Affiliate marketing is currently one of the most popular—maybe the most popular—way for the average person (or anyone else) to earn money through the Internet. It is a way for merchants/publishers/manufacturers to create an online network of sellers/bloggers/etc. (affiliates) to advertise and promote their goods on a commission (pay-for-performance) basis. The affiliate displays links or banners on its Website (or blog or e-mails) and receives a commission for any sales that are generated—sometimes even just for someone clicking on the merchant’s site!

So just how does “affiliate marketing” work?

To answer that, let’s first look at regular marketing through stores. A company manufactures a product—a Widget. They may or may not advertise to the general public. The Widgeting Company can sell the Widget to either a wholesaler (which also may or may not advertise to the general public), or directly to a store. The store definitely advertises directly to the public.

At each of these levels, the price for the Widget changes. The business at each level earns the difference between their cost and what they charge their customer. Simple Business 101.

Now the Widgeting Company, the wholesaler, and the store all hire salespeople to sell the product. Sometimes they will simply pay the salesperson a salary; sometimes they will pay a commission of a certain percentage of the price at which they sell the Widget to their customer.

That is the “first step” towards affiliate marketing.

The next step towards affiliate marketing goes as follows: The Widgeting Company decides that they want to reach a larger market, but they simply can’t pay much more to advertise than they already are. And they don’t have a waiting list of wholesalers or stores just dying to sell Widgets! So they look to the Internet. The Widgeting Company either already has or begins their own Website to recruit businesses (even those that are only online) to sell Widgets for them. They begin a drop ship program where these businesses advertise the Widgets, sell them and take the money for the sales. The businesses then contact the Widgeting Company, give them the customer’s information and order, send the Widgeting Company the money for the Widgets’ wholesale price (and pocket the difference). The Widgeting Company then ships the Widgets directly to the customer.

This is a great step. But it has a couple of limitations. First, nowadays products are often not physical products, such as e-books, and this is a cumbersome way to sell them. Second, in order for a store or Website to have a complete product line they would have to be taking orders for products from a multitude of manufacturers. It’s just too much bother.

Ta daaa—enter affiliate marketing. Affiliate marketing is done only through the Internet—no physical stores. It is similar to the drop shipment approach, except the manufacturer (or author, or etc.)—not the Internet business—takes the customer’s order and money, and sends the commission directly to the Internet store. The Internet store, or—perhaps more accurately—the Internet advertiser may be a Website, a Blog, or a business that is promoted only through e-mails (be careful with this approach; it is very easy to break the anti-spamming laws if you don’t really know what you are doing).

Now the manufacturer (or whoever) may have a problem similar to what the businesses have in the drop ship approach: too many small businesses to keep track of when they still have to keep track of all of the manufacturing (or writing or whatever) processes. They may just not have the manpower (or computer power) to keep track of all of that.

Human ingenuity again comes into play. There are now “Internet wholesalers” who will:

1. List many—even hundreds or thousands—of companies and/or their products,
2. Give the Internet bloggers or businesses a unique URL for each product they want to promote,
3. Keep track of how many dollars of sales each business makes and who they made if from,
4. Collect the commissions from the manufacturers or other companies, and
5. Forward these commissions to the businesses that earned them.

If the blogger or Internet business wants to look a little further, they can also find companies that have affiliate programs that are not listed with any of the “wholesalers.” Using some of each type of affiliate program is not uncommon.

To further visualize this, let’s look at how an e-book might be marketed through affiliate marketing:

• Someone writes an e-book on body building. He or she signs up to have one of these “Internet Wholesalers” recruit affiliates to advertise the book. The author features the book on his web site, he offers a 50% commission to affiliates who sell the book to end consumers by promoting the book on their Websites or blogs.
• A potential affiliate sees the e-book in the wholesaler’s Website and decides to promote the body-building e-book on his own Website or in other online promotions.
• Every time a visitor to the affiliate’s Website, blog, or other advertisement clicks on the product link, the visitor is sent to the author’s site where the e-book can be purchased though the wholesaler and downloaded. The wholesaler takes care of tracking and following up on the sale (screening for fraud and processing the payment, etc.); if the transaction is successful (and it almost always is), the wholesaler pays both the author and the referring affiliate.
• The wholesaler also processes any sales from the author’s web site that are not referred through an affiliate. In those cases, the wholesaler pays only the author, as no referring commission has been earned.

Here is how you, an average blogger or small Website owner, can take advantage of Affiliate Marketing using an “Internet wholesaler.” We will use the idea of a blog here, but it works the same way if you have a Website.

You blog about a specific topic, let’s say Body Building. Besides spreading your thoughts and other information about Fitness, you would like to earn some money from your blog, but you feel you can’t afford the time to really search the Web to find products to promote, or figure out how to promote them. The blog keeps you busy enough.

If this is where you are at, you simply need to:

1. Go to one “wholesaler’s” Website (more if you want),
2. sign up with them,
3. choose your products from their listings and get your unique URL for each one,
4. Put the URLs on your blog and
5. Pray that folks will get to your blog and buy some of the products. (You can help get better listings from the search engines by adding to your blog on a regular basis—like once a week—and pinging* each time you add or modify something. This will help increase the traffic to your site.)

Let me give you an example:

If you sign up with one of the leading “Internet Wholesalers,” ClickBank (at no cost to you), you choose a nickname that will be added to each of the URLs for products that you want to promote.

Let’s say you want to promote ClickBank itself, and you chose a nickname of “derrickcm”. Your URL for promoting ClickBank would be http://www.clickbank.com/sell_products.html?hop=derrickcm. (If you chose to delete the “derrickcm” it would still pull up the ClickBank home page, but there would be no affiliate involved. However, if you then made a purchase, you would have taken a commission from the person that sent you to ClickBank. If you don’t want that to happen to you, don’t do it to others—I believe they call that the Golden Rule!) Whenever anyone clicks on your URL (and doesn’t modify it!) and then makes a purchase, you will get a commission. And that’s all you have to do!

It is a simple process for both you, the affiliate, and the author (or publisher or manufacturer or whoever). It’s a win-win for all involved.

ClickBank is probably the easiest site for someone just beginning in affiliate marketing to use. Running neck-and-neck with them would be PayDotCom— http://www.paydotcom.com/ (About 2500 merchants.)

But there are other good “wholesaling” companies out there. Some of the best are:

• Commission Junction—Over half of the top 500 Internet Retailers go with Commission Junction.

• LinkShare—Hundreds of merchants, including biggies like WalMart, Target, PetSmart, Discover, and American Express.

• Affiliate Future—This has about 200 merchants.

• AvantLink—This site is extra picky about qualifications for both affiliates and merchants—and that is a good thing.

• ShareASale—Over 2000 merchants.

• HD Publishing Group—Not many products, but they are unique and something almost everyone would want. They pay a very high percentage commission.

If you have a variety of products on your blog or Website that are related to its topic, you have a good chance of earning a respectable amount of money over time. This is definitely not a get-rich-quick approach, but even that has happened on occasion! Consider affiliate marketing as a hobby to add to your blog or Website and at the very least you will learn something about the marketplace—and probably even earn some money.