Affiliate marketing is a broad term that refers to a commission based payment method.  Basically speaking, an affiliate promotes products or services that are provided by a merchant and receives a commission (or finder’s fee) when their efforts result in a sale. Internet-based affiliate marketing dates back to late 1994, when many e-commerce sites started employing the affiliate sales models and finding that they produces fantastic results. Currently, affiliate marketing is a very important player for most e-commerce merchant’s marketing strategy.

When an affiliate joins in with an e-commerce merchant of some sort (be it a subscription service, a shopping site etc.) payment is received through referrals done from the affiliate’s website, usually through one of the following methods:

1. Pay-per click systems  basically, the affiliate displays advertisements on their site and is paid when a customer or internet user clicks on the link to that website
2. RSS feeds or blogs – even personal sites can sit under this category. Blogging is fast becoming a staple form of marketing and promotion, and affiliate marketing pairs well with this form of online communication
3. Comparison sites and shopping directories – such as review sites or legitimate advertising sites
4. Loyalty sites – this is when a reward system is in place via a cash back or points back system (or charitable donations).  This is also referred to as Incentive advertising
5. Coupon sites that focus strictly on marketing and promotions
6. Email lists – legitimate email lists to subscribers of the affiliate’s website etc… These should be opt-in lists, NOT spam
7. A registration path – when a person registers with a specific site, be it for a newsletter or subscription, offers from other companies are represented and advertised
8. Networks – there are many affiliate marketing networks. Some even function on a multi-tier or multi-level marketing set up.  These offer more opportunities for affiliates, but also more competition in the marketplace.

Hopefully this little list will help you understand a bit more about the different types of affiliate marketing.  I’ll be covering each one of these methods in-depth over the next few weeks, so stay tuned.

Affiliate marketing can be a daunting and complicated enterprise but at it’s core the concept can be explained simply.  Affiliate Marketing is a way of promoting online business through affiliate programs and other forms of advertising that pay the affiliate (or publisher) a commission based on the amount of business their website brings the merchant company.

To put the above statement in plain English, an affiliate marketer sells goods or services for the parent company.  The parent company then pays the affiliate a percentage of the sale for his or her efforts.

Affiliate marketing is a form of revenue sharing or commission-based advertising. The term “affiliate marketing” however, is often associated with network marketing or multi-level marketing (MLM).  This negative connotation causes some companies to use the term “performance marketing” for their ad campaigns, but the process for either form of advertising is identical.

Affiliate marketing is the most cost effective form of marketing a business can engage in, and is actually incredibly efficient. For this reason many companies (especially those that started in the early days of e-commerce) owe a tremendous amount to affiliate marketing. (Amazon.com is a good example.) It has become normal for companies to include affiliate marketing in their sales strategy.

Publishers participating in affiliate programs are generally compensated in one of four ways:

• Cost Per Click(CPC)
  CPC Advertising pays the affiliate based on the number of clicks an ad or link generates.  A famous example of a CPC system in action is Google’s AdSense ads, which generate incredible sums of money for both Google and its advertising partners.

  While this method works well in the arena of search marketing, factors like click fraud and other questionable tactics; most affiliate programs opt to use either the CPA or CPS models for their programs.

• Cost Per Mil (CPM)
  In Cost Per Mil advertising, the affiliate is paid a flat fee for every thousand visitors that see an advertisement on the publisher’s blog or website.  This method is widely used by blog advertising networks and social media sites, but is rarely used by affiliate companies as a means of selling products.
• Cost Per Action (CPA)
  The Cost Per Action model pays the affiliate whenever a visitor to his or her site completes an action such as filling out a registration form or signing up for a newsletter.  This model is sometimes referred to as Cost Per Lead, since the visitor does not usually have to pay the affiliating company any money at first.  They use the ads simply to gather prospective clients, rather than to make the initial sale.
• Cost Per Sale (CPS)
  The Cost Per Sale model works in an identical manner to CPA advertising, but is based completely on sales. In this model the affiliate is paid only when the visitor actually purchases a product from the parent company.  In most cases the company will track visitors so that the affiliate will be paid even if the visitor does not make a purchase on their first visit, though the length of time that an affiliate will be paid after the initial visit varies by company.

As you can see, the basic principles of affiliate marketing are quite simple. If done correctly, becoming an affiliate can generate a significant amount of revenue, both for the affiliate and the parent company.

Affiliate marketing is not, like some would have you believe, an easy way to make millions while you sleep.  It takes a lot of hard work and dedication in the initial stages to gain the trust of your readers and entice them to follow through with an action or a sale, but it is definitely possible.

In later articles I’ll cover the best way to choose the right affiliate ads for your site and the most effective ways to promote those affiliate efforts for maximum impact. For now, think about what you write about every day.  Are there products out there that are a perfect fit for your interests?  Would they interest your readers?  If so, you might want to see if those companies offer affiliate programs and if they do, sign up and start writing!