Think affiliate marketing works

Affiliate Marketing: Definition, Examples and Strategies for SMEs

Affiliate marketing is a term that has appeared more and more frequently in connection with online marketing in recent years and will continue to gain in importance. Therefore we dedicate ourselves to this topic with a separate article that covers the following aspects:

  • What is Affiliate Marketing? A definition

  • Commission models - how is billed?

  • Affiliate Marketing - Examples and Areas of Use

  • How and where can I find suitable affiliate partners?

What is Affiliate Marketing? A definition

"Affiliate" means something like "affiliated company" or "partner" in German. So you can already guess what an affiliate system is about: A business partnership.

Affiliate = partner, affiliated company to affiliate = take on, join, join

In affiliate marketing, the “affiliate”, also known as the “publisher”, sells advertising space on its website to a company. The affiliate passes on visitors to his site via a built-in link to the corresponding company. This company is then called the “Advertiser” or “Merchandiser”. The advertising material (images, text, etc.) is made available to the affiliate by the company. Ultimately, affiliates are sales partners of the respective companies and receive payment based on success. This shows what, in my opinion, is the central difference between affiliate marketing and classic display or banner advertising: With classic banner advertising, companies pay for the mere display and the number of clicks on the banner (e.g. on Google). In affiliate marketing, this is not enough for the affiliate to receive their commission. An affiliate is only paid if the referenced user also makes a follow-up action on the website of the relevant company, e.g. a purchase. In contrast to display advertising, the focus here is more on quality than on quantity.

In many affiliate marketing definitions, such systems are therefore often referred to as partner programs because advertisers and affiliates have common interests: Both benefit from each other's success. Probably the best-known and largest partnership program comes from Amazon. Affiliates get different commissions depending on the advertised product. For example, there is a 3% participation in computers or 5% in shoes. An affiliate not only earns from the product they advertise, but from the entire shopping cart of the referred customer. In addition, it is sufficient for the referred user to add the product to the shopping cart within 24 hours of clicking the link and to place an order containing the advertised product within 89 days.

There are now countless sites online that earn money with Amazon's affiliate program. As an example, I can mention Gintlemen, a blog for gin reviews. The corresponding links from Amazon are placed in the individual reviews, which forward the user to the corresponding products at the mail order company.

These links are called Affiliate links designated. Affiliate links contain a code that can always be used to trace the page from which a user was referred to the advertiser. This ensures that the right affiliate receives their payment. The affiliate links can be incorporated into texts, images, etc.

The diagram below shows the affiliate marketing process again at a glance:

Commission models - how is billed?

There are many different commission models in online advertising. The most widely used methods in affiliate marketing are the “Pay-per-Sale”, “Pay-per-Lead” and “Lifetime Commission” models. In the affiliate marketing definition above, I already indicated that with classic banner or display advertising, individual clicks are often billed. In order to make the difference to the condition models in affiliate marketing clear again, I will briefly start with the two models pay-per-click and pay-per-view, which are used, for example, by Google AdWords.

Pay-per-click / cost-per-click

The “Pay-per-Click” (PPC), also often referred to as “Cost-per-Click” (CPC), which is often used in display advertising, includes a fixed commission for every single click. The pay-per-click model does not take into account whether a user actually makes a purchase after being forwarded or not. The only thing that counts is the number of clicks. Theoretically, it is possible that you pay for thousands of clicks, but in the end not a single purchase comes out of it.

Pay-per-view (CPV) and the thousand contact price (CPM)

With the pay-per-view model, so-called “ad impressions”, i.e. the pure display of an advertisement, are billed. Payment is then mostly made on the basis of the so-called thousand contact price (CPM). As the name suggests, a fixed amount is paid for every thousand impressions.

The thousand-contact price is therefore more aimed at quantity than quality and is intended to achieve the greatest possible range.

Pay-per-sale (PPS)

With the pay-per-sale (PPS) process, the affiliate receives their commission when the referred user actually makes a purchase. The commission can be paid on an absolute (e.g. 5 euros / purchase) or a relative basis (e.g. 5% of the purchase value). The example from earlier, Amazon's partner program, clearly runs on the basis of the relative pay-per-sale process. The advantage from the company's point of view is obvious: You only pay the commission if you also generate sales yourself.

Pay-per-lead (PPL)

With pay-per-lead, the payment of the commission depends on whether there is contact between the company and a potential customer via the affiliate. This form is particularly suitable for services and products that are not simply bought online, but require discussions and a specific assignment. I am thinking of management consultancies or agencies, for example.

Lifetime commission

The lifetime commission is often overshadowed by pay-per-lead and pay-per-sale, but it is also an often used and attractive commission model. The affiliate receives his commission as long as the referenced customer generates sales for the company. We offer a suitable example ourselves, 42he Software GmbH. For our CRM software CentralStationCRM and the reservation software for restaurateurs CentralPlanner, we have developed a partner program in which our affiliates receive 25% of the lifetime value of the referred customer. An example: A new customer books the SmallOffice package of our CRM software via an affiliate link (39 euros gross / month, 32.77 euros net). As long as this new customer stays with us, the affiliate will receive 25% of the net value from us every month, i.e. 8.19 euros. Ultimately, this condition model offers great advantages for both sides: For us, because we don't run the risk of paying a commission for a new customer who quits after just one month, as with the PPL or PPS. The model is so attractive for the affiliate because he can generate permanent income for a one-time referral without further effort - in the course of time even significantly more than is usual in the classic PPS model.

