The beginner’s guide to affiliate marketing: how to grow your business and make passive income

Updated: 4th June 2021

Affiliate marketing is one of the most underrated but effective forms of marketing to have graced our planet. It accounts for 15% of all digital media revenue (according to Business Insider). It’s an industry that’s valued at over $12 billion. It’s what saw Amazon gain 22% of its traffic from referrals (according to geniuslink). And it even resulted in John Chow amping up his blogging income from nothing to $40,000 per month within just two years.

Intrigued? Read on to find out how you can use affiliate marketing to grow your business (if you have a product to sell) or earn passive income (if you don’t).

Hang on, what even is affiliate marketing?

It’s 2020 and you haven’t heard of affiliate marketing. You’re not alone.

This type of marketing is almost as old as the internet (or thousands of years older depending on how you look at it – our piece 'When did affiliate marketing start?' has the full lowdown). But despite that, the average Joe has never even heard of it. Worse still, neither have the businesses that could benefit from it or many of those who could make money as an affiliate.

So, what exactly is it?

Affiliate marketing is the process of rewarding an intermediary for promoting your product to their network – it really is that simple!

This intermediary might promote a product online, on social media, by email, or even by just sending a link to a friend via WhatsApp. But the important thing is that they’re paid based on performance, making this a form of performance marketing that’s very easy to track and quantify.

As Bob Glazer says in his ‘Performance Partnerships’ book:

‘At its core, affiliate marketing represents something overwhelmingly positive: paying only for marketing that delivers actual, quantifiable results.’

This makes affiliate partnerships virtually risk-free for a company looking to boost its awareness and acquisition – if the affiliate marketer doesn’t deliver, the company doesn’t pay. Simple as that!

Okay, but how does affiliate marketing work?

Let’s start at the very beginning. An affiliate marketing partnership depends on three main parties:

1. The brand

Also known as the creator, merchant, seller, advertiser or vendor, this is the company or individual that wants their product promoting. Usually, they’ll have created the product – think brands like Wix or Dyson. But sometimes, they might be selling a product made by someone else, as is the case with Amazon and eBay.

The brand doesn’t always have to be a large company like the ones we’ve mentioned above, though. Brands that use affiliate marketing can also be small companies or sole traders – like Mariah Coz, who sells online courses for female entrepreneurs.

2. The affiliate marketer

This is the individual or company that promotes another brand’s products in return for financial reward.

Also known as the affiliate or publisher, affiliate marketers come in tons of shapes and sizes. They can range from influencers to businesses, comparison sites to national newspapers. Essentially, any business or individual that’s in a position to promote another brand’s product on a performance basis could be a potential affiliate. You can even make money as an affiliate without a website. Read our step-by-step guide on how to become an affiliate marketer.

3. The customer

Okay, so the customer isn’t part of the partnership itself. But without them, there’d be no point in affiliate marketing at all! The customer (or consumer) is the person who sees the affiliate marketer’s promotion and clicks on it. Often, they’ll be aware that they’re part of an affiliate marketing system, but that’s not always the case.

Once they’ve completed the action that’s been agreed on by the affiliate and brand (which usually means buying the product), we call that a conversion and the affiliate gets paid.

An affiliate marketing partnership can’t function without all three of these parties working together. But let’s also remember that this whole relationship revolves around the affiliate’s promotion. After all, without the promotion itself, the customer wouldn’t click, the brand wouldn’t get any benefits and the affiliate wouldn’t get paid!

Different affiliates have their own ways of promoting partner products that work for them. Some will use social media, others will write product reviews, publish comparison tables or send out email marketing campaigns. Ultimately, it all depends on what type of affiliate they are, and what their relationship is with their following. Types of affiliates include:

Comparison or review sites

These are usually niche sites that aim to help the user save money. The affiliate might publish a comparison table ranking multiple partner brands, or they might write reviews of products that are search engine optimised (SEO).

Example: confused.com and Money Saving Expert.

Content or media sites and networks

This could be a big media organisation that runs multiple news sites or a smaller online magazine. The affiliate might publish content promoting a product, or they might display banner ads promoting the brand.

Example: The Telegraph and MailOnline.

