What Is an Affiliate Program and How It Works?

The concept of an Affiliate program is catching up fast.

Increasingly, it is seen as one of the most powerful marketing tools.

Whether you have products online or you are keen on expanding, this comes across as one of the most sought after options.

It works in a symbiotic fashion and geared towards creating value for sellers and customers alike.

Very simply put, the affiliate program is more of a financial arrangement online based on clicks or other parameters.

But before we proceed any further in this conversation, it is time to get the basics right.

What exactly constitutes an affiliate program?

It is important to understand the fundamental working model for a more in-depth analysis.

Definition of an Affiliate Program

Affiliate programs are also sometimes referred as associate programs.

This program involves advertisers who use the online platform and affiliate website.

What Is an Affiliate Program?The merchants use these affiliate site to promote their product.

The merchant site normally promotes their company on the affiliate site through banner ads.

As per the terms of the arrangement, the affiliate site directs traffic towards the merchant site.

Of course, this is in return of some specific monetary arrangement.

Often the terms of payment are based on the number of clicks.

It can also be as per the number of visitors to the site carry the merchant ad.

So, the affiliate partners decide the amount for the number of visitors well in advance.

The arrangements and terms of payment may vary from product to product, but the basic premise is same.

The merchant pays money to the affiliate site for bringing money via generating traffic.

So, all in all, we can safely define it as an effective form of online marketing.

It is cheap, well-directed and effective.

This is particularly popular amongst small business or companies that just started.

The low initial cost and the prospect of potentially large customer base make it a popular option.

But you must understand that a great deal of research goes in deciding the right affiliates.

For example, if I am selling software products, it will not make sense to choose a random fashion website as an affiliate site.

I must narrow down to only sites with men’s fashion that have guaranteed high male visitors.

This is because my research reveals that my target customers are rich and successful men.

So affiliate program involves considerable research and strategic partnership.

It is a system that works best with appropriate focus.

How Does Affiliate Program Work?

This is exactly why it makes sense to understand how the affiliate program works.

Often that is the first step in deciding the most pertinent partners and affiliates.

The fundamental mode of operation in this is based on pay per click.

But then you can ask how to understand when you get a visitor from an affiliate site?

Well, the page URL has all the information.

On average, visitors take a long route, invariably through sites part of the affiliate network.

But the URL will have all the relevant data and numbers.

This is how the hit gets recorded on the affiliate network.

That is how the potential customer is then directed to the actual website.

But all of this is happening in a matter of seconds, so we don’t even get to know.

The result is simple.

A potential customer reaches the destination website through the affiliate network.

But the affiliate’s work does not get done just there.

Often, it is through this network of data that you can identify a sale through these sites as well.

When the potential customer actually buys a product, the information is passed on to the relevant parties.

As a result, the payment is processed as per the terms of the agreement.

This is just a detailed account of one specific sale.

The same process takes place for numerous other transactions happening at the same time.

Hundreds of visitors may be using these affiliate sites at any given point of time.

Each one is directed as per the settings of the affiliate site.

The affiliate network keeps tracking all of these details every second.

It is then computed on the basis of these clicks and the payment processed.

The Three Main Participants Of Any Affiliate Program

So, overall the affiliate program or any associate arrangement has three key players:

1. Customer

This is the most important player in the entire arrangement.

They help in taking the business forward in a meaningful way.

All sales are directed towards getting maximum customer traction.

They are the primary foundation of any great business.

So, an affiliate program aims at targeting the right mix of customers.

This will not just guarantee good sale but also offer a better prospect of return customers.

The affiliate sites use the URL information to tweak the individual cookie set-up in every computer.

However good the product might be, customer response is what makes or mars a business.

2. Affiliate Website

You can call these business partners too.

While the entrepreneurs are putting in their money and resources to build the business, the affiliate sites are used to promote it.

They become the launch pad from where merchant sites undertake their promotional exercises.

These websites take the business to the masses.

They help the business reach its actual potential.

The continuous tracking helps business in getting real-time data.

These go a long way in identifying trends and then you can tweak your offerings.

Therefore, the affiliate website acts as a bridge too.

It connects customers and businesses and takes it forward.

3. Merchant Website

As you may have guessed now, this is the core business that is being promoted.

The company creates its own website and then liaisons with the affiliate site.

They are essentially the sellers looking for customers.

The affiliate website is the appropriate bridge that they use to reach customers.

They are on the lookout for the right profile of target customers to further sales.

Ways To Decide And Finalize Affiliates

Deciding or finalizing the affiliate is a crucial link in the entire chain.

Without the right type of linkages, the affiliate program will never be as effective.

Let us use the Amazon example to understand better.

Incidentally, Amazon is one of the largest affiliate networks.

So their model will also be amongst the most effective.

You log into their website and verify your details.

Once all of the details are verified and the payment made, you are on board.

But the verification is crucial, and right linkages are important,

Most times, it is the affiliates who decide on the websites and positioning of ads.

A variety of factors come into play like the nature of the website, the profile of the company and the like.

After due diligence, the merchant site will have to undertake necessary paperwork.

You have to fill-up application forms about the business and the website.

There are also pre-decided terms and conditions that you will have to adhere to.

The application process also involves certain one-time payment.

