The ABC To Affiliate Marketing [Mark Byers, September 2003]
In this special report I want to provide you with a plain English understanding of what affiliate marketing is. Although this report is intended to inform anyone who’s new to Affiliate Marketing I think it also has content that will be interesting to anyone who’s been dabbling with this system of making money using the Internet. This report is not going to maintain the attention of anyone who’s already making good money through affiliate marketing because they will already know virtually all the content that’s contained in here. If you’re not making any money then you will probably get some value from reading this report.
The main topics that are covered in this report are:
What Is Affiliate Marketing?
Affiliate Marketing is very simple. Someone with a product or service to sell gives someone else a reward every time they refer someone who subsequently purchases the product or service. I said it was simple and you will agree that this model of commission based trading is not new. What is new and what is different is the trading environment, the Internet.
The Internet has presented a remarkable opportunity for anyone, anywhere to make money, without holding any stock, without taking any orders, without handling a physical product, without any involvement in order fulfilment, without dealing with returns, without dealing with order cancellations and without dealing with customer queries. The only thing an Internet based affiliate marketer has to do is direct people to a product owner’s site, the product owner then takes responsibility for closing the sale. Or is it really this simple?
Is Affiliate Marketing Really So Easy?
If affiliate marketing were so simple and at the same time very lucrative then we would be hearing about it everyday in the news and let’s face it, we’re not. So why is it not big news? My belief is because affiliate marketing is actually not one simple model. There are good affiliate schemes and there are bad affiliate schemes. The bad schemes counter balance the good ones. Statistics clearly show that fewer people succeed at it than fail, by a margin as great as 90-95%. At this point don’t panic and throw in the towel because there are still plenty of success stories and the formula for success is very clear. More about this towards the end of this report.
So is Affiliate Marketing easy? Yes.. and no! There is nothing complicated about Affiliate Marketing. The mechanics are very straight forward. It really is true that anyone with a computer, an internet connection and an email address can be an affiliate. Very few affiliate schemes actually qualify potential members, even though they may say they do. So it’s easy in the sense of getting going. Making money is a different challenge altogether and this is not so easy.
Affiliate Programs In Perspective
I promised to explain what affiliate programs are using plain English. I personally like real examples because they allow virtually anyone to build their own understanding based on their own experience. So let me try and clarify the difference that the Internet has made to affiliate type reward schemes.
I recall my Mother becoming a Betterware associate when I was a small boy. She would organise in-home presentations of the product line and do door to door calling. She would take orders, take payments and deliver the goods. For this she got paid a commission which, if I recall correctly, was relatively small. This opportunity to make money as a Betterware associate still exists today because we have someone who regularly drops off a catalogue, collects orders and then delivers the goods. Betterware is only one of a string of commission based associate programs that operate in the UK and other regions of the world.
Why do the likes of Betterware and other organisations choose to run these schemes? It’s because they’re highly cost effective. The associate does all the promoting and consequently absorbs all the cost of promoting. And if you didn’t already know, the marketing costs as a proportion of overall sales costs can be staggering. For some products it can be as high as 90%.
Enter the Internet...
Now let’s look at the internet. The challenge that all product owners have is getting the opportunity to sell their product. This is an increasing challenge for anyone who is trying to sell something on the Internet because the number of sites is growing at an incredible rate (over 200 million sites exist today). It’s virtually impossible to see the wood for the trees. The marketing costs involved in promoting a product range on the net by applying traditional techniques would sink any small business in a flash. And this is where affiliate marketing comes in.
Now let’s look at a real example again. Amazon.com is well known as an internet business. Amazon started in books and have since expanded into CD’s, electronics, software, videos, DVD’s, computers and computer games.
If you spend any time on the net you will regularly come across some link that will take you to Amazon, whether it’s a text link, a banner advertisement or single product promotion page. The vast majority of these links are not placed by Amazon, they’re placed by Amazon affiliates. If Amazon were behind every promotional link their costs would be enormous and they’d no longer have a viable business model.