Incentives sites

These are solution-driven websites or apps that help consumers to save money by promoting discount codes from partner brands. They can include discount, promo and voucher sites. Some sites that don’t have this as a primary aim may still have a promo page where they list partner promotions.

Example: Vouchercloud and Vouchercodes.co.uk.

Bloggers and influencers

Bloggers and influencers can promote a range of products or focus on a niche market and following. Some may prioritise using SEO to drive traffic to an online promotion (read our guide to SEO and affiliate marketing to learn more), while others will use social media to target an existing audience. For instance, many individuals make money affiliate marketing on Instagram.

Example: Fitness sites, cooking blogs and Instagram ‘lifestyle’ accounts.

Paid advertising affiliates

Some affiliates use PPC ads or social media sponsored posts to encourage consumers to click on their tracking links, but not every affiliate program will allow it.

Online community groups and networks

Although the majority of these groups aren’t affiliates themselves, they offer a great stomping ground for many affiliates to promote partner products. For example, an affiliate could post their tracking link on a local community group or a network dedicated to a certain hobby.

Example: Mumsnet and The Student Room.

At the end of the day, different methods work for different affiliates, and it really is the breadth and diversity of affiliates and their tactics that bring value to the brands – check out our examples of excellent affiliate websites for some more inspiration.

Sounds good. But how do affiliates get paid?

From the brand’s point of view, affiliate marketing partnerships are great because they only have to pay the affiliate when they deliver results. This is all thanks to tracking links (more on these later), which are used to track a customer’s behaviour and make sure that affiliates get rewarded.

However, exactly at which point affiliates get paid depends on each individual partnership agreement. These can be based on:

• CPA: Often defined as ‘cost per acquisition’, but we prefer to use the broader term ‘cost per action’, which can include sign-ups, downloading demos and more.
• CPS: Cost per sale (which might also include repeat sales). This sometimes falls under the ‘cost per acquisition’ bracket but we find it can be helpful to distinguish between the two.
• Hybrid: A combination of payment types. Usually, this involves the affiliate receiving part of their payment via a fixed fee upfront, and part on a performance basis.

You may be surprised not to see the following in the above list:

• CPM: Cost per thousand impressions.
• CPC: Cost per click.

You can have affiliate agreements based on either of these. But at the same time, you can effectively get the same deal from buying ads with service providers like Google AdSense or Facebook Ads. So, we wouldn’t usually consider it affiliate marketing and would tend to advise against it.

Not only this, but from the brand’s point of view, the closer they get to a sale before having to pay the affiliate, the better.

To put it simply, if they pay the affiliate based on CPS, there’s no risk of leakage – the affiliate only gets paid if the brand gets paid. On the other hand, if the affiliate gets paid based on CPM, it’s feasible that the brand might have to pay the affiliate even if their promotions didn’t result in a single sale.

Let’s go right back to marketing basics and take a look at our favourite funnel (the Pirate Funnel ☠):

It’s the brand’s job to optimise every step in this funnel, but an affiliate marketer only has to focus on the three As (awareness, acquisition and activation). So, this is what they get paid for.

Essentially, when an affiliate is paid based on CPM, they’re being rewarded for increasing brand awareness. But when payment is based on CPA, they’re being rewarded for helping the brand with acquisition. By paying an affiliate further down the funnel, the brand benefits from getting customers as far along the sales process as possible, minimising the risk that they’ll drop out altogether.

On the other hand, an affiliate is also going to be looking to minimise their risk, which is where hybrid deals come in. If a brand approaches an affiliate asking them to write out a promotional piece or product review, the affiliate might want a guarantee that they’re going to get paid for their time. In this case, they might ask the brand to take on a share of the risk by paying an upfront fee alongside paying based on performance (there should always be a performance element to any kind of affiliate deal because otherwise it just becomes a standard advertising agreement).

This decision may well be influenced by something we call ‘last click’. ‘Last click’ is the part of an agreement that determines which affiliate gets compensated for a conversion when a customer has clicked on multiple affiliate links. While some affiliate deals might split the commission between all the affiliates involved, many deals only compensate the affiliate whose link was last clicked, meaning that somebody can have easily done all the work bringing a customer to the brand only to lose out at the last minute.

