What is Affiliate Marketing? How Incremental is It for a Business?

Affiliate Marketing is a tactical strategy adopted by organizations across the globe to increase sales revenue and market share. The process is extremely beneficial for both the affiliate marketers and brands. While affiliate marketers get a good commission on every successful sale generated by their efforts, organizations reap benefits through cost optimization as they spend only on successful sales events. 

What is Affiliate Marketing? 

Affiliate marketing can be defined as a process through which an organization receives successful sales as a result of the marketing efforts of its affiliates. In other words, an affiliate does the marketing for a brand/organization and is entitled to a fixed commission if the promotion leads to successful sales. The success of an affiliate marketing campaign is measured in terms of the total number of sales achieved based on affiliate marketing. The sales can be tracked with the help of affiliate links and can be helpful in calculating the total sales made due to a particular campaign. 

Who Are the Primary Stakeholders in Affiliate Marketing?

The three parties which are vital to the working of an affiliate marketing campaign are a brand/producer, an affiliate marketer, and a consumer. A brand/producer has some specific product or service that needs to be marketed to the customer. The brand doesn’t need to be actively involved in the marketing/promotion process, although the contribution of the manufacturer in the overall brand promotion depends upon the final agreement that it has made with the affiliate marketer. 

Affiliate marketer, also known as a publisher, can be an individual or a company that attractively markets the product/service on behalf of the brand. The affiliate marketer is chosen based on their prowess to present the product to the target audience effectively. However, the ultimate aim of an affiliate marketer is to convince/persuade the customer to buy the product. Once the customer purchases the product, a portion of the margin pre-decided between the manufacturer and an affiliate marketing team will be transferred to the latter’s account. 

The consumer, the third primary party in the process, is the one that drives the consumption and profit margin for the other two stakeholders. Consumers are the target audience, and in a manner, constitute the most crucial part of the process. As affiliate marketing is a precise process, the importance of consumers becomes all the more vital.

Does the Pricing of a Product/Service Differ in Affiliate Marketing? 

There is a misconception that the prices of products or services sold through affiliate marketers are higher. But it is not so. Manufacturers include the commission of affiliate marketers in the retail price of the object, and this arrangement ensures that customers need not pay extra for the product. The customer will complete the purchase and get the delivery without any exaggerated expenses.

How Are Affiliate Marketers Paid?

The affiliate marketing industry employs several methods to determine the net payment to the affiliate marketer. The most commonly used method is Pay Per Sale. As per the Pay Per Sale method, the affiliate marketer must convince the customer to buy the product, and only after the customer makes the investment, the manufacturer will pay the affiliate marketer. 

A comparatively, more complicated procedure of payment is Pay Per Lead, which means affiliate marketers will be paid on the basis of the leads that have been converted into actual customers. Higher the rate of lead conversions, higher will be the profit, the affiliate marketer will accrue to its account. 

Some brands also adopt the Pay Per Click, which means affiliate marketers will be paid according to the number of times targeted customers redirect from their website to the merchant’s webpage. It essentially requires excellent engagement skills as affiliate marketers need to keep the customers engaged, so much so that they redirect to the merchant’s website. The increase in web traffic becomes an essential criterion for this payment method.

How Incremental is Affiliate Marketing? 

It is challenging to measure the incremental sales achieved from an affiliate marketing program. The incremental sales can be defined as an extra unit of sales that wouldn’t have been possible without the support of the affiliate marketer. The reason behind the complexity of the situation is a large number of factors associated with the process of affiliate marketing. Moreover, the definition of incremental sales and promotional spending differs considerably across industries, which makes the concept of incremental sales quite subjective.

That said, the affiliate marketing adds to the incremental sales, and the two most popular methods to gauge the results include the Return on Advertising Spend (ROAS) and Return on Investment (ROI). These metrics are quite helpful for ascertaining an incremental increase in sales due to the affiliate marketing campaign.