However, most affiliate websites are extremely proactive in helping sellers set up their profile.

They guide you on how to track all activity and ways to distribute the links.

This is important not just in terms of gaining the right business traction but also in creating sustainable business models.

Also, remember to jot down all your affiliate networks and links.

It is a good idea in this context to use the no follow convention.

It can go on to add credibility and establish good ethics for the merchant site.

Though initially Google started it as a means to limit useless comments, it is a matter of choice now.

How Are Affiliates Linked?

When you are undertaking an in-depth study of the affiliate program, this is the next most important factor.

How are the various affiliate websites linked?

Well, the short answer could be computer algorithms, but that hardly makes a point.

The final association between a merchant site and the relevant associate is a complex network.

The nature of business of either party is crucial.

Identifying the right link is crucial.

But once that is established, the next point is making the actual linkages.

– Text Advertisements

The text links are the most common ones.

This is the usual cluster of words hyperlinked with a site URL.

The moment you click on these words, you are redirected to a different page.

The best part about this type of link is this is part of the text.

As a result, they hardly look like an advertisement.

In that respect, it is a rather discreet way to advertise, and often the links look very natural.

– Banner Ads

The ad banner is another most common form of advertisement in any affiliate program.

The ad about the merchant site appears like a banner anywhere in the page.

It is a rectangular, graphic box and contains a link to the merchant site.

In case you are not getting adequate traction through the text graphics, this is the next most effective format.

But the placement of the banner ads is crucial.

Just like the text links, you must be careful about placing them strategically.

That is the only way; you can guarantee maximum traction and adequate response.

– Creating Search

The simple explanation for this is using the online search boxes on any site.

You can use this to access data that is available across the world wide web.

The merchant website comes as a link through these search exercises.

That often increases the overall prospect of clicking these and converting visitors to customers.

The Payment Arrangement In Affiliate Program

We briefly touched upon the business element of affiliate program earlier.

The basic understanding is this is based on the volume of meaningful traffic to a site.

But let us now break it down into details.

– Pay Per Click

This is decidedly one of the most common types of payment arrangement.

The seller or the merchant site decide on the payment based on the actual traffic volume.

By actual traffic volume, I mean the number of people who clicked and stayed on the merchant site for some time.

In most cases, they do not buy anything, but they do visit.

The affiliate site has done its duty by sending the visitor to the merchant site.

The customer’s decision after this does not have any bearing on the affiliate’s payment.

– Payment Based On Sale Units

It gets slightly more complicated now.

In this case, the affiliate gets paid only when the visitor is converted into a buyer.

So, the affiliate directing traffic to the merchant site is no longer sufficient.

It is important to convert the visitor to a buyer as well.

This pay per sale model could be a percentage based one or also be a fixed amount.

– Lead-Based Payment

In this case, the affiliates get paid when the visitors they referred become leads.

By this, we mean that the visitor fills up a basic form that the merchant site puts up.

Usually, this is presented right at the beginning when you click on the site.

The information they get becomes the necessary lead for them.

As a result, the merchant site can then use this information for further customer hunting to.

As a result, this becomes a long-term arrangement for the customer site.

There are a few other case-specific options too.

Benefits Of Affiliate Program

So now we come to the cardinal point.

If I have a small business, why should I use an affiliate program for online marketing?

Well, these associations have some distinct advantage.

– Better Sales

When more people visit your website, the rate of conversion increases naturally.

That means only one thing, an increase in sales.

In fact, higher sales is one of the key advantages of following the affiliate program.

It enhances overall sale and also brings in a wide cross-section of buyers.

So, this increases the prospect of more continued sale as well.

– Increased Exposure

When you start placing links in affiliate sites, more people click on it.

It goes without saying that leads to more people knowing about the website.

You just don’t get traction in traffic; people also talk about the merchant site more often.

This also helps in increasing the flow of visitors and improving sales.

– Get More Leads

Affiliate program can also go a long way in generating leads.

The idea is to create better recall dynamics using affiliate sites.

As a result, the leads increase quite meaningfully.

With the leads, the customer base, the brand cohesion, and sales get a boost.

– Relatively Inexpensive Promotion

Moreover, an affiliate program is an intensely value-based strategy.

The relative cost to return ratio is extremely favorable.

When targeted properly, the amount invested to create affiliates fully justifies the increase in business volume.

As a result, it becomes a value investment and an inexpensive way to promote the business.

– Increase In Profit Margin

Most merchant sites have experienced a decided increase in profit margins.

They are spending relatively less amount in terms of promotion and marketing.

As a result, a bigger chunk of the profit stays with them as gains.

So, the margins start moving northwards in a steady manner.


So, we can conclude that the affiliate program is one of the most effective marketing strategies.

However, it is vital to place it appropriately.

From choosing the right affiliate partners to ensuring appropriate ad placement, it is all about strategy.

When merchant sites have a clear idea about target customers and potential partners, this can be a powerful tool.

That said, merchant websites need to make an informed choice.

There are various facets of these arrangements.

The idea is to identify the best fit with your business.

That’s one of the best ways to reap long-term advantage and rewards from any affiliate program

It is appropriate targeting that can help you realize a sustainable profit from an affiliate program.

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