Affiliates 101, Part I: What It Is

Once upon a time, a new struggling internet company named Amazon.com was sad. It wanted to advertise its products better. It wanted to be better known. It wanted to become a household name. All without spending very much money.

It knew that having lots of inbound links would help it rank higher in the search engines. It also knew that a lot of links and referrers would boost their traffic.

It looked out on the ‘net horizon, and saw another net company named Geocities doing interesting things. They were helping people create “personal web pages”. Amazon thought, “How could we get all of those people making personal pages, and others all over the net, to point to us and our products?”

This creative company thought and thought and thought and finally had a wonderful idea. It thought, “What if we kicked back a little money from each sale to whoever sent us that customer?”

The smart little company did so, and soon became one of the world’s largest-ever retailers.

…And thus was born the Affiliate Program. Soon other sellers were creating their own affiliate programs. Today, children, the ‘net is covered with referral banners and affiliate text ads.

What an incredible burst of Win-win thinking it is! Everyone comes out ahead. The big retailer gets more inbound links, better ranking, and more customers. The small site owner gets some coin thrown back. Suddenly a little website about the family can make a little bit of lunch money.

Well, things have kept on growing. Now, there are those that make their full-time as affiliates, sending traffic to and remotely selling product from larger retailers. It’s not just pocket change any more.

How does it work?

Very simply: There are two websites involved. One is a big one, which we’ll call the “Retailer”. This is the one with all of the products, the one that actually processes the orders and does the shipping and fulfillment. The other site is the small one, which we’ll call the “Affiliate”. This one does the promotions and sends the customers to the Retailer.

The Affiliate has a site and has created a special link to the Retailer’s site. This link has a lot of hidden information in it. The most important part of this is the Affiliate site’s user ID. Along comes a customer clicking around in the Affiliate’s website. The customer likes the products that are displayed, and clicks to buy them. Suddenly the customer is at the Retailer’s site. The Retailer has tracked this customer from the Affiliate because when the customer clicked, it carried the user ID of the Affiliate. When the customer buys something, the Retailer keeps track of that, and adds a commission percentage to the Affiliate’s account. Once enough customers come from that Affiliate, and the commission reaches a certain amount (usually $25 or $50) they send the money to the Affiliate.


This is a great way to make money off of a website. There are a number of advantages and disadvantages of using affiliates.

Advantages:

1. Simple signup: It doesn’t take a lot of paperwork or government documents to set up an affiliate relationship with a Retailer. Not like some dropshippers or wholesale distributors might require.
2. Scope: If you’ve got a site about something, virtually anything, you can find an Retailer with an affiliate program somewhere that is selling something that relates to it. At the very least, Amazon.com or Barnesandnoble.com will sell a book about it.
3. Credit Card Processing: Since the Retailer is handling the money, you don’t have to have a merchant account, and so, don’t have to pay those requisite fees

Disadvantages:

1. Shopping is difficult: When someone buys one of the products you provide, they are actually leaving your site to go the Retailer site. Getting them to come back and shop more can be tricky. You also can’t build a mailing list off of your orders, because someone else is taking the orders.
2. Profit: Since you’re dealing with the Retailers, and your commission is essentially coming out of their profit margin, that percentage is going to be relatively small. Usually, it’s between %5 and %10 of the retail price.
3. Traffic: In order for there to be enough sales at the Retailer to make you any significant commission, you have to have a lot of traffic in your front door. Most of your work will be in promoting your website and bringing traffic there.

In the next few articles, we’ll be talking about how to maximize the advantages and minimize the disadvantages and make a site that will bring in the money!

Mark is the co-director of http://seotrafficmagnet.com, the search marketing consulting arm of Clickincome (http://clickincome.com). Mark also has other sites and blogs, including MarkHansenMusic.com and his MoBoy blog.