Amazon choose to use an affiliate program to drive “qualified” visitors to their site because they only pay when someone actually buys. This means their actual marketing cost is very low in comparison with traditional marketing approaches. They do have to pay a commission to the affiliate but this can be as low as 5% of the sale. The commission represents an excellent return on investment for Amazon because they only pay it based on results and they pay for their marketing after they’ve secured the sale.
If there were a means to pull together how much money is actually being spent by all affiliates on promoting Amazon it would be staggering but Amazon are not in the slightest bit interested in this. This is the power of affiliate marketing for Amazon, they pay for results and affiliates get rewarded for results.
The Key Difference Between Off-Line and On-Line Affiliate Schemes
The difference between Internet based affiliate (associate) schemes and traditional associate schemes is what happens after the introduction is made.
As we know, in the Betterware example the associate closes the sale, takes the money and fulfils the order by physically delivering the goods. In some cases they may deal with customer issues though these are also handled by the company. Virtually all Internet based affiliate schemes do not involve the affiliate in fulfilling the order. Why? Because the affiliate can operate from anywhere. Local means nothing on the Internet so this requires the manufacturer or main distributor to handle all the back-end processes. In addition, most don’t require the affiliate to close the sale and process payments. Now I’ve used terms like ‘most’ and it’s time to explain why. I hope by this point that you can see that affiliate marketing is nothing new but the mechanics, and the rewards, are different in the internet world.
Different Affiliate Marketing Models
So far I’ve explained that affiliate marketing is not a new model in the sense that it’s nothing new to pay someone for customer introductions. However, the Internet has introduced greater flexibility and innovation in the way that affiliates operate and the way they’re rewarded. So at this point in this report we’re going to look at the different ways people can make money as an affiliate.
Because I’ve called this report the ABC To Affiliate Marketing I’m going to use these labels to describe three different ways (models) to generate money through an affiliate account. The three models, as I see them, are:
Model A – Basic Affiliate
This is where most people start as affiliates, particularly if they’re new to the idea of making money online. This model does not require the affiliate to have their own website although most people will progress to doing so because having a site introduces greater income possibilities. Let me offer an example of how I still use this model.
Very recently the “blaster” virus was doing its worst around the connected world. I fortunately escaped infection on my main computer but picked up the infection on my backup machine. I’d been relaxed about keeping it up to date with latest windows updates and virus definitions so I got caught.
This prompted me to send a mail to all my friends and closest associates alerting them to what had happened to me and recommending the minimum protection they should have. I use Symantec firewall and virus products so I simply told everyone this is what I had and gave them a link to Amazon where they could get the products they needed at a competitive price. This link included my affiliate identification.
I made £50 commission from the sales for 15 minutes effort (virtually everyone who clicked on the link bought because it was a distressed purchase). All I needed to make this commission was an Amazon affiliate account, a computer, an internet connection and an email account. I didn’t even have to write a compelling sales letter. A slight aside here. I know that we British have a general aversion to the idea of making money from people we know but I do want to make it clear that everyone I sent the email to was very grateful. On top of this I saved them money because I know virtually all would have gone to their local PC World, or equivalent, and paid over the odds for the products.
Now quite obviously, the blaster virus is not a common event so I can’t rely on this for a regular income. It does however demonstrate the very simple mechanics of generating an income from no more that a computer, internet connection and email address.
Let me give you another example of this model in action, again based on something I’m already doing. My wife and I take nutritional supplements. We believe in the brand that we use and I’ve registered as an affiliate. This company is based in New Zealand and has a major distribution base in the United States (remember, location means nothing in cyberspace). I promote the product range using a combination of pay per click (PPC), ezine and email (not SPAM) marketing. I don’t direct prospects to any of my sites, they all go directly to the manufacturer’s site. I intend to change this model for reasons that will become clear when I describe the next model.
My reward for making introductions is 20% of the total sale value. The customer will always be associated with me and I continue to enjoy a commission of 20% on all future purchases they make. This is a good scheme for an affiliate because it has a residual commission element. I do one up front piece of work and keep getting rewarded every time the customer buys something. I don’t do anything except the initial promotion.