Ultimately, forming an affiliate partnership is all about creating the right balance between what’s best for the brand and what’s best for the affiliate. In order for the partnership to be successful, both parties need to be getting something out of it!

Sorry, how exactly do affiliate links work?

Whether you’ve noticed it or not, you’ve probably clicked on hundreds of affiliate links before. After all, they look just the same as regular links, other than the subtle parameters like ‘ref=’ or ‘referrer=’ in the URL. So, unless you’re pretty eagle-eyed, it can be hard to tell.

But these humble little links are actually amazing things that give brands all sorts of information about who you are and how you got to their website. Without them, it would be near impossible to measure an affiliate partnership or to work out how much an affiliate has earned.

So, how do they work?

Well, when an affiliate signs up to work with a brand, they should get given an individual tracking link or, alternatively, a way of generating their own. Then, they simply need to use this link every time they promote the brand’s products.

When a customer clicks the affiliate link, it uses cookies to save some useful information about them and their behaviour. It even saves a cookie to the customer’s computer, so that the next time they visit the brand’s site, it knows who they are. That way, the brand can track exactly how many sales each affiliate has made and it can reward them accordingly.

Affiliates can post their affiliate links for free pretty much anywhere, without even needing a website – on social media, by email, by WhatsApp… the only caveat is that they should disclose their affiliate links so that customers know what they’re clicking on.

We know what you’re thinking: ‘But you literally just said that we’ve probably clicked on hundreds of affiliate links without even knowing it!’. Unfortunately, not all affiliates disclose their affiliate links, even though it’s a legal requirement. However, not only is it best to operate above the line, but many affiliates also believe that authenticity is crucial for long-term, high-earning growth. Our guide on how to disclose affiliate links has the full lowdown.

Great! So how do I become an affiliate partner?

Whether you’re a budding affiliate marketer hoping to become the next John Chow or a company looking to get their products out there, becoming an affiliate partner isn’t rocket science. You just need to find someone to partner with!

There are three main avenues you can take.

In-house affiliate programs

An affiliate program is basically just the brand’s way of outlining how they want to work with affiliate marketers. For example, the brand might say ‘I want to give affiliates a 20% commission on items they sell, and I’m going to use tracking links with a cookie duration of 30 days’. When an affiliate ‘joins’ a brand’s program, it agrees to work under these terms.

Any brand can create an affiliate program for their business. But if a brand wants to run an in-house affiliate program rather than joining an affiliate network, it will need enough reach and marketing resources to spread the word. Brands might want to consider setting up a dedicated page online, using paid advertising, hiring an affiliate manager and more. Or, of course, they could just sign up with Breezy to access thousands of relevant partner suggestions. Check out our piece about how to find affiliate marketers for ideas.

Brands will also need to choose a way of managing affiliates, measuring their performance and rewarding them for their efforts. Most brands that run in-house affiliate programs do this by using affiliate link tracking software, which normally covers all those bases.

Affiliate networks

An affiliate network is a third party website that matches brands looking for affiliates with affiliates searching for products to promote. It then generally helps brands to manage, track and reward affiliates.

By registering with an affiliate network like AWIN, brands are able to get seen by lots of affiliates without spending time, money and resources marketing to them. Meanwhile, affiliates get access to a broad range of products and brands to choose from, without having to rely on the powers of search engines to reveal the best opportunities for them.

Just be aware that, for brands, the affiliates listed on these networks aren't usually the most relevant. Most affiliates find a niche in affiliate marketing to allow them to target an audience more effectively. However, the chance of finding decent affiliates whose niche matches yours exactly on affiliate networks is slim. Plus, the majority are likely to be Instagrammers which, while not a problem in itself, isn't ideal if you're not supplementing their marketing efforts with other types of affiliates (read our piece on the problem with Instagram paid partnerships for more).

As a brand on an affiliate network, your affiliate program will be competing with many others. So, creating a program with high commission rates, long cookie duration or other perks like quick payouts is important to attract affiliates to your brand over others. Read our article on the best affiliate programs for more.

