Now that we have studied the basics of affiliate marketing, we will continue our learning by examining the affiliate marketing building blocks. In this article, you will learn how affiliate marketing works, the tracking system, and more. Let’s get started.
Affiliate Marketing Building Blocks
On paper, you can see that affiliate marketing is a simple system. It’s a useful strategy that many businesses use to make sales. Here’s how it usually goes.
- The affiliate refers a potential customer to the merchant. Affiliates may direct the customers to a website, a Facebook page, a social media page, or etc.
- A number of those customers will do the wanted action.
- Once the customer performs the action, the merchant rewards the affiliate.
- The cycle repeats.
Sounds simple enough, right? However, if it is such a simple and easy strategy, why is there a need to study and learn the affiliate marketing building blocks?
Well, this is because there are multiple ways in which an affiliate may choose to market a merchant’s product. Moreover, there are also a lot of different actions that can be rewarded by the merchant to the affiliate.
Lastly, and most particularly, there should be a way to keep track of the whole operation. Otherwise, the simple building blocks will fall.
Action and Reward
This is two of the most important affiliate marketing building blocks: the action and the reward. The action must be agreed upon by the merchant and the affiliate in order for the latter to achieve a reward.
There are plenty of different actions out there, and merchant’s won’t always go for the same ones. Here are some examples of actions and rewards:
- Cost for per action — the merchant pays a fixed commission for a specific action from the affiliate’s referral
- Cost for lead — the merchant pays a fixed commission for a lead from the affiliate’s referral
- Revenue share — this is where an affiliate earns a percentage of the acquisition amount
- Cost per click — the merchant pays a certain sum for each click to the website from the affiliate
Here are a few cases of the actions above:
CPA
For instance, the merchant wants to gather people for their newsletters. When a potential customer signs up to their newsletter because of a referral from the affiliate, the affiliate will earn a fixed commission.
CPL
Most of the time, merchants who prefer CPL are those who want to convert an online lead into an offline sale. This means that they want to either close the deal over the phone. They can also do this in person. Usually, the type of merchants who offer this are insurance companies, banks, membership sites, and etc.
Affiliates are more excited about this type of model because they are not in charge of the conversion course that happens offline. Whether or not the lead chooses to complete the transaction will not affect the affiliate’s reward or compensation.
Revenue Share
This is an ideal commission structure not only for the affiliate but for the merchant as well. The more conversions from the affiliate equate to more earnings for the merchant. This leads to an increase in compensation for the affiliate.
Most of the time, merchants choose to structure the commission offering to reward those affiliates who perform better. For instance, they might structure the layers of commission as follows:
- 1–10 sales: can lead to 10% commission
- 11–25 sales: can lead to 11% commission
- 26–50 sales: can lead to 12% commission
- 51 or more sales: can lead to 15% commission
Usually, affiliates are more dedicated to close sales for the merchant if they know the reward is higher. This makes it a win-win situation for everybody concerned.
There are a lot of various types of actions that can lead to compensation or a commission for an affiliate, and sales for the merchant. This means that you can use affiliate marketing to advertise any type of business online.
So, how do websites know which affiliates to reward? Which affiliates are doing better than others? Well, that is where the tracking part comes in.
Tracking
Another important affiliate marketing building block is tracking. This is one of the important keys to affiliate marketing. Merchants need to be able to track the whole development.
That means tracking the potential customer sent to their website through a completed action. This is very important for merchants because they need to know which affiliate to reward.
Fortunately, there is a lot of different specialized affiliate recording software out there. Affiliate networks usually support these tools.
Most of the time, the merchant and the affiliate will use their customized recording or tracking software. This is used to ensure that every data is correct. Here’s how it works:
- First, the affiliates will send traffic to the merchant’s website. This is done through links or URLs
- The tracking software gives each affiliate its unique identifier in the URL
- The customer’s computer will now have cookies because of the links with a unique identifier. This allows the software to track the sale
- Once the sale is made, the tracking software will identify which affiliate referred that sale
- The sale will be recorded on the merchant and affiliate’s software
- The affiliate will be rewarded
For instance, here’s an example of a product URL on a website: https://sale.com/product/1708
Here’s the URL of the same product but with an affiliate identifier: https://sale.com/product/1708/?ref=1
However, this is just an example of a URL with an affiliate identifier. Usually, affiliate links are much longer than this. It usually includes:
- The affiliate network
- The unique identifier for the affiliate
- The ID of the merchant
- The ID of the program used
- The used media
- The target destination of the click
After the potential consumer completes the recommended action on the merchant’s website, the cookie will then enable the tracking software to gather the information so that the merchant can award the commission.
What’s Next?
We hope that this article has guided you and helped you learn a lot about the affiliate marketing blocks. In the next article, we will teach you how to set up an affiliate marketing campaign. See you then!
© Image credits to Pixabay