To generate this income I only need to have an affiliate account with the manufacturer (5 minutes), an account with each advertiser (5 minutes each), access to the internet (in practice I could do this from an Internet Café if I wanted to) and an email account. I probably spend no more than 30 minutes a week monitoring this affiliate project. It currently generates £80 a week in commissions. This continues to steadily grow even though I don’t put any more effort in. I make a very small profit on this at present because of the way I promote the product. I will reach a point where I will downscale my promotional activities because the residual commissions will give me what I’m looking for in the way of profit for this product.
If you want to read about someone else who’s applying this model then I’ve included a case study of what Chris Carpenter is doing. You’ll find it in the case study section.
Let’s summarise this affiliate model. This is the basic no frills way of generating income through affiliate schemes. All you need to apply this model is an affiliate account, advertising accounts, access to the internet and an email address. Obtaining the accounts involves little effort and no track record, anyone can register as an affiliate. You don’t even need to have your own computer and internet access for this model because you could do it while enjoying a coffee in an Internet Café.
There is one big negative with this model and it’s to do with never getting to know who the customer is. Affiliate scheme operators may share detail such as a name but they never share anything that allows you to contact a customer directly.
Model B – Intermediary/Trader
This is a more involved and committed model for affiliates. This involves having a website of some type. It doesn’t need to be flashy or sophisticated but it does need to look professional. In fact, the less flashy and sophisticated the better.
The intermediary affiliate creates web pages to promote a product before sending a prospect to the distributor site. In some cases the intermediary may even take orders and payments and then simply instruct the distributor to ship the product. In these cases the affiliate will have a very commercially compelling reason for doing this, otherwise it makes no sense to take on tasks that others can fulfil for you.
If you already have a website you should be looking at every way you can to introduce affiliate links into your pages. But here comes a word of caution, the most productive links are those where you have to put in some effort. This means creating some content that makes the link a logical and appealing exit for your visitor. Sticking a banner advertisement will produce clicks but not in the same league as guiding a visitor to the click through interesting words.
Other than having a website this model runs in the same way as the basic affiliate. The website angle gives much greater earning potential and is also critical to being able to operate like super affiliates.
There is one very important point to make very clear here. By placing your webpage between the prospect and the distributor you give yourself the opportunity to capture some very valuable information, notably a name and an email address. This all becomes crystal clear in the next model.
Now before we go on to look at the next model I think this is the right place to discuss free retail (e-tail) stores. If you’ve started to watch the videos (which I hope you have) you will already have been introduced to Vstore. This type of store is a Model A affiliate method. This is because you do not get to use valuable information about the customer. Vstore say this is because they are committed to protecting a customers privacy.
Vstore, and other services like it, is a great way to get started selling products over the internet. The commissions are not great but the product range is vast and everything is handled for you. It’s a totally free e-commerce environment which allows you to cut your teeth safely. It’s free because the commissions are low. The rest of the commission that you, the affiliate, doesn’t get go partly towards the cost of you getting a store and the rest is profit for the company behind Vstore. You will find other examples of Vstore look-a-likes in the resources section of this site.
One final thing to say about free e-tail stores. I have not found one that serves a non-US customer base, effectively. So when you look at Vstore and any of the other free store options you should think carefully about who your customers will be. I know of some people who operate these stores in the UK like catalogue clubs. They get enough people they know interested in a set of products and then they place a large order which then gets shipped from the US to the UK.
The shipping costs are absorbed across all products and so it becomes more commercially viable. The downside of this is that the shipment is delivered to one location, your location! You then have to arrange for the individual orders that make up the shipment to be distributed to each customer. Personally this is not an attractive operation and for me is not what internet based affiliate marketing is all about. All that said, you can get hold of some very interesting products that are just not available here in the UK.
