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How Does Affiliate Marketing Work?

by Igor Shevkopyas

affiliate marketing tag cloud

It costs a lot of money to advertise and bring in new customers. If you are just starting your business, you probably do not have a lot of money to hire staff and you most likely do everything yourself, including product development, book keeping and sales.

Generating leads and sales is where affiliate marketing, or performance based marketing, can help. It is as simple as an affiliate adding a text link or banner on their site pointing to yours. You give the affiliate a commission on the sales they generate or the traffic they send to your site. You do not have to pay the affiliate until you have the money from a sale or lead they referred.

With a bit of behind-the-scenes code and software installed on your website, you can benefit from this completely commissioned sales force marketing your products and offerings.

Though the coding and tracking can be complex, the actual concept is fairly basic.


  • You start by installing your chosen affiliate marketing software on your website or hosting account. The affiliate marketing software will track links, sales and commissions.
  • Each time a new affiliate signs up, the affiliate marketing software assigns a unique link or ID for that affiliate to use to promote your offering. The affiliate can then use anything from banner ads or text links to an email signature or email marketing to promote your offer.
  • When a visitor clicks the affiliates ad or link, the affiliate marketing software places a cookie on the visitor’s computer. The affiliate marketing software uses this cookie to identify which affiliate referred the visitor.
  • When this visitor decides to buy your product or sign up for your offering, the affiliate marketing software, which is connected to your ordering system, reads the cookie to identify the referring affiliate and generates a commission for him or her.

Affiliate Marketing

In addition to pay per sale, you can also pay affiliates per click or per lead. You will most likely pay a smaller commission per click or per lead than you would for an actual sale, but if your conversion rate was high and you had a high profit margin on your eventual sales, then pay per click or pay per lead may generate more profit for you.

It is all a numbers game. The more affiliates you have promoting your offering, the more visitors are going to get referred to your site and the more eventual sales you will make.

As your business grows you may resent the large commission checks you are paying out, but your increased sales should more than cover them. If you compare the commissions paid to affiliates to the cost of you advertising your offering yourself, you are probably still further ahead.

Remember, you do not pay until the affiliate makes a sale. You would have to pay a lot of money upfront to advertise before you made a sale without affiliate marketing. And affiliate marketing software helps to make the whole process a lot easier.

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