Just what the hell is Affiliate Marketing?

If your not familiar with the term affiliate marketing then you probably don’t even realise it but you have been an affiliate or even bought from an affiliate at some point in your life.  In fact it could be argued that every high street retailer is in fact and affiliate of the supplier of a product, but that’s going a bit far.  Affiliate marketing, in terms of the internet, has exploded over the last few years due to the stabilisation of technology and the creation of more secure forms of financial transaction and sales tracking.

Basically, when two websites start sharing revenue to sell a product or service, it is known as affiliate marketing. Amazon was the one of the world’s first recognised and trusted sites to start large-scale affiliate marketing with affiliates get paid anywhere between 4-50% for sales generated through their own websites. Payment is typically recorded and made at the end of each month on the number of registrations, leads or sales or as a combination of the above depending on the method agreed between the merchant (the supplier) and the affiliate (the vendor).

Affiliate marketing works by cookies.  Not the type that have little bits of chocolate embedded inside them but rather, a small file, with little titbits of information that store essential data relevant to a person who clicks on the buy button on a vendors website .The cookie is saved in the person’s computer and this facilitates the tracking. When a sale is done then the vendor gets paid the amount of commission agreed and the whole record is stored in a CRM (Client Relationship Manager) available 24 hours a day to the vendor.

Incorporated into the CRM for affiliates get their daily statistics and reports on the number of clicks, sales, leads etc. Affiliate marketing connects buyers and sellers. This is how online marketing works. The amount of money spent online is increasing day by day. E-commerce is picking up at a very fast rate worldwide.

Britons spent a record £14.7 billion over the web last year – up 35 per cent, or nearly ten times the rate of growth of the total retail market. The number of people who bought goods online also increased by 24.7 per cent to 22.6 million, research shows. And they are spending over the internet more regularly – an average of 16.9 times in 2007, up from 14.2 times in 2006. Cheaper broadband and better availability of the service also lead to the increases, analysts Verdict Research claimed.

Affiliate marketing in the UK grew by 25% during 2008, taking the total value of online sales generated by this channel for that year to £3.82 billion*. The same report found that UK merchants involved in affiliate marketing drive 12% of their online sales via this channel and that despite the recession the affiliate marketing industry was worth well over £4bn by the end of 2009 and is expected to be even larger by the end of 2010 overall.

Valueclick, the owners of the affiliate networks Commission Junction, shopping.net, PriceRunner along with MeziMeida who operate Smarter.com and CouponMountain.com made their financial and fiscal data available.  Market watch reported:

In the fourth quarter of 2009, revenue in the Media, Affiliate Marketing and Technology segments exceeded the Company’s expectations, and all four business segments exceeded the Company’s expectations for operating income.
The breakdown, rounded up to the nearest thousand and based on affiliate marketing specifically is listed below:

Year 2009
•    Revenue total – $111,903,000
•    Cost of revenue – $15,617,000
•    Gross profit – $96,286,000
•    Operating expenses – $38,165,000
•    Segment income – $58,121,000

Year 2008 (for contrast and comparison)
•    Revenue total – $121,972,000
•    Cost of revenue – $19,374,000
•    Gross profit – $102,598,000
•    Operating expenses – $43,143,000
•    Segment income – $59,455,000

Not very impressive right?

They are only down 5 million on the year before and this can be attributed to the economy and the state it is currently in today.

Spokesman Malcolm Pinkerton said “As the cost of broadband falls, consumers become accustomed to internet shopping and retailers continue to enhance their online propositions, the channel will find itself extremely well placed to capitalize on the falling consumer confidence and lower levels of disposable income currently impacting the retail market”.

In light of these statistics and predictions it is clear that affiliate marketing should form part of an integrated and successful digital marketing strategy.

There are many affiliate marketing websites through which you can choose the products you would like to promote through your website. Commission Junction, Click Bank, E-junkie and Linkshare are some of the well-known affiliate marketing websites. Quite literally, thousands of publishers join affiliate marketing daily and while merchants join at a slower rate, it is increasing in velocity ensuring a much wider range of products or items are available.

Beginning to work as an affiliate or indeed using the networks mentioned earlier to have other people sell your products is a pretty simple process and in many cases the processes and opportunities are severely under estimated and under utilised, hence the reason for this article.  When I explain what affiliate marketing means and consists of and the benefits associated with this type of selling most businesses cant wait to get involved.

That’s when I need to explain the bad side.  Its not a major issue and it is handled well by the affiliate networks but its one that many have to consider before offering their products to other affiliates and its all about brand protection and reputation management. When other people sell your products you have little or no immediate control over how they approach the matter. While the likes of spamming are not permitted under the membership agreements of the affiliate networks, it wont stop people trying to take advantage and hope they don’t get caught.  If caught of course they and their details can be permanently banned from the network.

So, the question remains, what have your affiliates sold today?

* The eConsultancy Affiliate Marketing Merchants Report 2008