Model C – Super Affiliates
This model is digital gold. The requirements are no different from model A and B but the added dimension (the gold dimension) is having a large opt-in email list. Super Affiliates will have operated model B to a point where they’ve acquired a solid customer base (a minimum of 500) that they can email product offers to. Their clients will buy from them because they’ve bought before. The cost of promoting the product becomes virtually zero. Whatever anyone buys becomes pure profit.
There are countless examples that you’ll come across of web site headlines telling you about how much someone made within so many hours by simply promoting someone else’s wonderful new product. There is truth in this but only if they’re a super affiliate and have a solid customer base already. If they don’t then they’re talking nonsense, putting it lightly. I can categorically say that you cannot suddenly make vast amounts of money by posting a new product offer on your website, unless you already know a lot of people who you can direct to the website. In addition you also need to know that they will be interested in the type of product being offered. The rules of the real world apply just the same to cyberspace.
The channel that brings super affiliates their greatest earnings is email. Email is a direct route to a customer, not someone who is anonymously browsing your site. This direct channel is the reason why some people are tempted into Spamming. The rewards are potentially huge and the temptation so great that it gets the better of some people. However, super affiliates don’t SPAM. Super affiliates have their own nurtured list of names and email addresses. These are collected by inviting people to opt-in to a free newsletter, ezine or email course.
If you already have a big list of “legitimate” email addresses you should be using it to promote affiliate products.
Let me summarise all three models. Model A, the basic affiliate is a good place to get your wings but it’s not a place to stick with as your only affiliate operation. You don’t need very much to apply this income generation model. You certainly don’t need to have any technical skills beyond being able to use the internet and email.
Model B, the intermediary/trader affiliate is where you must go if you are to progress to creating fully automated income generating systems. You will need to develop some skills to create and publish basic web pages but this is not rocket science. This model gives you the ability to grab important information, from anyone willing to give it, such as names and email addresses. Once you have this information you can start building relationships with potential customers, and eventually sell them products (at virtually no cost).
Model C, the super affiliate is where the big money is. I will not kid you, it takes time, persistence, commitment and skill to get there. But this is where you can create a money on demand cash generator.
Before I move on to talk about good and bad affiliate schemes let me leave you with a real live example of a super affiliate. Terry Dean was a pizza delivery boy before he started to build a different life using the internet. Terry is famous for demonstrating how he can make money (big money) when he appeared at an internet marketing seminar in the United States. He chose an affiliate product from a list that matched what Terry was about and emailed his customer base. Over the course of the three day seminar he made over £20,000, all in front of a live audience. He eventually made over £30,000 from that one exercise. How did he do this? He did it using his list, not by posting a new web page or placing some pay per click adverts. Can we all do the same? Yes we can but it takes time and Terry will tell you that it took time for him to build his list to what it is today.
Not All Affiliate Schemes Are Equal – The Good, The Bad and The Ugly
Not surprisingly there are good and bad affiliate schemes. A good scheme is one that pays you at least a 20% commission on all product sold. A bad scheme is one that pays less than 12% with no residual commission. By this definition Amazon’s scheme is a bad one for affiliates and I genuinely think it is for small affiliates. If you operate big sites with lots of traffic then volume may make up for the low commission.
The reality is that Amazon pay higher commissions to bigger players anyway. This principle applies to most schemes so it’s possible that lower commission schemes can be attractive in the longer term if you’re confident you can generate enough qualified and targeted traffic to the distributor, which they can clearly see is worth paying more for. I am an Amazon affiliate but I don’t invest in any advertising because it just doesn’t make commercial sense. I do recommend some books on my sites and so the link to buy the book is to Amazon. I don’t anticipate generating a massive number of book buyers so my Amazon affiliate status is more about convenience and giving my visitors an easy root to buy a book that’s relevant to the material they read on my sites. I will never become financially independent through my Amazon affiliate account.
