Affiliate Marketing Basics

by Joseph Ryan

As you probably know, affiliate marketing is the new Internet gold rush, and like all previous gold rushes it's mainly the people selling the picks and shovels that are getting rich.

You're much more likely to earn over $100,000 next year as a web designer (assuming you're really good), a web hosting entrepreneur, or, best of all, a "web marketing guru" than you are as one of the toiling legions of affiliate marketers.

Even so, just as a few people managed to strike it rich panning for gold in California around the turn of the 20th century, so a lucky few are managing to do the same thing panning for affiliate sales on the Internet at the turn of the 21st. In any case, "affiliate marketing" is one of the most often-searched-for keyword phrases entered into Google. There are, it seems, hundreds of thousands of would-be Internet marketers out there who want to know how to turn their time into gold by joining the affiliate marketing rush. As a consequence, there are hundreds of websites and "how to" books available nowadays on the subject. I'll give you the basics briefly and you can then decide if this is something you may wish to delve into further.

The Essentials of Affiliate Marketing

Affiliate marketing essentially means promoting a company's products on the Web and then receiving a commission for sales of those products (or for some other result, such as getting them sales leads).

That can sound like easy money. You develop a website, become an "affiliate" for a product that seems like it has a good market, then run ads for the product on your website. Then, whenever someone clicks on one of the ads and buys the product, you earn a commission. Simplicity itself.

If you're not too familiar with this method of making money on the Web, you're probably wondering, "Okay, so how do I get to be an affiliate for some company's product? And then once I become an affiliate, where do I get the ads? And how do I get paid?"

Before I answer those questions let me share a dirty little secret about affiliate marketing with you. In the past many companies which offered affiliate programs never paid their affiliates, or, more commonly, underpaid them. Suppose you promoted XYZ Company's widgets on your website and received $500 worth of orders in a month. The company has promised to pay you a 20% commission. So you should receive $100. Trouble is, nobody but the company really knew how much your sales were, in many cases. They might actually pay you $50, therefore, or nothing. You wouldn't know you were being hoodwinked.

Fortunately, there's now a straightforward way to avoid that problem, and this answers the questions posed above. You simply become an affiliate through an affiliate network like LinkShare or Commission Junction or Clickbank. These networks represent hundreds or thousands of companies. You select the companies on the network you want to promote and your commissions are tallied by the networks, not by the companies whose products you're promoting. You get paid directly by the networks. In my opinion, this is a huge improvement - at least now you can be sure you'll get paid for your efforts.

So the answer to the first question above, "How do I get to be an affiliate for some company's product?" is that you join an affiliate network. This is actually pretty easy. Just go to LinkShare or Commission Junction - the two biggest - and sign up. You'll need a website, however.

Once you're been accepted by a network, you can then review their extensive lists of companies which offer affiliate programs through them. You'll be looking for some good programs that offer products or services that will appeal to the visitors to your website. So for example, if your site is about sailing, you might want to run ads for sailboat accessories, sailing lessons, etc.

You'll notice that most companies' affiliate programs pay you on1y for actual sales (i.e., $35 for selling a car insurance policy) whereas others pay you for leads (i.e., $15 for a potential customer filling out an application for a car insurance policy). Guess which of these two types of affiliate programs is more profitable. The answer is the latter is almost inevitably more profitable. So you should, initially at least, only promote programs in which you get paid for leads, not for actual sales.

The way it works is as follows: You pick one or more programs which appeal to you, then apply to become an affiliate of those programs. In most cases, you'll get approved automatically. In other cases, you'll receive an email later either accepting or rejecting your application. (The company may have a policy of not accepting "new" websites, or may not accept websites in certain fields, etc. -- thus a possible rejection.)

After you've been accepted by a few programs, return to the affiliate network's website (i.e., the site of Commission Junction or LinkShare) and copy the HTML code for the banner ads or other types of ads you'll be putting on your website (this HTML will have a tracking code appended to it so that you'll get paid your commissions).

Once you put these ads onto your website you're in the affiliate marketing business. At this point it's just a matter of waiting for some of your visitors to click on those ads and purchase the products or fill out the application forms. Every time this happens you get credited for the stated commission. The networks generally send out checks on a monthly basis.

Sounds great, doesn't it?. Unfortunately... there are some problems.

Pitfalls of Affiliate Marketing

In spite of much breathless hype by marketing gurus, most people who try affiliate marketing never make a penny of profit. Why not?

One reason is that few website visitors click on banners anymore. We're all pretty jaded when it comes to banners, in fact we seldom even look at them, and only in very rare instances do we actually click on them and buy something.

