Affiliate Marketing: An overview for merchants
Affiliate marketing is a cost-effective way for merchants to promote their websites by paying only for the sales or leads generated by affiliates (partners who promote the merchant’s products or services). The merchant creates a partnership with one or more affiliates, who then promote the merchant’s products or services on their own websites or social media channels. The affiliate earns a commission for each sale or lead generated from their promotion.
As you might have gathered from the above, the “merchant” in affiliate-marketing speak is the website that has products or services to promote. The affiliates are the partners that do the promoting of those products or services. If you’re a founder on Indie Hackers, you’re the merchant, and this overview is for you.
Some benefits of affiliate marketing for merchants include:
It’s cost-effective: Affiliate marketing is a pay-for-performance model, so the merchant only pays for actual sales or leads generated. This is in contrast to traditional advertising methods, such as television or print ads, which can be expensive and may not generate a measurable return on investment.
It’s reach: Affiliates have their own audiences and can help the merchant reach new customers they wouldn’t be able to reach otherwise. As a startup founder or indie hacker, you may be in the position to trying to promote your product or service without an initial audience of your own to promote it to. Affiliate marketing is an effective way to piggyback on the audiences of those who do.
Performance tracking: Affiliate marketing programs typically have tracking systems in place that allow merchants to measure the performance of their affiliates. This allows merchants to track who is driving their referrals and to expand their affiliate programs by seeking out similar affiliates to their already successful ones, doubling-down on what’s working.
Flexibility: Affiliate marketing programs can be customized to fit the merchant’s needs, such as offering different commission structures or creating exclusive promotions for specific affiliates.
So to recap, affiliate marketing can be a great way for merchants to promote their products and services and reach new customers while keeping costs low and minimizing risk.
How it works: Affiliate tracking makes it possible
*Affiliate links* are special URLs that contain unique tracking codes. The tracking codes allows the merchant and affiliate to track clicks and sales from the affiliate’s website or media properties (such as social media accounts) to the merchant’s website.
When an affiliate wants to promote a merchant’s product or service, they will typically receive a unique affiliate link from the merchant. This link will include the tracking code that allows the merchant to track the affiliate’s performance.
When a user clicks on the affiliate link, they are taken to the merchant’s website. The click is tracked by the merchant through the tracking code in the link. If the user makes a purchase or takes a specific action on the merchant’s website, the affiliate will receive a commission for the sale or lead.
There are different ways to generate affiliate links, depending on the merchant’s affiliate program and the affiliate software platform it’s set up on.
Affiliates can also promote the merchant’s products or services in different ways, such as on their own websites, social media channels, email campaigns, or through pay-per-click advertising. The affiliate will typically be provided with a variety of marketing materials, such as banners, text links, and product images or videos, to help them promote the merchant’s products or services. The resources provided differ widely from merchant to merchant; some merchants just provide affiliate links with no further resources specifically for affiliates, leaving it up to affiliates to promote them in whichever way they feel best matches their audience.
In summary, affiliate links are special URLs that contain unique tracking codes which allow the merchant to track the affiliates’ performance. When users click those links, they are redirected to the merchant websites and the affiliates will then receive commissions for any sales or leads generated there.
And as we’ll see, affiliate links aren’t the only way to track affiliates. There’s linkless tracking too. But let’s delve a bit deeper into affiliate links first…
Affiliate Links: The Inner Workings
Getting more into the nitty-gritty of things, there’s quite a few ways affiliate links can work. Commonly deployed technologies are tracking cookies and user fingerprinting. For example, the tracking platform I founded, [ReferDigital](https://referdigital.com) uses both of these, as well as making linkless tracking available. Here’s an example of a tracking link as generated for an affiliate on ReferDigital:
This link may be placed by the affiliate on any of their media properties – social media, blogs, websites, etc., depending on what the merchant allows. Typically each merchant imposes their own affiliate program terms and conditions on affiliates, specifying what kind of content is allowed to be used in promoting their products/services. When a consumer viewing the affiliate content clicks on this link, it redirects to the merchant website ([Lotus Candles](https://lotuscandles.com) in this example).
Tracking Cookies And Fingerprints
To the user the affiliate link appears to be just a regular link to the merchant site. A few interesting things happen in the background, however, that make affiliate tracking possible when the link is clicked. First a cookie is placed by ReferDigital on the consumer’s browser, identifying that browser as having originally visited through the affiliate link. The consumer’s browser is also fingerprinted. Browser fingerprints are a useful fallback in situations where placing a cookie on the user’s browser isn’t possible for any reason.
When a successful conversion, typically a lead submission or purchase, occurs on the merchant site, ReferDigital is alerted via a tracking pixel placed on the conversion page on the merchant site. Tracking pixels deserve a blog post all to themselves, but the idea behind them is fairly straightforward. When the conversion occurs, the pixel is loaded by the merchant site, and the affiliate tracking software (ReferDigital in this case) is alerted to check whether the consumer that submitted the lead or purchase matches either the tracking cookie or a browser fingerprint. A successful match would indicate that they visited due to an affiliate promoting them via their link. If so, the affiliate gets credit for that conversion and ReferDigital records a successful referral, for which the merchant will owe the affiliate a preset commission.
Besides affiliate links and their tracking cookies / fingerprints, vanity codes represent another way tracking may be set up. With vanity codes, the merchant assigns their affiliates unique codes specific to those specific affiliates, which they can then hand out to their audience. Typically merchants attach discounts or special offers to these codes, and set those codes up in their websites accordingly, so the affiliate’s audience is incentivized to use them when checking out on the merchant site. The merchant site then reports the vanity code to the tracking pixel when a conversion on the merchant site occurs. This sends that information to the tracking platform, ReferDigital in this example. ReferDigital then looks up the code and figures out that the affiliate to whom that code was assigned is to be credited for this conversion.
Vanity codes therefore allow for *linkless tracking*… affiliate tracking without the actual use of affiliate links. In situations where an affiliate simply wishes to give out a code to their audience rather than a full-blown affiliate link, they are particularly useful. Social media influencers often use vanity codes in this way.
Putting it all together: Paying the affiliates
The tracking platform the merchant uses to track their referrals typically allows both affiliates and merchants to login to it whenever they wish, to see how their referrals are coming along in real-time. Merchants can see what referrals have been generated by which affiliates, and affiliates can see what referrals they have generated for which merchants. Merchants then use this information to pay their affiliates on a regular basis, typically monthly.
Payments may be handled outside the tracking platform, or by the tracking platform if that feature is available in the platform. It is generally much more convenient for both merchants and affiliates if the platform takes care of payments. Merchants will then only have to make a single aggregate payment monthly to the platform for the sum total of all referrals generated by all their affiliates in the previous month. Likewise affiliates will receive a single payment monthly for all referrals across all merchants they are promoting on that affiliate platform, rather than have to chase down individual merchants for payment. It is normal for affiliate platforms that handle payments to take a small fraction of those payments, just as with other kinds of ecommerce marketplaces.
Conclusion: Check out affiliate marketing!
If you’re an indie hacker or startup founder, you should really check out affiliate marketing as a possible growth driver for your business. It has been said that the best business comes from word-of-mouth, and affiliate marketing places that referral process on steroids for the internet age. Particularly if you don’t already have an audience of your own, affiliate marketing allows you to piggy-back on the audiences of those who do, with minimal risk to you since you only pay referral fees for successful conversions of paying customers.