I’ve already introduced you to my nutritional supplement affiliate product so you’ll know that I like this one and think it’s good because the products are repeat buy. Yes, the commission is borderline good but the residual element makes it great. You should search out affiliate schemes where you have residual income potential because you only have to do the work once. You need to approach the advertising spend on these schemes in a slightly different way from one-off products. With these you have to make an assumption about how many times a customer will repeat purchase in a year. The distributor should be able to offer some help with this.
Very good schemes are clearly any that pay 25% commission and more on each sale. The very best schemes are those that pay upward of 45% commission. Some schemes can pay as much as 75% but these are rare.
Now before I go any further I need to strike a note of caution. Choosing an affiliate scheme is not an exact science. That said there are basic criteria I apply to ensure I maximise my returns and minimise potential losses (yes, as with any money making venture you can end up down). Here’s my list:
I prefer schemes that are administered by third parties such as ClickBank. This means an independent manager is administering sales and commissions I like new products or under promoted products because by definition they haven’t yet been marketed to death I choose products I know something about (e.g. nutritional supplements) I look for commissions of at least 25% for one-off sale items I look for commissions of at least 15% for repeat purchase products I look for schemes that tag me as the initial referrer, even if a prospect doesn’t buy in the session in which I make the referral. Very few people buy on their first visit to a site so as an affiliate you need to know that you will get recognised for introducing the site. After all, if you hadn’t introduced the site then how would the customer have found it. It was your money and your skill that made the introduction so you should get the credit I specifically like products that I can be an intermediary for. This helps me add to my customer list. To do this I have to be able to use something I already have or something I can obtain (for little or no cost) that I can use as an incentive for a prospect to leave me their valuable contact information
Here are some rules I apply that ensure I avoid certain schemes:
I never consider a product that is being offered by any site where I can’t see who’s behind it. In fact I apply this to buying products, unless they’re through a reputable third party like ClickBank or Commission Junction. If someone can’t disclose who they are then why should I give them my money? I never consider a product where the owner places unreasonable constraints on how their product can be promoted I never consider products that I can’t buy in to myself. Many experienced affiliates will tell you that the best way to promote anything is to first use it yourself. You can then use your own first hand experience to build your marketing messages
I need to make one final point before moving on to the final section of this report. I have never personally been fleeced by any affiliate scheme but I know of some affiliates who have. Remember, you will never meet the people you sign up with before you get in to bed with them, so to speak. This clearly introduces risk. I know of some affiliates who have put in time and effort, and used advertising budget, promoting someone else’s products, registered good sales and then been denied all or some of their commissions because the scheme manager has been less than honest. This is why using a trusted intermediary like ClickBank or Commission Junction is advisable. They cannot afford to get things wrong because they make their money from managing affiliate schemes. This is not to say that you should avoid all schemes that are managed directly by the distributor. I’m simply saying that you should always follow good business practice and find out as much as you can before you plough time and money into promoting someone else’s product.
What It Takes To Succeed At Affiliate Marketing
So we’re left with the big question… what does it really take to be successful, and make good money, as an affiliate marketer?
Well it’s nothing to do with being good at designing and publishing websites.
It’s everything to do with building relationships with people you’ll never meet face to face or directly speak to. You can make good money operating as a Model A affiliate but there will be a limit to how much you can make. The key to making a very serious (six figure) income from affiliate marketing is in building a list of your own customers. To do this you have move to being a Model B affiliate and this opens the door to being a super affiliate (Model C).
It takes time to build a list but let me leave you with another real world example. My wife and I bought a Health & Beauty business just over six years ago. This was a business that was in a very sad state. We probably inherited less than 100 active clients. The business now has a solid client base of over 3,000 but it’s taken over six years to get to this point.
It’s perfectly feasible to build a similar sized list as an affiliate marketer on the internet in under a year.
One final thing. Committed affiliate marketers don’t operate exclusively with a specific model. If you have a developing list of customers who trust you then you will from time to time simply email a straight affiliate link to them. This is the instant cash generator at work. After all, you did the hard work in getting them to share their contact details with you, it no longer matters if you’re simply sending them to someone else’s site, you already have the gold!
Copyright 2003 Mark Byers
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