Affiliate Marketing Explained

Affiliate Marketing is something that we haven’t discussed extensively at HBSA.  Why?  Because we’re busy writing and talking about other things.  But, it’s a very profitable business model, and it’s contributing more and more to our business.  So now, it’s time to talk about affiliate marketing.
The first thing we should talk about is the potential.
Potential? I won’t tell you exactly how much we made from affiliate marketing last year, but I will say it’s six figures plus, which is a nice little bonus.  And we’re not considered big affiliates – those guys produce $100k+/month with affiliate marketing.
So, it’s viable, and if you’ve never heard of it, you should check it out. It may change your life.

(NOTE: there are some affiliate links in this post – it goes as a little kickback for producing this kind of material )

What Is Affiliate Marketing?

Affiliate Marketing is simple to understand.  Here’s how it works:
Let’s say that Amazon.com wants to grow their business.  They have several options to grow their business, but they get the idea to open up their program so that average people can be compensated by driving traffic and purchases to the Amazon.com website.  So every time one of their affiliates send a visitor over to the Amazon site to buy something, the person who referred the buyer gets a commission of the sale that was generated.  Amazon tracks this via links – links that are clicked by the visitor, and clicks that lead to sales.
As you may well know, this example is not theoretical – Amazon.com does indeed have an affiliate program.
There are thousands of different affiliate programs, and thousands of companies that run these programs.  They exist in just about every niche, market, industry, or product class that you can imagine.  There are affiliate programs that pay for sales, pay for leads, or pay for an action (say, filling out a survey, or completing a download of a software).

How Do They Track These Actions?

The affiliate program or affiliate manager will track these actions with tracking software.  Lets say you sign up for a program, and you decide you want to promote that program.  One of the first things that will happen is you will be given an affiliate link, which tracks all of YOUR sales that come through that link.  It may look like www.affiliate.com/goodaffiliate9876.html  Every sale that goes through that link will result in a commission to you.

What Do You Need To Get Set Up?

You’ll need some assets to get set up with affiliate marketing:
Must-Haves

1. Training
2. Website
3. Offers
4. Tracking

Affiliate Marketing Training

Before you jump into anything (anything) our recommendation is to go in educated.  Affiliate Marketing can be a career, or just an additional source of income.  It’s a discipline that is big enough, and moves fast enough, that we recommend getting some solid training and coaching before you jump in and start spending money.  Overall, you’ll save money, and progress at a much faster rate than you would if you tried to go it alone.
I recognized this when I got started with Affiliate Marketing.  The place I got (and still get) are through the Aff Playbook.
Aff Playbook is a members-only that share case studies, training guides, webinars, and Q&A-style session that show you pretty much everything there is to know about affiliate marketing.  You can ask questions, work with other forum members, and learn from the experience of much more seasoned affiliates before diving in head-first.
You can click here to check out Aff Playbook.  I’m still a member there, so you’d be learning affiliate marketing in the same place I learn, every single week.

Website

You will need a website in order to get started with Affiliate Marketing.  You can start with Weebly if you’re not very technically inclined, or you can use WordPress.  You can get a free wordpress install by purchasing a hosting plan here.
Setting up a site should be the easy part.  Technology has gotten to the point where it’s pretty easy to pull off.  Don’t let this be a hurdle, it’s really not.

Offers

For affiliate marketing to work, you need to have offers to promote.  If you drive traffic, and the offer doesn’t make money, then it’s a bad day.  That’s what you should have a never-ending supply of good offers to choose from.
Where can you get offers?
There are clearing houses of offers available where you can choose from a stable of different offers, either in different categories, or different offers in the same category.
Clickbank – Pretty much the undisputed king of information products and offers.
ShareASale – Great program for sales-based affiliate programs.
OfferVault – Resources to use to look up different offers on affiliate networks.
Neverblue – A very decent affiliate network, with a stable of different offers, particularly mobile offers.
MediaTrust (formerly Advaliant) – Another very decent network to work with.
Getting Approved
Some places like Clickbank or Pepperjam don’t really do much screening.  Other affiliate networks (specifically, CPA networks) spend more time and energy screening affiliates, ensuring that they allow affiliates who run quality traffic.  You may wonder “why would they worry about the quality of an affiliate?”  The reason is because you, as an affiliate, can be an asset or a liability to that company.
Let’s say you’re an affiliate from, oh, say Nigeria.  And let’s say you don’t really care about developing a long-term relationship with an affiliate network – let’s say you actually just want to make a bunch of money as fast as possible.  So you sign with an affiliate network that doesn’t do good due diligence, and lets you into their system.  You now have access to dozens of advertisers offers; advertisers which have calculated their profitability and have chosen to pay out for a specific action that they think will result in a certain amount of profit for them.
You might be inclined to go get a list of names and credit card numbers, and use your Lead-Stuffer 1000™ software to push orders or leads through a merchants website.  Let’s say that the merchant sees thousands of orders per day coming from you.  Let’s say that the merchant doesn’t have a fraud-protection suite enabled on their merchant account, which results in the fraudulent orders getting through. 
You, as the affiliate, get paid from the network.  The merchant has, unknowingly, just charged several thousand people for orders they didn’t place.  A month later, the merchant account blows up, the advertiser goes bankrupt, and who do they blame?  The affiliate network.  That’s why a network does due-diligence before letting affiliates in the door.

