Business Idea: Affiliate Marketing
Affiliate marketing: how it works
Affiliate marketing allows you to earn money (or other benefits, such as account credits) by promoting the products or services of other businesses.
Affiliates – often called ‘publishers’ – earn a commission for each successful sale that occurs as a result of their promotional efforts.
For example, let’s say you publish an article about photography on your website. At the end of the article, you could include an affiliate link to your favourite photography book on Amazon. If one of your readers clicks on that affiliate link and buys the book, plus a few other books, you’ll earn a commission on all of those purchases!
It typically works by using unique links and cookies to track any sales that are generated after a customer has clicked on one of your affiliate links. Most affiliate commissions are then calculated as a percentage of the total sale value. Some components, such as postage, are often excluded from that calculation.
It’s important to note that customers won’t pay any extra for purchases made through affiliate links. The affiliate just gets a small commission from the business for delivering the sale.
Customers may actually pay less for items purchased through affiliate links, as affiliates often have discounts or special offers to promote.
Sign me up!
To get started with affiliate marketing, you’ll need to sign up for one or more affiliate accounts.
Some businesses manage their own affiliate program, but most use the services of a specialist affiliate program provider, such as Commission Factory.
These providers, often called ‘affiliate networks’ offer a one-stop-shop for businesses that want to use affiliate marketing to promote their products and services. The platform handles the tracking technology, management interface and payment system.
Signing up as an affiliate (publisher) with some of the larger affiliate networks will give you access to a huge range of products that you can promote.
Once you have an account, you can browse the directory of businesses to find suitable products to promote. When you find a good fit, you can apply to join that business’s affiliate program. Some businesses will automatically approve all applicants, while others have stricter requirements, such as minimum visitor numbers per month for affiliate websites.
If you’ve ever purchased a WordPress theme from ThemeForest, you’re already signed up to their affiliate program (they manage their own program). You can generate affiliate links and start promoting their themes immediately. It’s fairly rare for businesses to automatically include you in their affiliate program, but there are a few exceptions like ThemeForest.
Affiliate marketing programs
Below are some of the main affiliate networks. This list isn’t exhaustive, there are many others (particularly for the U.S. market), but the providers below cover many thousands of affiliate opportunities.
Our top pick for the Australian market is definitely Commission Factory.
Local (Australian) market
- CJ Affiliate by Conversant (formerly Commission Junction)
- Rakuten Affiliate Network (formerly LinkShare)
- Amazon Associates – not strictly a network as it ‘only’ covers Amazon, but it definitely deserves to be in list!
Hold on! Before you start signing up to every affiliate program on offer, let’s take an in-depth look at how to do affiliate marketing successfully.
The metric that matters
There is one key metric that can be used to explain the success or struggles of most affiliate marketers: conversion rate.
Across the affiliate marketing industry, the conversion rate is typically very low. That’s the main dampener on earnings.
So what does ‘conversion rate’ mean? In a nutshell, it’s the proportion of your website visitors that click on one of your affiliate links and make a purchase, earning you money.
For example, if your website has 100 visitors per day, and one of those visitors clicks an affiliate link and purchases a product; then your conversion rate would be 1%.
In that example, the conversion rate was calculated by dividing the number of purchasing visitors (1) by the number of all visitors (100). The result of 1 divided by 100 is 0.01. Expressed as a percentage, the answer (and conversion rate) is 1%.
To improve their earnings, many affiliate marketers will focus on increasing the total number of visitors to their website. Whilst that can certainly help, if the conversion rate remains low, then it will always be an uphill battle.
To dramatically increase earnings – you need to improve the conversion ratio.
Increasing the proportion of visitors that ‘click and buy’ is what really boosts your income.
Keep reading to learn the tips and tricks that will help you to earn more money through affiliate marketing.
Choosing the right topic
First and foremost, you should pick a topic that interests you.
You don’t have to be an expert on that topic, as you can learn along the way (or outsource some of the writing), but you should at least find it interesting. Fun is even better.
For a more detailed look at this, check out the ‘Interesting‘ section of this article: How to choose a business: the criteria that matter.
However, keeping your interest alone is not enough. It should also be a topic that has earning potential.
Some topics are simply not viable for earning affiliate revenue. For example, the topic may be super niche with a very small addressable market.
