interests. This creates a niche or personal brand that helps them attract relevant customers and grow their own business.
3. Customer
Whether customers are actively aware of the affiliate structure or not, they play the decisive role in the transaction. Affiliates distribute product recommendations through social networks, blogs, websites, newsletters and other channels.
When the customer purchases the product, the seller pays the affiliate according to the commission structure. Affiliates may disclose their role directly to the customer, and in many markets or platforms disclosure is required by advertising rules.
In a well-designed affiliate program, the customer usually pays the normal product price while the merchant funds the affiliate commission from the transaction economics. The customer receives the product they wanted, while the affiliate is compensated for generating the referral.