Today’s article comes from Laura Kranz, Acquisition Marketing Coordinator at Webs.

While most small business owners have heard the term Affiliate Marketing before, many are unsure exactly what it entails and if it’s a viable option for their small business. Today we’ll look at how it works, give an overview of terms, and help you decide if it’s right for your business.

How affiliate marketing works:
There are three major components of affiliate marketing: Advertiser, Affiliate Network and Publisher:

An advertiser (also known as a merchant, retailer, store) adds their products, coupons, or sale promotions as text links and banner images to an affiliate network (Commission Junction, LinkShare, Share A Sale). The affiliate network will create a tracking link for each item that is uploaded to their network. A publisher, or third party website, will find an offer or product from an advertiser on the affiliate network and embed the matching link into their website.

When a customer is on the publisher’s site and clicks on the link the publisher posted, they are redirected to the advertiser’s site where they can complete either the intended transaction or sign up form. The affiliate network tracks this conversion from the clicked site to the confirmed transaction/sign up. The advertiser pays a fee to the network for tracking this action and a commission to the publisher that referred it.

Some necessary affiliate marketing lingo:

Advertiser: an online retailer that has products or services for sale and is willing to pay other people to help promote their business.

Publisher: a company or individual website owner that hosts products and/or offers on their website.

Consumer: the one intended to see the posted ad and buy the product/service offered.

Cookie: a piece of technology that stores customer information on a web browser. This includes browser history, login pages, or items left in a shopping cart.

Commission: a specified payment made by the advertiser to the publisher. This could be a percentage of sale or a flat dollar amount per transaction.

CPA: cost-per-acquisition. Usually based on a percentage of sale.

CPL: cost-per-lead. Usually based on a flat dollar amount per transaction.

Conversion: that state at which the consumer has clicked on the ad and purchased the intended product/service. This is when the publisher earns a commission.

AOV: average-order-value. The metric used when calculating all sales revenue divided by the number of transactions.

Is affiliate marketing right for your business?
You’ve probably already explored search marketing, email marketing, and maybe even social media marketing. Affiliate marketing is yet another sector of e-commerce you could be tapping into. Although not the largest channel of digital marketing, it certainly is a strong one for acquiring new customers. First, you would need to decide what your business goals are for this channel. Are you looking to acquire customers to buy your product on the spot, or a qualified lead for a service you offer? In either scenario, affiliate marketing provides an abundance of publisher sites to help reach your goals. Here are a few top example publisher categories:

1. Comparison Shopping Engines (CSE): You may think of Google off the bat with the word “engine” and don’t get me wrong, they do have this type of comparison shopping. However, there is another CSE group I’m referring to. These types of publishers utilize product catalogs in order to serve up many price points for a product that is being searched. The consumer then has the option to choose which store they would like to make their purchase from.

  • Example CSE Sites Include: ShopWiki.com, PriceGrabber.com, Nextag.com, Become.com

2. Coupon Sites: A coupon site is exactly what it sounds like. A site that serves coupons. This type of publisher may also utilize a third party feed aggregator (such as PopShops or ForMeToCoupon) to display any and all active coupons or promotions an advertiser may be running. It is important that the advertiser is working with these feed aggregators so coupon sites can show these deals. It does not cost anything for the advertiser to work with these providers. Coupon sites also tend to have strong organic search rankings. This is because they have lots of matching keywords, such as ‘coupon’, ‘sale’, or ‘promotion’.

It is important to make clear of any search restrictions you may have. You will want to include this in your affiliate business goals. Do you want coupon sites to bid on your trademark? What about trademark + (this would include your TM + “coupon”/”deal”/”discount”/etc.)

  • Example Coupon Sites: CouponCabin.com, RetailMeNot.com, Savings.com

3. Loyalty Sites: A loyalty site is a publisher that offers an incentive to its customers in either the form of a rebate/cashback or virtual currency points. When a commission is earned, the loyalty site splits the commission between them and the customer that made the purchase. This ensures customer loyalty – the more they shop through that site the more they earn.

  • Example Loyalty Sites Include: Major credit card rewards programs (Bank of America Add It Up, ShopDiscover, Visa’s V.Me). Other sites include Ebates.com, ShopAtHome.com, and Social Ingot.

4. Downloadable Software: Commonly found within loyalty sites (see above), the user must download site specific software to be notified of coupons or an incentive with perusing the internet. Types of software include toolbars, browser extensions, and coupon buddies. While not essential for loyalty sites, they help inform customers of when they may miss out on extra savings or incentives. The downside of software is that it may cannibalize the original referred traffic source.

Now that you have a better understanding of the ins and outs of affiliate marketing, you have all the necessary tools to decide if it’s a tactic you’d like to try for your small business marketing. Let us know if you’ll work it into your 2014 marketing plan in the comments below!

About the Author: Laura Kranz is an Acquisition Marketing Coordinator at Webs. She can often be found building affiliate partnerships, enjoying chocolate, and obsessing over koalas.

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