What Is Affiliate Marketing?

Businesses leverage all kinds of marketing strategies to make an impact in the marketplace. From email and content marketing to traditional advertising and PR, businesses pull many levers to acquire and keep customers. But while traditional ads often come at a high cost and use your owned channels, affiliate marketing capitalizes on other companies’ assets.

Modern small business owners can leverage affiliate marketing through two distinct lenses: merchants and publishers. Each of these partners helps you sell your products and grow your audience. In this guide, we explain how to integrate affiliate structures into your business model to drive customer acquisition and diversify your bottom line.

How Does Affiliate Marketing Work

Affiliate marketing essentially uses partners as a growth marketing strategy. There are two key ways to do this.

Merchant Model

Merchant-based affiliate marketing leverages Pay-Per-Click (PPC) or performance-based models. With a PPC model, you pay every time someone clicks on one of your links. In a results-based model, you’d only pay if a customer converts.

In either case, you recruit influencers, bloggers, or complementary businesses to promote your products and pay them a commission based on the model. Usually, PPC models pay a much higher rate than conversion models since clicks don’t necessarily become customers.

Because you only pay for conversions, it’s a low-risk and low-cost customer acquisition strategy.

Publisher Model

Just as you’d pay influencers, bloggers, or businesses to promote your products, you can leverage your owned channels to diversify your revenue streams, as well. If you have an established blog, newsletter, or client base, you likely already recommend tools or services. By using affiliate links for those recommendations, you turn your expertise into a secondary revenue stream. This high-margin passive income can help offset operational costs while fortifying customer trust by recommending products they love.

How to Set Up a Merchant Affiliate Marketing Program

To scale your sales through partners, you need a robust infrastructure. Here’s a step-by-step guide to help you get started:

1. Choose an in-house vs. network program: You can use an affiliate marketing platform like Impact, ShareASale, or PartnerStack to find affiliates, or use Shopify/WordPress plugins (like Refersion or AffiliateWP) to run it yourself.
2. Determine a commission structure: Standard rates very by industry. B2B companies often pay much higher commissions due to the enterprise nature of customers. Physical goods are on the lower side. The stronger your brand, the lower you can negotiate your commissions.
3. Assign managers: Business owners shouldn’t manage every partner. Assign account managers to vet potential partners and manage how your products are showcased and linked on publisher partners.
4. Focus on quality: Instead of recruiting 1,000 random influencers, focus on 5–10 power partners—other businesses in adjacent (but not competing) fields. For example, a wedding photographer and a florist can be each other’s top affiliates, creating a closed-loop referral system that benefits both.

Finally, track the program’s performance. No piece of your marketing funnel is complete without thorough analytics.

How to Set Up a Publisher Affiliate Marketing Program

Service-based businesses like marketing agencies or consultancies can monetize their experience and owned media through affiliate marketing. Some key ways to do this include:

1. Build a trusted channel: Leverage social media, newsletters, and other owned media to demonstrate expertise, make product recommendations, and show your audience why they should listen to you.
2. Make complementary recommendations: A web designer should be an affiliate for hosting companies; a CPA should be an affiliate for accounting software like QuickBooks or FreshBooks.
3. Build trust: Only recommend tools you actually use and trust. Your professional reputation is worth more than a one-time commission.
4. Create a resource page: Create a page on your site just for the products you recommend. It could even be an entire subdomain, like the New York Times’ Wirecutter.

Affiliate marketing offers a seamless way to turn your brand authority into additional revenue streams.

Key Considerations for Affiliate Marketing

While affiliate marketing is accessible enough for virtually any business to get a program off the ground, there are still some important considerations:

• Legal compliance: The Federal Trade Commission (FTC) requires that your website clearly state your affiliate relationships.
• Branding consistency: Ensure your affiliates are using up-to-date logos and messaging. Poorly designed spammy affiliate sites can damage your brand’s perceived value.
• Analytics: Use last click or first click attribution models to understand which partners are actually driving the needle, and regularly check performance over time. Moreover, you should calculate the customer lifetime value (CLV) of any customer acquired through an affiliate. Affiliate-referred customers often have higher retention rates because they come through a trusted recommendation.
• Cannibalization: Ensure your affiliates aren’t just bidding on your brand name in Google Ads, which forces you to pay a commission for a customer who was already looking for you.

Keeping an eye on these considerations can help you maintain a robust affiliate marketing program.