Tracking

As an affiliate, you will most likely be working with some form of paid advertising.  Why paid advertising?  Because it’s fast, it’s scalable, and most offers have a lifespan.  Depending on the vertical, it could be a long or short lifespan.  Some offers last for years – some last for days.  Part of the benefit of being an affiliate means that you get to focus on just one thing – driving sales and conversions.  Part of the downside is that you don’t have full control over an offer.  So you have to be flexible, willing to adapt.
If you are going to use paid advertising, you must track it.  Why?  Because if you don’t, it’s going to be nearly impossible to make money.  The way paid advertising works is that you start a campaign that will probably not be profitable.  You then work with it – massage it – optimize it – sing to it – and eventually, you make it profitable.  You eliminate unprofitable keywords, placements, or targets, and add in profitable keywords, placements, or targets.  You test.  You modify.  And you do this based on the statistics that you generate in your campaign.
How To Set Up Tracking
If you’re brand-spankin’ new to affiliate marketing, please just use the hosted version of Tracking202.  It’s free.  It’s good enough.  Just start there.
If want something more sophisticated, you can use Prosper202 or CPVLab.  One thing to keep in mind is that these self-hosted systems require that you install some software on a domain, and you run it off your server.  If you’ve been in the game for a while, do it.  But please, if you’re just starting out, just use Tracking202.  It basically requires you to do nothing.  Yes, it doesn’t give you full control, but it also doesn’t obligate you to full responsibility in setting up and properly configuring the software.  In most states, there is a reason they have drivers-ed.  Use the same mindset here, and it will serve you well.

Now What?

So, you got into some affiliate networks, you’ve got your site, you’ve spent some time going through the case studies at Aff Playbook…now what?  Now, it’s time to pick some offers and start testing.
Picking Offers
The first thing to realize is that you don’t know anything.  Your opinion doesn’t matter.  My opinion doesn’t matter.  Glenn Beck’s opinion doesn’t matter.  The only opinion that matters is the markets opinion, and you don’t know what your market wants without asking.  The way you ask is by testing.  You have to test an offer, get some data and stats, and make a call.
Generally speaking, you want to select an offer that pays out between $3 and $25, or if it’s a sale, you want to select an offer that pays out 30% – 75%.  Again, this is speaking in very general terms, and there are lots of people that have made money on sub-$3 payouts, and plenty that have made money on high-ticket payouts.  Keep that in mind.
Personally, I like offers that take a piece of a big pie, and focus on a slice of that big pie.  General, “everything to everyone” offers haven’t done that well for me. 
An example of this concept: you take a big market (business opportunity) and focus on one slice of that market (network marketing).  Or take a big market (diet and weight loss) and focus on a slice of that market (moms wanting to lose post-baby weight).  Or take a big market (Saas email marketing) and focus on a slice of that market (small, non-technical business owners that need an inexpensive solution).
These are all examples to get you thinking in the right direction.  You pick your niche, you pick your market.  Pick one that has a nice backend (something large enough with a good payoff) but is specific enough that will allow you to serve a specific portion of that market.
Assume nothing.  Test.  Everything.

Testing Offers

Some offers you can just run, some require that you get “approval” to run from the affiliate network.  Either way, once you’re up and going, it’s time to do some testing.
Lander?  No Lander?
Different offers have different user pathways.  A user pathway is just the path that the end user travels through the offer channel.  An example path might be:
Banner Advertisement >>> Landing Page >>> Offer
In this case, the end user sees a banner advertisement from an affiliate for, say, a dating offer.  They then click on the banner ad, and go on to a landing page that that the affiliate created that gives some example profiles of a dating website.  The landing page sells the benefits of joining the dating website, and inspires the end user to click on thru to the offer.  Once the end user completes the offer, it triggers a commission to go to the affiliate.
Here is another example pathway:
Text Ad >>> Landing Page (optin) >>> Offer
In this pathway, the end user responds to a text ad – they click the ad, and are then taken to a landing page that inspires the end user to submit some personal information (usually either name, email, or phone, or all of those details).  After opting in, the  end user is then presented with an offer.  This pathway allows the affiliate to build a list of prospects (which is a tremendous asset to the affiliate) and also allows the affiliate to earn income with the offer.
Yet another example pathway:
Banner Ad >>> Offer
This pathway is known as direct-linking, in which the affiliate links the offer directly to their advertisement.  The offer is the landing page.  This pathway works more often than you might think it would.
Pathway models can differ according to traffic channel, market, or offer payout.  Again, testing is key.
Landing Page Design
Getting a landing page done is easy. Your options are:
1. Do it yourself
This isn’t as hard as you might think.  Again, Weebly or WordPress, it can be done quickly after you’ve had some practice.  Spend some time researching your offer, where the traffic comes from, and the competition.  Look at competitors landing pages.  Don’t copy – be unique – but you can gain inspiration from seeing what is already out there.
2. Hire Someone Else to Do It
This really isn’t that expensive.  We have been known to put a few landers together for people – hit us up at support at hbsaonline dot com if you’d like some help.  Or you can find someone on Elance to help you out.
Testing And Optimizing
All your metrics that you evaluate will be different, depending on how you are running traffic, and your pathway.  The main thing you want to pay attention to is statistical relevancy.  In just about any paid-traffic campaign, you will have outliers that throw off our stats if they are taken into account.  These outliers work against you in two ways:

