Affiliate marketing is the revenue sharing between online advertisers (and merchants) and online salespeople. Compensation and pay is based on performance measures, normally in the form of clicks, sales, and registrations. There are many people around the world making money with an affiliate marketing business. Starting an affiliate marketing business of your own is not hard to do.

Affiliate marketing programs are described as a win-win situation for both the merchant and the affiliate because of the pay-for-performance scheme. Both the merchant and the affiliate enjoy some benefits in affiliate marketing. There are many benefits on the merchant's side. It gives the merchant a wider market in which to advertise a product or service. Affiliate marketing will give the product or service the maximum exposure that it may not get with other traditional advertising techniques. The more affiliate sites a merchant has, the higher the traffic, which can convert to sales. Affiliate marketing is the equivalent of having an army of sales people who will do the advertising and will only get a commission if a customer purchases. The advertisers and merchants are normally referred to as affiliate merchants, and publishers or sales people are known as affiliates. The many benefits of affiliate marketing include the potential for making lots of money. You can automate a lot of the advertising process and receive payment only for desired results, which includes sales, registrations, and clicks.

In affiliate marketing, your responsibility is simply to find prospects for the merchant; you do not have to worry about inventory, order processing, and product shipping. There are no long-term binding contracts tying you to products that are not making enough money. All the same, the best benefit of being an affiliate marketer is the opportunity to increase your income and you can make a profit even if affiliate marketing is only a sideline business. Affiliate marketing has been a contributor to the rise of many companies online, including Amazon.com. Amazon.com was one of the first adopters of affiliate marketing, and now has thousands of affiliate relationships.

When it comes to making money, affiliate marketing is in a league of its own. The most successful affiliate marketers do not direct their prospects straight to the affiliate sales page. What they do is to point them to a lead capture page first. The advantage of a lead capture page is that you can then redirect all of your visitors into your auto-responder for follow-up and then send them to your affiliate sales page. There are many advantages to using affiliate programs to increase your earnings but there are also a few things you should keep in mind. Most of us, especially early on, believe that the companies with affiliate programs are more than willing to pay it's hard-working affiliates a commission.

Now you can actually begin looking for products to sell within that particular market. Utilizing online directories such as CJ.com or AssociatePrograms.com is a great way to find products to sell for the market to you choose.

Affiliate Marketing Program

Understand your market. Your site should cater to a specific market. Resist the temptation to be a site that caters to "one and all", for you will make less money that way. The main reason super affiliates succeed so well is that they choose to promote programs that have residual or lifetime commissions and NOT commissions for single sales only. What happens in most affiliate programs is that the company which owns the product pays the affiliate for a single sale only. Sometimes, these programs are 2-tier. However, the principle remains the same - one sale, one commission. The best programs are the small number that offer lifetime commissions. These programs allow you to keep the customer for life after you make one sale to that person.

Instead, analyze the current market and decide on the area that can yield the most profit for you. Without specialization, your efforts will be wasted in too many directions, with the result that you may achieve mediocre results in all areas, but never outstanding results in one or two areas. Spreading yourself too thin is a very real danger and must be avoided. You're much better off choosing a topic or product that you know and love, than choosing five topics or products that you don't understand. You won't be making extra money online if you don't specialize.

Advertise intelligently. Because you are a website builder, you must always keep the end product in mind. Will your finished site be something that people will want to get more of? Will they want to visit regularly, or will they returned off by what's there? Many site builders make the mistake of just putting up banners and links wherever they can. If it were you visiting the site, would you actually bother to click on these ads, especially when they are nothing more but a nuisance? You might manage to earn a few dollars using this method, but in the long term, you couldn't possibly hope for long-term success. Try to build your site with your readers in mind, and provide for what they will need and want.

There are 4 different kinds of affiliate programs to compensate "Affiliates" (or referring sites) for generating traffic to the Affiliate Program operating Website: Pay-Per-Impression, Pay-Per-Click, Pay-Per-Lead and Pay-Per-Sale.

Pay-Per-Impression (CPM)

Cost-Per-Mil (Mil = 1000) Impressions. Publisher gets from Advertiser $x.xx Amount of money for every 1000 Impressions (Page Views/Displays) of the Ad. The Ad can be Text (AdSense), Banner Image or Rich Media.

The Pay-Per-Impression and Pay-Per-Click Model are not common to be used in Affiliate Marketing anymore. They were used in the Past, but were mostly abandoned due to Fraud and lack of Results.

The CPM (cost-per-impression) compensation Model was revived by Google for Google AdWords in summer 2005. The feature is called "Site-Targeting" in AdWords and allows you to display your Adsense Ad on a specific Website that runs AdSense Ads.

Pay-Per-Click (CPC) Model

Cost-Per-Click. Advertiser pays Publisher $x.xx amount of money, every time a visitor clicks on the advertiser's Ad. It is irrelevant (for the compensation) how often an Ad is displayed. Commission is only due when the Ad is clicked.

Like the Pay-per-Impression model was the Pay-Per-Click (PPC) Model popular during the dot com boom at the end of the 1990th but was mostly abbandoned by Advertisers for Advertisements on other Websites due to rampart problems with click fraud.

