It is really quite simple. Merchants need to sell their products, but can't afford to have many sales people since that is a huge up front cost that won't necessarily be compensated for. Additionally sales people are typically paid base salaries and get perks which sometimes include company cars plus retirement plans and health insurance. Needless to say a huge sales force using the traditional approach is a losing proposition.
What is it basically?
Affiliate marketing pays the sales person who works independently only for the sales and sometimes leads that he or she generates though online promotions. Typically the Affiliate (independent marketer) is paid by the merchant a commission that is a percent of a base sale. It could also be a fixed amount.
What are the benefits to affiliate marketing?
The are benefits for both sides.
What are the benefits for the merchant?
The merchant saves money on benefits and knows for every commission paid, the company made money as well. Meaning all affiliate marketing program expense is covered by revenue.
What are the benefits for the affiliate?
The affiliate wins because he or she can work anywhere they can find a computer and internet connection (for example your bedroom in your PJs. or even your home office). This means that the affiliate could even become a world traveler if he had a portable computer and connected at hotels or used cheap internet cafes.
Another great advantage is the work schedule. An affiliate can set his on work schedule. He doesn't have to worry about calling in sick or getting to bed early or getting up early for that long commute. No need to worry about requesting vacation time or family leave time. An affiliate can work the number of hours per day or week that he or she wants to spend.
Save money on transportation. If you live in a big city, you or someone you live with probably spends an hour or more to get to the office every day spending money on gas and eventually car repairs. With the cost of a car and gasoline going up every year, consider how much money you'd save working at home.
The affiliate also benefits from the knowledge that he won't be fired. Yes, a merchant could remove him from its program, but there are thousands of affiliate marketing programs available so it is just a matter of removing the old and adding new.
Probably the biggest advantage is that there is no limit on how much money an affiliate can earn.
What are the disadvantages of affiliate marketing?
Like anything else in life there are disadvantages.
What are the disadvantages for the merchant?
The disadvantages of the merchant are very few and mostly perceptual. One of them is the cost of maintaining the program. A merchant will need someone working full time to manage the program as a contact person and to handle sales tracking and accounting. If someone isn't available, the merchant could outsource the program by paying a monthly fee to another company to handle the program. The perceived disadvantage is the lack of control. Many managers in today's business are taught to have lots of meetings and to request and read many reports and do metrics to micromanage their salespeople. Affiliate marketing cuts all that waste out of the equation. No reports are requested directly from the affiliate. The only statistics they'd pull would be from the sales tracking system. Of course, it is really a benefit (micromanagement is a waste of time).
What are the disadvantages for the affiliate?
First of all, there are no benefits, so the affiliate has to put aside some of his money for health insurance and retirement plans. There is no paid vacation or sick leave either. If you are just getting started with affiliate marketing don't quit your day job until you are making enough money to pay your bills (and Christmas sales don't count).
Secondly, there are expenses. web hosting, domain name registration, taxes, Internet Service Provider bill if you work from home, and of course you need a computer. The up front costs or cost of entry is really quite low. I'll explain in other posts what you'll need to get started.
Working on your own means you need to be self motivated, a self-starter. If you need a boss to make you work then you're not ready to work at home. Your earnings correspond to the amount of work you put into it. Don't expect to be making thousands of dollars a month working only an hour or two a day.
Last of all, there is a social cost. Some people will miss the social aspects of working in an office. To them working at home is lonely or depressing. This can be overcome by setting your own schedule. Plan time for work and time for play.
What are the responsibilities of an affiliate?
An affiliate is only responsible for the promotion of the merchant's products or services. This involves the placement of links that are either graphic or text, and keeping their website or websites up-to-date. The affiliate should keep contact information current so that payment and tax forms are received without delay.
What are the responsibilities of a merchant?
A merchant handles customer service, shipping of the product, product returns, sales tracking, and payments to affiliates. In other words, the merchant handles everything except the online marketing done by the affiliate.
Summary
Affiliate marketing is a pay per action system where sales is outsourced to independent contractors who are paid a commission on a per sale basis which results in lower fixed costs for the merchant and great flexibility for the marketer. Affiliate marketing is not a get-rich-quick scheme, but instead a valid efficient system which gives back in proportion to the work put into it. Affiliate marketing is NOT multi-level or Network Marketing whereby someone makes money off of the person lower down on a pyramid. Affiliate marketing involves a direct relationship between the merchant and contractor or the Outsourced Program Manager and the contractor.
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