1. They throw a disproportionate amount of non-converting traffic into your pathway
2. They take away a disproportionate amount of ad money from converting traffic

If you have a couple of bad placements/keywords/targets in your campaign, it can throw everything off.  Eliminate those outliers, and give your traffic a fair chance to convert.
Testing Budget
A very general rule of thumb is to test 3x the offer payout, or $25, whichever is greater.  Again, this is a very guideline, designed to help you from riding a losing offer for too long.  This is kinda like stock trading, or hold’em…“you gotta know, when to fold ‘em“.
Scaling It Up
Ok, now we’re talking.  You’ve got some traffic, you’ve got some conversions, and now you want to know how to take it to the next level.
There are several ways to do this.
1. Outsourcing/Hiring
You can hire some staff to start doing the grunt work for you.  A business isn’t a business if it’s JUST YOU.  That’s a job.  One of the most valuable things you will do in your business is align yourself with people who are smarter than you, or who compliment your weaknesses with their strengths.
Keep in mind that most people that respond to an ad for hire don’t deserve to work for you.  That’s just the reality of the situation. It all depends on what kind of business you want to build, but I’ve personally seen that it’s worth it to hold out for excellent people.  They’re out there, but it takes some time and effort to find ‘em. You also want to vet people up front – give them small tasks, see how they perform.  A resume or CV means nothing.  What matters is – how are they going to perform for you?
For those are are fantastic, and who earn your trust, you want to be overly-generous, in both compensation and recognition, and autonomy.  For those who are just “so-so”, you want to compensate, both in compensation, recognition, and autonomy, in a very average way.  This allows you to retain the winners, and let drifters drift on down the road.
Just remember – you don’t owe anyone a job.  You are a representative of your business, and how you allocate your capital, and what you invest your time in doing with that business, will determine if you stay competitive and dominate, or if you dry up and go by the wayside.
2. More Traffic
There are enough traffic sources out there to keep you busy testing for the rest of your life.  Any single traffic source can produce enough business to keep you moving for a long time. Once you have success on one traffic source, begin testing others, and learning them.  Each traffic source is a discipline all its own, so just keep in mind that each time you take on a new channel, you should have a students expectations, just learning the ropes.
3. Developing Longer-Lasting Pathways
Some paths are more profitable, long-term, than others.  Direct-linking can work to make money right now, but if that offer ever goes away or if the traffic channel has issues, then you don’t make any more money. It’s a paycheck-to-paycheck model.
A longer-lasting model is to build your own assets – like a database.  Building a database can be one of the highest-ROI activities in your business.  It’s a potential long-term asset that can pay you again, and again, and again.  I say “potential”, because a database is only as valuable as the relationship you foster with it.  You provide no value, you will have a poor ROI.  You provide much value, you will have high ROI.

How To Spend All Your Money

You can decide for yourself what to do with all the additional cash you will be earning, but I will give you a few hints from my own experience:
Pay It forward
I personally think that one of the purposes of money is to enrich the lives of others.  I like to bless people with the money I earn.  I don’t have a standard monthly donation that I give to any one organization, but I always look for good opportunities to help and bless others.  I have a soft-spot in my heart for kiddo’s, so I like to give in ways that bless children.  Some of this prolly has to do with the fact that when I was a kid, there was some Christmas’s in which we didn’t really have money for presents, and were it not for the generosity of others, there really would not have been a Christmas for my family.  That made a big impact on me, and I’m now paying it forward.
Reinvest
Don’t blow your dough on stupid stuff.  Yes, fancy cars, boats, houses, and other doodads are entertaining.  I’ve done my share of buying those things, and there’s nothing wrong with them.  But the funny thing is that there never as fulfilling as you might imagine them to be.
One of the keys to happiness is progress.  It’s the name of the game.  If you don’t perceive progress happening in your life, then you’ll be frustrated, restless, dissatisfied.  Working towards a goal is what keeps us engaged, keeps us interested.  Reinvest your funds back into your business and other endeavors, and stay hungry.
Save 10%
Put back 10% of everything you make. This is right out of The Richest Man In Babylon, and it’s wise.  Right now, you’re working for money.  Make money start working for you.  Holding that capital back, and investing it in low-risk vehicles is a deposit into your future. Once saved, don’t touch it.  This is wealth preservation, not wealth generation.
Make It Happen
I know this is a long post and guide, but don’t get paralysis by analysis.  Take action now, start moving forward in getting the systems up and start building your business!