Then there's the huge problem of getting substantial traffic to your website. In order for affiliate marketing to have any chance at all of working you need a lot of of good, targeted traffic. Today, that can be extremely difficult to achieve, because the Web has become a crowded place. No matter what the topic of your site is, there are probably thousands or hundreds of thousands of websites out there already on the same topic. Search engines like Google and Yahoo will index your site and then pretty much forget it exists. You'll get only a dribble of traffic and few if any sales. In a word, much work and effort, little reward.

Yet a Few People Beat The Odds

It's quite interesting that, in spite of the tremendous odds, a few people have actually found ways to earn significant incomes from affiliate marketing.

One of the ways they've done it has been by using pay-per-click advertising. Google Adwords is a prime example of this, athough similar ad-serving systems are available through MSN, Yahoo, and others. In pay-per-click advertising, you purchase ads on search engine results pages - these ads are called "sponsored results" or something similar. You pay a set amount each time someone clicks on the ad - usually anywhere from $0.25 to a couple dollars.

Obviously, that can get expensive fast. If you are paying seventy-five cents for one click to your ad, that brings you one visitor to your website, who may or may not click on any of your affiliate ads. A hundred such clicks and Google has charged you $75 and you may have gotten zero sales or commissions.

Even so, some people have made this work. One way is by only targeting very narrow niches. Not "Canon Cameras" but "Canon Powershot Cameras," for example, or even better "Cannon Powershot DSC 600."

Although a broad keyword phrase like "Canon Cameras," or worse still, "cameras," might have thousands of people placing bids on it, a narrow one like "Canon Powershot DSC 600" might only have a very few - namely, people promoting that particular type of camera. Thus the "per click" cost might be much lower -- and the "conversion rate" (the percentage of clicks converting to sales) much higher.

So by finding niches and by bidding on many keyword phrases, some people have done quite well and continue to do so.

Another trick of the trade is called "search marketing." Search marketing simply means to place pay-per-click ads on search engine pages (i.e., "search results" pages). Then when somebody clicks on these ads they're taken directly to the company's website, rather than to yours.

Continuing with the example above, you might put up an ad which takes the visitor straight to the Canon web page where he/she can immediately order the Canon Powershot DSC 600 camera, instead of forcing them to first go to your web site, then click a second time to get to the Canon order page.

Search marketing can be a very profitable method of affiliate marketing but it is beset with fierce competition. A small group of people who are extremely good at writing ads and very focused and determined have made it work. But the sad fact is most will just run up Google Adwords bills. If you'd like to look into this further, I suggest a book called Affiliate Millions by Greg Holden and Anthony Borelli (John Wiley & Sons). It spells out everything you need to know to have a reasonable chance of becoming a successful search marketer.

An Alternative: Google Adsense

Concentrating all your efforts on affiliate marketing can be a big gamble. But there's a way to become an affiliate marketer as a lucrative sideline, namely Google Adsense. Assume you have a content website on skydiving and it gets a fair amount of traffic. You can then sign up for Google Adsense and Google will provide you with a snippet of HTML to place on all your pages which will serve targeted ads related to skydiving -- for example, small plane flying instruction schools, parachutes, etc. Whenever anyone clicks on one of these ads, Google credits your account with a commission.

Adsense can be a good alternative to Adwords because with Adsense you don't have to worry about choosing affiliate programs, bidding on keywords, or paying credit card bills for ads. Adsense chooses which ads to run on your site based on your content. Needless to say, if nobody clicks on any of your Adsense ads, you receive no commissions but then you pay no credit card bills either.

According to a recent article in USA TODAY, with the headline "Google Search Ads Find Momentum," a few people are cleaning up with Adsense. One website owner, Marc Ostrofsky, is quoted as saying, "I put up a website, add the Google ads, and wait for the money to start flying in."

But that's hard to believe. In reality, nobody puts up a website and gets money flying in - you have to generate traffic first. What's more, Ostrofsky owns a company, iREIT.com, that manages thousands of sites, some of them high-traffic. For most of us, returns from Adsense will be modest but nevertheless welcome. My website WebSearchGuides.com runs Adsense ads and does pretty well.

A Last Caution

As said, "affiliate marketing" is one of the most-searched-for keyword phrases on the Internet. Each and every day, untold thousands of people research this subject, hoping to find a way to supplement their incomes with a home-based business or, even better, make a million or a couple million and forget about holding a regular job.

As a result, a thriving "guru" industry has sprung up out there, eager and willing to teach you how to become an affiliate marketer. But the big question is, If there is so much wealth to be made marketing products on the Web, how come the gurus aren't doing it themselves instead of teaching people like you and me how to do it?