Online Business Models Explained: Affiliate Income

online business models

So far in the series we’ve been talking about services and consulting, and products – two most common business models for online entrepreneurs and bloggers. This edition is all about getting some affiliate monies!

OK, not exactly about the “getting” part. But what I want to do is explain some principles by which the model usually works.

If you don’t know what “affiliate” means it’s just a fancy word for earning money as a result of sending a customer towards someone else’s business. Or in other words, when you promote a product that isn’t yours.

The whole idea might not seem that attractive at first, and what you may be thinking is something along the lines of: “If I am the one getting the sale anyway why not simply offer my own product instead?” – this is a common and valid concern.

Yea, why wouldn’t you? Products are great, I agree, but as I was talking in the previous post, there are some downsides to them. Choosing affiliate marketing as a replacement for the product based business model might be a good choice for you if you don’t have the funds to develop your own products.

But let’s take a moment to discuss some advantages and disadvantages first.

Affiliate marketing – pros and cons

There is one main BIG advantage in going for affiliate business model – you don’t have to take care of the product development process.

Most of the time, you don’t have to take care of anything… product development, customer support, product updates, product delivery, payment processing … none of these things are any of your concern.

Your “only” job, as an affiliate, is to get someone to buy the product through your affiliate link. After that you can call it a day.

Another advantage is that your commission is usually a big part of the overall price of the product.

The standard for all kinds of digital products are commissions upwards of 50% of the total price. Many vendors offer 75% commissions, and some even go as far as 90%. So as you can see, in many cases, the product creator earns less money than you – the affiliate.

For physical products there are no standards in terms of commissions. Some vendors offer as little as 2% and some as high as 30%. But still, it’s a lot smaller percentage than for digital products.

That being said, even though the percentage might be smaller, physical products are usually more expensive, so in the end you might earn more promoting an expensive physical product than a cheap digital one.

Continuing with the advantages. There are thousands of products you can promote as an affiliate. Really, the marketplace is very wide, so you can find affiliate products for almost any niche.

See for yourself. If you’re interested in digital products check out sites like: Clickbank, or  PaydotCom. For physical stuff check out Commission Junction, and … Amazon.

Another thing, good affiliate programs also provide their affiliates with various promotional material, like: banners, images, promotional emails, keywords for AdWords, and much more.

Now what everybody has been waiting for … the disadvantages.

First of all, in most cases you don’t get to keep the customer. What I mean is that when you’re selling your own products, for example, you get the customer’s email address, so you can put them on your mailing list and contact them next time you have something interesting to sell. This enables you to make multiple sales from just a single customer acquisition.

There’s rarely such an opportunity with affiliate marketing, at least not at the time of selling. So by default the customer goes to the product owner, and it is the product owner who gets to keep this customer’s contact data.

Technical how-to

Starting with affiliate marketing is rather simple, from a technical standpoint. Every affiliate program provides you with your own unique affiliate links. So all you have to do to earn your money is to get someone to click through your link and buy whatever is on sale.

Of course, the “get someone to buy” part is the most challenging here. In essence, promoting someone else’s product as an affiliate is not much different from promoting your own product.

You still have to convince people to take action and make the purchase, so it won’t necessarily be easier than promoting your own stuff.

You can try implementing all promotional methods you know, there are no rules here. Text links, banners, promotional emails, videos, sales letters, etc.

If you don’t know if affiliate marketing is the right choice for you, consider this one additional idea.

Affiliate marketing is really good at checking the field and making sure that people are interested in a specific type of products. This is the kind of knowledge you can (and should) use when developing your own products.

Here’s what I mean. When you’re planning on creating a product and promoting it in your business you can start by doing a test, and promoting an affiliate product first. Something that is in some way similar to what you have in plan.

After the promotion is done you can look at your results and, to some extent, predict how your own product would perform. If you are satisfied with the results you can go one step forward and start developing that product.

All this testing is to make sure that a situation where you create a product and then find out that no one wants to buy it never happens.

This one thing just might be the biggest value of affiliate marketing. I’m not saying that it is … but it might be. :)

OK, I hope we have this business model covered. Feel free to comment and share your insights. Is there something else I should have mentioned here?

Next parts of the series are coming soon so don’t forget to come back to get them. Feel free to subscribe to my RSS feed or email updates to get the posts delivered to you the minute they are created.

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