Definition of an Affiliate Business Model

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Affiliate marketing makes it possible to start a low-cost business from home.
Affiliate marketing makes it possible to start a low-cost business from home. (Image: David Sacks/Lifesize/Getty Images)

Affiliate marketing is popular form of marketing used on the Internet to promote various types of businesses and products. The term "affiliate marketing" is often bandied around in Internet business circles as if everyone has an understanding of what it entails. The affiliate business model is fairly simple to understand and define if you simply look at the basic elements of how the marketing model works.

Definition

As the title implies, an affiliate business model is a business model that describes the business relationship between two parties. In some sense, the two affiliated parties are entering into a business relationship that it is designed to be mutually beneficial to both parties. In most affiliate business models, one person benefits from the labor of one or more affiliates who receive compensation based on their efforts on behalf of their affiliate partner.

How It Works

One of the easiest ways to understand the affiliate business model is to simply look at how the typical Internet affiliate program works. Affiliate programs are offered by individuals or companies that want to market a product but do not necessarily want to pay an exorbitant amount in advertising costs. Rather than spend millions of dollars on ads, the entity that owns the affiliate business pays individual marketers a commission to market its product on the Internet. The affiliate marketer incurs the cost of advertising, but the business selling the product may occasionally offer banner ads and other ways to market its products. The affiliate marketer is typically given a special code or I.D. number that is embedded within his own unique URL. This allows him to receive credit each time he makes a sale. The marketer is typically paid a percentage of the sale price of the item.

Compensation

Any type of product can be sold using affiliate marketing. The seller and the marketer simply have to come to terms on the amount the marketer will be paid once a product is sold. In most affiliate business models, the marketer has no say in the commission he receives. It is generally determined beforehand, and the marketer simply signs an affiliate agreement agreeing to the various terms and conditions established by the seller. In some cases, the seller may offer various compensation plans from which the marketer can choose, but in most cases a predetermined percentage of the sale price is used as the basis for commission payments.

Products and Payment

Many online affiliate business programs are offered through payment processors like Clickbank. These websites allow the affiliate marketer and seller to come together and work for the common cause of selling the seller's product to make money. Most online affiliate programs offer digital products like software packages, but some pay affiliates for generating marketing leads, while others sell tangible goods like books and other retail merchandise. Payment processors like Clickbank make it possible for merchants to sell their products through multiple affiliates while allowing the affiliate marketer to receive instant credit for his sale and then payment once credit has been received.

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