Affiliate agencies

Affiliate agencies are the easiest (although not cheapest!) way for brands to get started in affiliate marketing. These agencies have a portfolio of affiliates that they can reach out to on a company’s behalf, handling the negotiations, tracking and measuring for them. This saves a lot of time for brands, while for affiliates, getting on an agency’s books is a great way of generating leads.

While affiliate agencies certainly have their perks, it’s worth bearing in mind that they may not have as many brands or affiliates on their books. That said, some affiliate networks also operate as agencies, so you could argue that this is the best of both worlds!

Hang on, shouldn’t I sign something?

So you’ve found an affiliate partner. Hooray! But don’t celebrate too soon. You should never start affiliate marketing until you’ve formalised your agreement with a contract. After all, you don’t want to have spent all that time searching for a partner if your partnership’s going to fail at the first hurdle.

Usually, it’s the brand’s responsibility to put together an agreement and outline the terms and conditions that the affiliate will need to abide by. However, it’s important to do this with the affiliates’ interests in mind as well as the brand’s, otherwise, you’re just not going to attract any quality affiliates to your program. Some terms to consider include:

• Disclosing affiliate links: Most affiliate contracts will include a clause stating that all affiliate links must be disclosed. We know what you’re going to say: ‘but affiliate links have to be disclosed anyway, right?’ Technically, yes. But unfortunately, this doesn’t always happen. We’re not saying that including this clause in a contract is necessarily going to stop all bad practice, but it does give potential affiliates an indication of the behaviour the brand expects from them. Plus, it gives the brand an ‘out’ if they feel that the affiliate is going to harm their brand reputation.
• Set wording or graphics: Some brands go a step further and require affiliates to use a certain phrase for link disclosure purposes (like Amazon) or to display a dedicated graphic on their website (like homeware store Overstock). This certainly gives the brand an added level of control, but it can take away from the affiliate’s ability to be creative. It’s certainly not going to sit well with every affiliate in any case!
• Restricting promotion types: Some programs place restrictions on the places that affiliates can post their affiliate links. For example, Amazon Associates won’t allow marketers to use affiliate links in offline promotions, eBooks, or emails. Be careful when putting conditions like this in place, as it will limit the types of affiliates that will be able to join the program and how effective they’ll be.
• Picking and choosing affiliates: Some affiliate programs will only work with affiliates who meet set criteria. For example, Airbnb’s affiliate program won’t accept anyone with less than 1 million visits or app openings each month. However, most affiliate programs are open to everyone because brands only pay based on performance, minimising the risk involved.

We’d always recommend talking to a lawyer before putting a contract together, but if you want a sneak peek at what’s involved, you can find a customisable template on Rocket Lawyer.

So affiliate marketing is easy, right?

If you’re a brand looking to grow your company, we’d say that affiliate marketing is one of the easiest forms of partnership marketing out there. In fact, in our article about the types of strategic partnerships, we’ve given it a difficulty score of 2/10.

Thanks to affiliate networks and agencies, it’s really easy to find affiliate marketers. Plus, because you only pay based on results, there’s very little to lose! It does get a little more difficult if you get to more complex integrations and reward structures, but for the most part, it’s as straightforward as you can get.

If you’re a budding affiliate marketer, on the other hand, this form of partnership takes a bit more work. Don’t get us wrong – it’s one of the best ways of earning a passive income that there is. Successful, high-level affiliates can make over $3,000 per day without so much as lifting a finger!

However, a lot of people choose to become affiliate marketers because they think it’ll be easy and that it can make them rich – when in reality, it takes a lot of hard work before you can make any passive income at all, let alone thousands. Whether it’s through organic search, paid advertising, social media or any other channel, you’ll need to build up your following to a point where you’re reaching thousands of consumers every day. It’s doable, but it takes time, graft and a lot of patience (browse our selection of the best one-person affiliate marketing websites for inspiration).

So, whether you’re a brand looking to promote a product or your average Joe hoping to achieve that lifelong dream of a passive income, an affiliate marketing partnership could be just what you’ve been searching for. Ready to get started? Simply book a demo with Breezy to find out how we can help you find the perfect affiliate partners.