Definition of Affiliate Marketing

Affiliate Marketing creates an association between two actors – 1) the Merchant (also known as the advertiser, or partner), and 2) the Affiliate (sometimes called the publisher). If we consider the Affiliate Program as a whole, we must add in another entity, the Customer, as well.

The Merchant provides the product for sale, and the Affiliate works to sell that product for the merchant and/or refer visitors to the merchant?s website. In return, the Merchant pays the Affiliate a commission for sales and/or contracted actions.

Payment Arrangements

Payment arrangements are usually performance-based (which is a form of risk mitigation by the Merchant) and arrangements are regularly structured as Pay Per Click (PPC), Pay Per Sale (PPS) and Pay Per Lead (PPL) – or some blend.

Affiliate Marketing Classes

If we separate affiliate marketing in terms of depth, we have three clear classifications: 1) single-tier, 2) two-tier and 3) multi-tier programs.

Single-Tier Affiliate Marketing

In Single-Tier Affiliate Marketing, the Affiliates get the commission, only for sending visitors or sales to the merchant?s website. Pay/performance and pay/click fall within this category.

Two-Tier Affiliate Marketing

In Two-tier marketing, the Affiliate gets paid commission for every action performed by the people he’s referred directly, plus he gets paid the commission when one of the people he’s personally referred gets compensated. Thus, he has a two-tier commission plan and the Affiliate earns both directly and indirectly.

Multi-Tier Affiliate Program

The multi-tier marketing is very similar to Two-Tier Marketing, but here, the Affiliates get paid for the sales made by their affiliated affiliates in multiple, unlimited, layers.

Residual Income Marketing

In Residual Income Affiliate Marketing, the Affiliate marketer is compensated for every sale that is made by any of his referrals.

In Residual marketing, Affiliates get compensated for every sale that his referral makes at the Merchant’s website. The only requirement is that on the first time visit, the person should come from the Affiliate’s pre-defined affiliate link. Then, whenever the same person visits the Merchant website (even without using the affiliate link), the Affiliate will get paid for every sale made by the visitor.

Cookies are what make this strategy work. A “cookie” is placed on the first-time visitor’s computer. This cookie reflects the affiliate id of the Affiliate. Cookies usually expire after 3 months; however, some may be effective longer.

Whenever a visitor visits the Merchant website, the visitor?s computer is checked for any previously created cookie. If a cookie is found, the affiliate id is retrieved from it and the Affiliate gets credited for any purchase made by the visitor.

Win-Win-Win

When the affiliate marketing relationship is well-planned and well-executed, everyone wins:

The Merchant gets greater visibility and market penetration, finding customers that would otherwise be outside the Merchant?s market reach.
The Affiliate earns a commission for online sales, without the hassles involved with establishing a full e-commerce site or having to manage product inventories.
The Customer obtains desirable and useful products that s/he would otherwise not find – at least not easily.

Properly done Affiliate Marketing is a Win-Win-Win situation.