What is Affiliate Marketing Business Model? And How Does It Work?

The internet has given birth to several new and unique business models. Similarly, it has improved some of the existing models as well, giving them a new function. One such business model that the internet has enhanced is affiliate marketing.

What is the Affiliate Marketing business model?

The affiliate marketing business model follows the concept of revenue sharing. This business model predates the internet. It first became mainstream in the world of online marketing in 1994.

Today, various affiliate marketing networks allow customers to help them make sales. In exchange for those sales, the customers receive a predetermined commission.

The affiliate marketing business model is a type of advertising model. In this model, companies share their profits with customers, known as affiliates.

In exchange for the share of profits, affiliates must drive consumers to the company’s products or services. Each time a referred customer makes a purchase, the affiliate receives a commission.

There are further classifications in this model as well. Some companies run their own affiliate marketing platforms, allowing customers to interact with them directly.

On the other hand, some dedicated affiliate marketing networks also exist. These networks bring various brands under the same roof and help them offer an affiliate marketing platform.

How does the Affiliate Marketing Business Model work?

As mentioned, there are two variations of the affiliate business model. In the first variation, a company choose to allow customers to market its products directly.

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The company starts its own affiliate marketing network that those customers can join. Once customers register on the platform, they can use their links to market the company’s products or services. This variation gives a company more control over its affiliate marketing business.

On the other hand, a company can choose to outsource its affiliate marketing program to dedicated networks. The company selects a network or various networks through which it wants to offer affiliate marketing.

The network takes care of finding customers for the company. However, the company also needs to pay the network and its affiliates a commission, which may cost more.

The customer, in the business model, also plays a significant role. In modern affiliate marketing businesses, the customer is an entrepreneur or business with a platform to promote products and services.

These platforms may come in the form of a website or social media following. The customer signs up to the affiliate marketing network of their choice and gets started.

If customers join a company’s affiliate marketing network, then they can promote that company’s products. However, if they choose a dedicated network instead, they can increase the products or services to hundreds or thousands of brands.

The network then allows the customer to generate custom links through which it can track the customer’s referrals and pay them a commission.

What are the advantages and disadvantages of the Affiliate Marketing business model?

The affiliate marketing business model comes with several advantages and disadvantages. Some of these consist of the following.

Advantages

The primary advantage of the affiliate marketing business model for companies is that they can get more customers. Similarly, these companies don’t need to market or advertise to these customers as their affiliates will take care of it.

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Companies also don’t need to have expertise in using this business model. They can easily outsource their program to dedicated companies, which will take care of it for them. Likewise, it results in lower costs for those companies.

Similarly, the business model is also beneficial for the affiliate as they don’t have to invest in products or services. Instead, they can promote various well-known brands and make money. They can also scale their business or limit it according to their needs.

Disadvantages

For companies, using the affiliate marketing business model means they have to share their profits. For each sale an affiliate makes, companies need to pay a part of their revenues to them.

If the company does not generate sales through affiliates, it can keep the full amount. Companies also need to pay a commission to the networks if they are outsourcing.

Similarly, by associating with affiliates, companies may face some risks. These may come in the form of unethical behavior from the affiliate. If the affiliate chooses to use deceitful tactics to generate sales, it may harm companies’ brand name.

Examples

Amazon is the world’s largest company that has its affiliate network known as Amazon Associates. Other brands, such as Barnes & Noble, Target, InterContinental Hotels Group, Office Depot, Skillshare, Petco, AliExpress, Etsy, HP, etc. offer affiliate marketing programs. There are also some dedicated affiliate marketing networks, such as Clickbank, CJ Affiliates, Awin, ShareASale, etc.

Conclusion

The affiliate marketing business model has received a new life due to the advent of the internet. In this model, a company offers an affiliate marketing program.

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Customers can join the program and promote the company’s products or services. In exchange, the company then pays them a commission based on the sale proceeds.

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