Passive income is defined as "income derived from business investments in which the individual is not actively involved." The internet opened many doors for earning passive income, one of which is affiliate marketing.Here's how the different programs work and how can you leverage them?
What is affiliate marketing?
You've most likely bought something through affiliate marketing, even if you aren't aware of it. Affiliate marketing is a marketing strategy in which an advertiser (e.g., an online business) pays a commission to a third-party “affiliate” every time the affiliate’s marketing efforts lead to the desired conversion for the advertiser.Depending on the affiliate marketing model, that conversion could be the sale of a product or service or as simple as a click or software download.
The leading benefit of affiliate marketing is that it lets you piggyback on the marketing efforts and user base of the affiliate marketer without spending more time or money on marketing efforts of your own. This leverage allows you to market to newer and broader audiences than you would have reached through traditional marketing.
A lot of books present affiliate marketing as a get-rich-quick plan, but it's more like a marathon than a sprint. It can be quite lucrative but don't expect a lot at first. People who make six figures have been monetising their business's website for years, maybe decades.
Who are the parties involved in affiliate marketing
Affiliate marketing is about partnerships. There are three key players:
- Advertiser - the advertiser is the company selling the product who wants to pay other people to help sell products or services and promoting the business. Advertisers generally provide links, banners and text ads for the company that is doing the promotion.
- Publisher - this is the person or company that agrees to promote the product or service to earn a commission. Publishers can publish this information via blogs, websites and social media to make money.
- Customer - the customer purchases a product after seeing the ad. The customer is taken from the publisher's website to the advertiser's site and completes the sale.
Advertisers encode cookies in the advertising material that is given to the publisher. When a customer clicks on the link, the cookie stores the information and transfers it to a network, which maintains the data of how much is owed to the publisher by the advertiser.
Avenues of affiliate marketing
Small businesses, starting in affiliate marketing, have two avenues to them. First, you can become the publisher. You can promote products through your blog and social media to your customers and earn money on commissions. Amazon has one of the world's largest affiliate programs, but the commission you make can be quite low. For most products, you earn about four percent.
Many affiliate programs available have multiple products and services. You target your audience based on what products you think they'd like to see and eventually purchase. Becoming a profitable affiliate marketer means you have to find the right products to promote. You also need an audience who will click through the links and make a purchase.
Alternatively, as a small business, you could be the advertiser or merchant, having affiliates sell your product for you. If you have a good product or service, you can set up an affiliate marketing program with publishers who have a reader base that would be interested.
Transparency in affiliate marketing
The Federal Trade Commission (FTC) regulates advertising, including affiliate marketing. The FTC requires that you, as an affiliate, have to tell your audience that you're getting paid. This regulation applies to everyone. The FTC has an excellent guideline that outlines the rules about affiliate marketing disclosures.
Pretty much everyone who gets compensated should disclose the relationship. Compensation includes cash payments, discounts, free products and favours of any kind. It doesn't matter whether you're a small-time blogger, influencer or business. If you received any benefit from a company for promoting a product, you have to disclose that relationship under the guidelines of the FTC.
It's essential to disclose each time you promote the product. The disclosure must be readily accessible to the claim you're making. It should also be clear to a "reasonable consumer." You can't simply tick off a checklist to make sure your business is being transparent.Transparency is important to:
- Earn trust with your customers
- Improve revenue streams by having loyal customers
- Meet your legal obligations
- Meet ethical obligations
Most of the ads you see online are affiliate marketing, but not all follow the rules. This oversight could be due to many factors, from ignorance of the law to dishonesty.
Can you make money with affiliate marketing?
Affiliate marketing can be profitable on either side of the equation. Reaching out to bloggers and influencers to promote your product or service can surely boost sales. Advocating products and services on your website can also bring in added revenue.
What each person makes depends on many factors. It does take dedication and work to find the right products and promotions that appeal to your customers. It is passive income, but it does take time to set it up and make it work for your business.