For tips on determining a viable topic to pursue (i.e. one that will make money), see the ‘How big is the potential target market?‘ section in our guide to starting a blog.
Reap the rewards
Create a basic website, add some affiliate links …sit back and watch the money flow in.
If only it were that easy!
There are lots of people spruiking ‘get rich quick schemes’ based on affiliate marketing. Most of it is bullshit.
It’s certainly possible to make an incredible living from affiliate marketing, but it will take time and effort.
Affiliate marketing won’t auto-pilot you to riches. Anyone that tells you otherwise is lying.
To reap the rewards you need to offer value to your target audience.
That means providing information or advice that meets their needs. It also means promoting products or services that they actually want.
Of course, to give them what they want, you need to know what that actually is! It’s critical then, that you understand your target audience.
Know your audience
Market research can be time consuming and costly – or it can be quick and cheap! You don’t need to spend a fortune engaging market research firms, in fact you may not need to spend any money at all. Here’s some cheap (or free) approaches to market research:
- Spend some time in online forums related to the topic/industry/product.
- Buy some magazines focussed on the relevant industry. What topics do the articles cover? What products and services are being advertising?
- Have a look at the leading blogs on the topic. What do they cover in their articles? What seems to be their most popular articles?
- Attend industry events. Ask what people want face-to-face!
- Conduct a survey. SurveyMonkey is free for up to 10 questions and up to 100 respondents.
- Run a series of advertisements on Facebook, prompting people to click on a link (perhaps to the survey mentioned above!). Facebook allows for quite precise demographic and topic targeting, so it can be a great way to reach your intended audience. You could run a series of ads, each with differing content/offers. See which ads convert the best to work out what resonates with your target market.
That’s just a starting point. There are lots of ways to engage with your intended audience.
For example, if your target market is students, you could put up some flyers at the local university. Offer free pizza and beer for a one hour chat with the first 20 students that respond (it’s probably a good idea to set an attendee limit!).
Give them what they want
When it comes to determining what content to have on your website, it should always go back to this principle: give your target market what they want!
The whole purpose of the market research outlined above, is to determine what value (information or advice) you should aim to provide to your target market; and what products or services you can promote at the same time.
For some great tips on delivering quality content, check out our in-depth guide to starting a blog.
Promote the right products or services
Now that you understand the needs of your target market, you can promote the products or services that they actually want (and will buy) through affiliate links on your website.
However, not all affiliate referrals are created equal. Some could earn you thousands of dollars, while others could yield just a few cents.
You need to consider the returns per conversion.
The commissions-based nature of affiliate marketing doesn’t really lend itself to promoting very low-priced items. For example, if the affiliate commission rate is 5% and the product costs $1, for every referral you send that results in a successful sale: you’ll get just 5 cents.
Given the typically low conversion rate that I spoke about earlier, if you’re only getting a few cents for each sale – you’re really selling yourself short. You’ve worked hard to attract visitors and to steadily improve your conversion rate, so make every click count!
To make worthwhile returns from promoting very low-priced products, you would need enormous visitor traffic. Using that earlier example of the $1 product, to earn just $5 in commissions, you would need 100 visitors to click on your affiliate link and make a purchase. To earn $50 you would need to generate 1,000 successful affiliate referrals. That’s a terrible result for that many conversions.
At the other end of the spectrum, you’re not going to get many (likely any) buyers of sports cars online either, so a sensible middle ground between ‘top-dollar’ and ‘bargain-basement’ priced products is usually the way to go.
Ultimately though, you should be guided by your target market – how much can they (and will they) pay? Your market research should have provided some guidance on this.
For example, typically university students are ‘budget-constrained’. If you were targeting that demographic, then it would make little sense to focus on promoting high-end, luxury products. Your conversion rate would be dismal, because the offering isn’t suited to the target market.
Products that people do and don’t buy online
This warrants a special mention, because getting this aspect wrong could mean failure from the outset.
The range of products and services that people buy online grows broader with each day. However, there are still many products that are so rarely sold online, that promoting them will surely be a waste of your time and resources.
For example, the following items are not typically purchased online: couches, fridges, rubbish bins and lawnmowers. These items are usually purchased in-store.
Conversely, the following items are frequently purchased online: airline tickets, concert tickets, website hosting services and insurance.
