How affiliate marketing works: online marketing basics

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The basic principle of affiliate marketing
Affiliate marketing is, by definition, a marketing model based on sales and billing based on the principle of commission through mediation, in which two components come into play: the merchant and the affiliate.

The merchant or advertiser aims to market its products or services on external websites, using advertising media such as banners and offering a commission based on the payment model (see below).
The affiliate (support or administrator of a website) provides the merchant with his free advertising space and thus the reach of his website. The affiliate acts as an interface between the merchant and potential customers physicians email database by including advertising in the form of banners or so-called affiliate links in the publications.
Affiliate networks or affiliate service providers (ASPs) act as liaison bodies between affiliates and merchants. Affiliate programs (software) enable technical implementation and tracking, through which commission billing is carried out. Through affiliate links or banners, the advertiser can track when a customer arrives at the affiliate partner's website. If the cost model is followed, i.e. if a product is purchased in the online shop, the merchant pays the affiliate the agreed commission.

The classic form of affiliate marketing mediation is carried out through the affiliate's website, but affiliate programs can also be integrated into email marketing campaigns (newsletters, emails) or activated on social networks.

How Affiliate Marketing Works (Sugarrae.com)
This is how affiliate marketing works (source: sugarrae.com)
Payment models
As mentioned above, there are several ways to earn compensation in terms of affiliation. Below is a list of the most common compensation models in affiliate marketing:

Pay per sale
The pay per sale or pay per order model (cost per sale) is the most popular model in affiliate marketing. Payments are made if a customer is acquired . In this case, the commission is paid when a user clicks on the affiliate link or banner on the merchant's website, buys a product or places an order. A fixed amount or a certain amount of money is paid depending on the product, although a combination of both is also possible. Generally, the affiliate also receives a commission for customers who do not buy immediately. In this case, cookies help to test the validity of the product link (30-60 days).

Pay per click
In the pay per click model, as its name suggests, payment is made based on the number of clicks achieved. This is a model that is becoming less and less used, despite the popularity it enjoyed in the early days of affiliate marketing, mainly due to its simple technical implementation. Over time, it has shown that the return on investment (ROI) is relatively low for the merchant, as are the prices that have to be paid for each click.

Pay per click out
In the case of the pay per click out model, the visitor must make at least a second click on the merchant's website. This reduces the disadvantages of the pay per click model. A second action by the potential customer will result in the payment of the commission.

Pay per lead
In the pay-per-lead model, payment is made each time a customer makes contact with the advertiser , for example by filling out a contact form or requesting information material. Pay-per-lead is often used for products that require intensive advice, such as insurance or cars. Since customers generally do not sign such contracts immediately, another payment model would not make much sense for products that require thought. The merchant pays the affiliate the commission for the established contact or lead.

Payment for registration
Pay per sign up is one of the types of pay per lead, in which the affiliate receives a commission when the user registers on the merchant's website.

Pay per install
Pay per install is a form of the pay per sale model. The user will be charged a fee the first time a software is installed , often in browser toolbars or free trial versions.

Payment by link
Pay per link is often used in advertorials and sponsored posts . For example, a blogger will receive a commission when he or she links to a merchant's product in one of his or her posts.

Lifetime remuneration
In the case of lifetime remuneration, the affiliate receives remuneration even after the customer's first action. The term "lifetime" refers to the period of time during which the new customer remains loyal to a company . Merchants often use this type of remuneration when offering subscriptions (for example, in the case of dating portals). The affiliate is remunerated at the end of the subscription and each time the current contract is extended.

Remuneration for duration of communication
The principle of remuneration for the duration of communication is used in the telecommunications sector and is used, for example, by mobile phone operators. In this regard, the affiliate receives a commission (for a certain duration) for each minute that the client pays for in each transaction.