Affiliate Marketing – The Basics

Affiliate marketing is a very compelling idea; it provides many new income opportunities that have not only been unavailable, but were outright unimaginable a mere 2 decades back.

So what is affiliate marketing? While it may seem like everybody knows the online playground like the back of his own hand (or at the very least want you to think they do), some of us may still be left in the dark, or at least partially. 

In its essence, affiliate marketing revolves around the following mechanic: You (the affiliate) are rewarded for each visitor/customer you can bring to the business you are promoting. This can be done in any number of ways, but a good and simple example would be to consider some of the ads you encounter while surfing the web – the minority are simply paid-for ad space, but many of them are part of an affiliate marketing effort. If you visit a fishing-themed website, the ads promoting new fishing gear on the sides are just that – the website’s owner is rewarded for each reader the clicks the ad and/or makes a purchase eventually. There are different types of agreements between an affiliate and the promoted service, but the concept stays the same.

Now that we have the core of affiliate marketing down, let’s go over some of the key terms everyone should before diving in to the nearly limitless world of affiliate marketing:

Advertiser (or merchant) - The advertiser or merchant is the entity that pays an affiliate for directing traffic to the advertiser’s website when a product/service is eventually purchased (by the traffic).

Affiliate: An affiliate is the owner/operator of a website that earns a commission for referring traffic to an advertiser. This can be in the form of clicks, leads, sales, or a combination.

Affiliate Agreement: The terms and conditions of an agreement between an advertiser and an affiliate that defines the payment structure for directed traffic. 

Affiliate Link: This is a special URL that serves as a tracking link so that the affiliate’s traffic is identified correctly. Usually, an affiliate link includes the advertiser’s website followed by an affiliate ID. For example – www.nowebsite.org/m.asp?AffiliateID1234.

Affiliate Manager: An affiliate manager represents the advertiser’s affiliate program.  He recruits affiliates, manages incentives, provides marketing material (media) to the affiliates, as well as serves as the main contact for any further communication.

Affiliate Tracking: The process of tracking traffic brought in by the affiliate.

Banner Ad: A banner ad is an advertisement that usually includes an image or a series of images to promote a certain product or service.

Click-through: Click-through is defined as the instance in which a user clicks on a link and reaches the advertiser's website.

Click-Through Ratio (CTR): CTR is defined by the percentage of users who click a link and visit the advertiser's website.

Cookies: Cookies are small .txt files are stored on a users computer. They may contain information regarding your preferred language or layout, as well as information that is needed for affiliate marketing, such as which banner was clicked at what time, as well as other information that is used for large scale analytics. 

Conversion: The instance in which a user has clicked an advertisement and made a purchase.

Conversion Rate: The conversion rate refers to the percentage of clicks that result in a sale or lead out of the total clicks.

CPA: Cost Per Action – calculated as the cost of a single conversion. 

CPC: Cost Per Click – calculated as the cost of a single click when working under a per-click agreement.

CPO: Cost Per Order – CPO is actually no different than CPA, but refers more specifically to sales.

Impressions: Refers to the number of times an advertisement has been viewed.

Lead: The information left by a user for further contact with the advertiser. For example – a user visits your website and signs up for more information regarding a service you are advertising as an affiliate. The information left by the user is the lead.

PPL: Pay-Per-Lead – an affiliate program that rewards affiliates for leads.

Pay-Per-Click: Rewards an affiliate for each unique click to the merchant's web site.  This type of affiliate program is uncommon because of click fraud or fake clicks.

ROI: ROI (or Return on Investment) is what everyone is after – a higher return on investment. The higher the sales, value of sales, and margins - the better.

Targeted Marketing: Refers to targeting specific user profiles for advertisement. For example – males in the ages of 18-34 are the main audience of websites regarding new gadgets. Advertising in these websites would target that demographic.

Text Link: A simple form of advertisement that includes some text that serves as a link.

Unique Click: Unique clicks are calculated by counting only one click made by a user (and not any further clicks). They are usually tracked via IP address and/or browser header.

Keep in mind that there are many more aspects to affiliate marketing that have not been included in this post. These are just the fundamental mechanics of how affiliate marketing works, so stay tuned for more posts on some of the more advance topics that will cover new ways to maximize your earnings from affiliate marketing.