The PPC Model was kept alive by the PPC Search Engine GoTo.com which became later Overture.com and is now owned by Yahoo! and renamed from "Yahoo Sponsored Search" to Yahoo Search Marketing.

Contextual Advertising

The big come-back of PPC came when Google launched AdSense in 2003, the birth of contextual Advertising. What is Google AdSense? Here is a quote from Google's History at Google's corporate Website.

Google AdSense: "... offering web sites of all sizes a way to easily generate revenue through placement of highly targeted ads adjacent to their content. Google AdSense technology analyzes the text on any given page and delivers ads that are appropriate and relevant, increasing the usefulness of the page and the likelihood that those viewing it will actually click on the advertising presented there."

Yahoo's Version of AdSense called Yahoo! Publisher Network was launched (beta) in 2005. Microsoft is also working on their own Version of AdSense which is expected to be launched (beta) in 2006.

Search Engine Marketing (SEM)

Classic PPC Search Engine Marketing (Cost-Per-Click (CPC) advertising) is not Affiliate Marketing. It is an entirely different type of Internet Marketing and only has some technical details in common with old PPC/CPC Affiliate Marketing.

Ads are primarily displayed at the Search Engine Search Results Pages (SERPs) next to organic, free, Search Results. Contextual Advertising introduced with Google AdSense is also not Affiliate Marketing since no direct Partnership between the Advertiser who creates and pays for the Ads and the Publisher who displays the Ads on his Website.

This type of Marketing is generally referred to as Search Engine Marketing (SEM) and is often and wrongly mixed up and confused with Search Engine Optimization (SEO) which is about improving the ranking of a Site in the organic, free, SERPs at major Search Engines via technical means and deep understanding of the complicated ranking algorithms used by modern Search Engines.

Pay-Per-Call

This is a new compensation model. No official abbreviation exist yet. Advertiser pays publisher a flat $x.xx amount in commission for phone calls received from potential prospects as response to a specific publisher Ad. Recently developed call-tracking technology allows to create a bridge between online and offline Advertising. Pay-Per-Call Advertising is still new and in it's infancy.

Pay-Per-Call Advertising is neither Search Engine Marketing (SEM) nor Affiliate Marketing. It is expected to become the 4th major type of Internet Marketing next to Affiliate Marketing, Search Engine Marketing and Search Engine Optimization within the next years.

The Affiliate Marketing shifted almost entirely to the Pay-Per-Lead (CPA or CPL) and Pay-Per-Sale Model (CPS) which is also known as Performance Marketing. The paid commission is usually a percentage of the referred sales or a flat dollar amount.

The Pay-Per-Lead (CPA or CPL) Model

Cost-Per-Action or Cost-Per-Acquisition (CPA), Cost-per-Lead (CPL). The Advertiser pays the Publisher a flat $x.xx amount in commission if a referred visitor performs a specific action on the Advertisers Site. It could be Actions like filling out a Form, Signing up for a Newsletter or Creating an Account.

The CPA Model is very popular with Online Services like Credit Card Providers, Insurance Services, DVD and Video Game Rental Services and Loans and Mortgages. Due to the usual high flat commission amount is the CPA very attractive for PPC Affiliates that do not have a permanent Website and an established User Base.

Before you consider the CPA Model for you problem, make sure to have mechanisms in place to validate the quality of referred leads. Your program will be vulnerable to become a victim of fraud, affiliates that generate tons of "fake" leads if you do not have anything in place to verify the quality of the produced leads. The Pay-Per-Sale (CPS) Model

Cost-Per-Sale (CPS). Advertiser pays the publisher a percentage (%) of the Order Amount (Sale) that was created by a customer who was referred by the publisher.

This Model is used by most Online Merchants today.

Here are same basic tips for Advertisers that consider starting an Affiliate Program with CPS Compensation Model:
Do not pay commissions that you end up loosing money on an order. You will gain new customers because of the Affiliate Program, but you will also pay commissions for returning customers. Shoppers on the internet are more savvy today. Comparison Shopping Sites, Coupon Sites, Cash-Back Shopping and Charity Sites, that make up a large percentage of successful affiliates, are often visited by Shoppers first. See the Affiliate Program also as a Customer Retention Tool.

CPA or CPS?

If your competitors have affiliate programs and you don't, chances are good, that you are loosing a considerable amount of business to them, because the lag of an affiliate program for your site. If you want to use an Affiliate Program as an Online Merchant for the whole purpose of customer acquisition, consider the CPA Model and pay a flat commission for new customers referrer by affiliates.
Do the math to come up with a Flat Commission that makes it worthwhile for affiliates to promote you. Affiliates are not waiting for you, the next Merchant that has a Program is only one click away.
What you do and what commission you pay is up to you. You can also mix compensation models. The best thing to do is always to check first what your competitors are doing and use their compensation model as reference.

Pay-Per-Sale is by far the most common compensation model. 2/3 to 3/4 of all Affiliate Programs today are Pay-per-Sale Programs. The operating Site only pays "Commission" to their Affiliates for actual Results (a Sale, Sign-up etc.) and not just for promises (Clickthroughs, Banner Impressions).

A common way to promote affiliate programs is through the use of a review website, where several products are compared to each other. This can be an effective way to help consumers go the last step and decide between various options. The greatest obstacle you face in converting visitors to sales is how trustworthy and authoritative your site appears to be.