Some items, such as kitchenware or books, are often purchased both in-store and online.
The key is to avoid those products or services that are rarely purchased online.
Think about your own purchasing behaviours. If you, your family or friends wouldn’t purchase a particular product online, then maybe not many other people would either.
Don’t promote rubbish products
If you promote crappy products or services, you’ll quickly lose the respect of your audience.
This quote from one of the world’s most successful investors sums it up well:
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
You should promote products that are genuinely useful, brilliant even.
Not only will you build a positive reputation for your brand, you’ll also see greater returns (affiliate revenue) as a result. Doing the right thing by your audience is more profitable in the long run.
It’s not enough just to offer what your audience wants – they also need to know that your website exists!
The mantra of “if you build it, they will come” may work in the movies, but in the real world – marketing is the tool that brings people to your door.
Here’s a few approaches for promoting your website:
- Posting and advertising on social media. But, make sure you’re on the platform(s) that your audience actually uses – see this article for more info.
- Publishing guest articles on other websites (containing links referring to your website of course).
- Promoting your website through online forums related to the topic or target market. Don’t be overly pushy though, engage in conversations and help others more than you promote your site, otherwise it will seem spammy (and you may even get booted from the forums).
- Advertising on Google through Google AdWords.
- Advertise in industry (or ‘trade’) magazines.
For more tips, see the articles under our Marketing topic.
You can offer people what they want, let them know about it (marketing), but still fail to convert visits into earnings.
Your website, and your overall brand image, needs to connect with your target market. Visiting your website should be a positive experience.
Looks do matter when it comes to websites. Studies have shown that design plays a big role in how people perceive your website.
People are more likely to trust a well-designed, attractive website; which also means they’ll be more likely to take action (‘click and buy’) and to return in the future.
Conversely, a poorly designed, unattractive website may be deemed untrustworthy or ‘spammy‘. People are far more likely to ‘bounce’ in the first few seconds of arriving at a terrible looking website. And they won’t be back.
The old saying “you don’t get a second chance to make a good first impression” definitely applies.
To create a fantastic brand that resonates with your audience, check out our massive branding guide.
Some affiliate marketers recommend ‘cloaking’ affiliate links.
Cloaking simply means changing the appearance of affiliate links …so that they look less like affiliate links.
Some affiliate links can look a bit ‘spammy’. For example, they often include long strings of characters in the URL. Cloaking can make the affiliate links look ‘cleaner’, and some would argue, more trustworthy.
The idea is that people are more likely to click on a link that looks like this (not a real link):
Than one that looks like this (real affiliate link):
(That’s a great book by the way!)
We don’t currently use link cloaking on HomeBusiness.com.au. However, if you’re interested in cloaking your affiliate links, this article by Joost de Valk has some useful suggestions: How to cloak your affiliate links.
Some bloggers recommend disclosing to your audience every time that you use an affiliate link. However, in many cases that’s probably over the top.
Instead, you could include a simple statement at the end of each article. Something like: “This article includes affiliate links to products that we recommend. You won’t pay any more when purchasing through our affiliate links, but we’ll receive a small commission that will contribute towards making this website even better!“.
Pick the approach that feels right for you and your audience.
Play by the rules
Affiliate programs will often have rules about how you can use their affiliate links.
For example, many businesses will stipulate restricted keywords (such as their brand or product names) that affiliates are not to use in paid advertising. Otherwise, their affiliates could end up competing with them for the best advertising terms, driving up the cost of their advertising. It could also create brand confusion if consumers think the affiliate officially represents the business or its brands.
Read the affiliate guidelines carefully, because if you get booted from a program, it’s unlikely that you’ll ever be welcomed back.
So why not build ten websites and skyrocket your affiliate revenue? Because you’ll be spread so thin across those ten websites, that none of them will get the attention they need to succeed.
One great website will earn you far more than ten very ordinary websites.
It could be that your first attempt isn’t a winner, so replicating that across nine other websites isn’t going to help. Some people get it right on the first go, but many others experience a few failures on the way to success, myself included.
Prove the model with one website first. Once you’ve succeeded with that website, then you can start removing yourself as a required input. You can do this by outsourcing content to freelance authors, for example. Once that website is running on auto-pilot, then you can look at building the next website and applying the same winning formula.