Affiliate Marketing - Examples and Areas of Use

There are countless affiliate marketing examples, because affiliate systems are hiding behind more websites than one might initially assume. Many websites are designed solely to deal with topics relevant to companies in order to then sell advertising space or to be able to incorporate affiliate links.

I will now give you a brief overview of the most important areas in which affiliate marketing is used.

Blogs

The prime example of affiliate marketing are blogs. The operators dedicate themselves to certain topics and build in affiliate links in order to earn something. There are more than enough examples, such as the blog for gin reviews from just (Gintlemen) or this travel blog, which integrates affiliate links from the hotel search engines Agoda and Booking.com into its text.

Comparison portals

Comparison portals also earn money through affiliate marketing. For example, if you search for a specific lawnmower on the Idealo price comparison site, get redirected to Amazon and place the order there, Idealo collects the corresponding commission from Amazon.

Test and topic portals

These portals are also affiliate marketing examples and are suitable as affiliate partners. A good example is the technology site CHIP, which e.g. publishes tests of smartphones and also includes affiliate links.

How and where can I find suitable affiliate partners?

Use existing affiliate networks

Affiliate networks such as Awin or belboon offer a large repertoire of affiliates from all industries. These networks act as intermediaries between you and the affiliates. They also take care of the technical implementation and payment processing. These networks are certainly the easiest solution to contact suitable affiliates. However, these platforms charge agency fees and there is no avoiding running costs. However, since the registration on these portals is initially free of charge, you can definitely “browse” a bit and get an overview of the available affiliates.

Visits to affiliate fairs

Trade fairs such as Affiliate NetworkxX offer a suitable framework for general information on the subject of affiliate marketing and at the same time to make contacts with potential affiliates. Whether or not visiting such trade fairs is worthwhile depends largely on your own products. As a provider of an absolute niche product, it will probably be difficult to find a suitable affiliate within a few hours.

Contact blogs and portals

You can also search for and contact affiliates on your own by searching the net for keywords that are relevant to your company and finding corresponding blogs and portals. If you have found a suitable blog or portal, you can establish initial contact via the imprint and thus initiate further discussions.

Scour social media

There is also the option of contacting affiliates via social networks. There are many groups in which searching advertisers and affiliates network. You can find many groups with several thousand members under the search term “Affiliate” on XING or LinkedIn. The same applies to Facebook, although I would prefer XING and LinkedIn as the first point of contact due to their role as career networks.

The greatest difficulty with the last three points is certainly the technical implementation of your own partner program. You need individual links for each affiliate and must be able to reliably track when a referral user really justifies a commission for the corresponding affiliate. For example, if a certain affiliate directs 100 potential customers to you, but only two of them buy in the end, you should only have to pay the commission twice. On the other hand, these conversion rates must also be transparent and trustworthy for your affiliates. After all, they really want to be paid for every customer referred. You already notice that there are many technical hurdles behind your own partner program that can only be overcome with the right know-how. If you are up to this challenge, your own affiliate program is a very suitable and inexpensive means because you save the costs of the intermediate affiliate networks. However, the effort involved in introducing and maintaining your own partner program should not be underestimated.

Conclusion

More and more companies are working with affiliates to complement their online marketing mix. The greatest challenge is finding suitable affiliates. Eligible affiliates operate a website that targets the same audience as the company. In this case, you as a company can eliminate scatter effects and advertise in a very targeted manner. In combination with pay-per-lead, pay-per-sale or lifetime remuneration, this usually offers the best cost-benefit ratio. Of course, you also have to offer your affiliate partner fair commissions to get them on board. Ultimately, affiliate marketing works when both sides benefit from each other.

I would be interested to know whether you have already had experience with affiliates. If you have any additions to areas of application / affiliate marketing examples or the search for affiliates, please leave us a comment.

Are you interested in other interesting articles? So far, the following articles have appeared in our series on the subject of online marketing:

Part 1.1: B2B Facebook Strategy - How do I start the Facebook adventure as an SME?

Part 1.2: Expert interview: Facebook marketing for companies in B2B

Part 2.1: XING Marketing for SMEs - How do I go about a successful XING presence?

Part 2.2: XING expert interview: Generate leads, win customers

Part 3: B2B YouTube Marketing - Does YouTube Make Sense For My Business?

Part 4: Affiliate Marketing: Definition, Examples and Co. from a company perspective

Part 5: SEM, SEO and SEA: Tips and Tricks in Search Engine Marketing

Part 5.1: Simple Search Engine Optimization - 13 SEO Tips

Part 5.2: SEO for beginners - the expert interview on the 1x1 of search engine optimization

Part 5.3: Search Engine Advertising (SEA) and Google AdWords - Everything you need to know

Part 6: Content Marketing: Pull Instead of Push - Examples, Advantages and Strategy

Part 7: Yes, I want: Permission Marketing, Opt-In and Opt-Out

Part 8.1: The Ultimate Guide to Newsletter Marketing

Part 8.2: Expert interview on the perfect email subject

Part 9: The Conversion Rate | Definition and optimization