Online Business Models Explained: Affiliate Income

When it comes to making money online, you’ve likely heard about services, consulting, and selling products. But there’s another powerful way to generate income online – affiliate marketing.

Affiliate marketing isn’t about directly “getting” money from customers. Instead, it’s about earning commissions by promoting products or services offered by other businesses. Essentially, when you direct a customer to someone else’s product and they make a purchase, you earn a cut of the sale.

If this sounds less appealing than selling your own products, you’re not alone in thinking that. It’s a common question: “If I’m already bringing in sales, why not just sell my own product?”

While selling your own products can be lucrative, it also comes with significant costs and responsibilities, like product development, inventory management, and customer support.

Affiliate marketing can be a great alternative, especially if you don’t have the resources to create your own products. Before you decide if it’s right for you, though, let’s weigh some of the key advantages and disadvantages.

Affiliate marketing: pros and cons

One of the biggest advantages of the affiliate business model is that you don’t have to deal with product development. In fact, most of the time, you don’t have to handle anything beyond promoting the product.

Product creation, customer support, updates, delivery, and payment processing – all of these are taken care of by the product owner.

As an affiliate, your sole responsibility is to drive a sale through your affiliate link. Once that’s done, your job is complete.

Another major perk is the generous commission structure, particularly for digital products. Commissions typically start at 50% of the sale price, with some vendors offering as much as 75% or even 90%. In many cases, you could earn more than the product creator per sale.

For physical products, commissions are lower, ranging from 2% to 20%. However, because physical products often have higher price points, you might still earn a substantial amount by promoting high-ticket items.

Another advantage is the sheer variety of products you can promote. The affiliate marketplace is vast, covering virtually every niche imaginable. If you’re interested in digital products, platforms like ClickBank and Amazon offer thousands of options.

Good affiliate programs also tend to provide their affiliates with a range of promotional materials, such as banners, images, email templates, and even keywords for ads. This support can make your marketing efforts more effective.

Now, let’s talk about the downsides:

The most significant disadvantage is that you typically don’t get to keep the customer. Unlike selling your own products, where you capture the customer’s email for future marketing, affiliate sales usually don’t offer this benefit. The customer’s contact information goes to the product owner, limiting your ability to make repeat sales to the same buyer.

Technical how-to: getting started with affiliate marketing

Starting with affiliate marketing is straightforward from a technical perspective. Each affiliate program provides you with unique affiliate links. Your task is to get people to click on your link and make a purchase. When they do, you earn a commission.

However, the real challenge lies in the “get someone to buy” part. Promoting an affiliate product requires the same effort and strategy as promoting your own product. You still need to persuade potential customers to take action and complete the purchase, so it’s not necessarily easier than marketing something you’ve created yourself.

You can use any promotional methods you’re familiar with – text links, banners, emails, videos, or sales pages. There are no strict rules, so you have the flexibility to experiment with what works best for your audience.

That being said, some specific affiliate programs do restrict certain promotion methods. For example, Amazon’s program is known for not being keen on promotion via email, so you might not get to use that list of contacts that you’ve been building for the last couple of years. (By the way, do you already know which email tool to use?)

If you’re unsure whether affiliate marketing is the right fit for you, consider this additional benefit. Affiliate marketing can be a valuable way to test the market before you invest in developing your own product.

Here’s how: if you’re planning to create a product, start by promoting a similar affiliate product. This lets you gauge interest and get a sense of how your own product might perform. If the affiliate product does well, you’ll have more confidence that your own offering could succeed too.

This kind of testing can prevent the costly mistake of creating a product that no one wants to buy. In this sense, affiliate marketing can be a low-risk way to validate your ideas.