Head at Travelpayouts, the largest affiliate marketing network focused on the travel market.
Affiliate marketing has grown from a niche idea to a popular income generator. In 2022, the industry is expected to surpass $8 billion. And while many people know that they can profit from affiliate marketing, I’ve found few truly understand how companies earn money through affiliate strategies. However, once you know the basics of this system, you can easily see why many advertisers use this form of marketing (and how you can, too).
At my company, an affiliate marketing network in the travel industry, we’ve been working with advertisers for more than 10 years now with more than $20 million in payouts. I’ve learned a lot through this experience, and below, I’ve shared the concepts that I’ve found are crucial to developing a successful affiliate strategy.
Why do advertisers choose affiliate marketing?
An advertiser is someone who owns a product or service that is promoted through affiliate marketing. Like any business owner, advertisers are mostly interested in increasing sales by attracting new customers. Classic marketing usually works on a pay-per-click system, which means you pay for traffic instead of sales. There are many ways to measure your return on investment, of course, but it’s still different from a click-per-action model, which is when brands pay only for purchases or another desired result.
Let’s take a look at affiliate marketing by using Booking.com, a popular travel platform, as an example. (Full disclosure: Booking.com is an advertiser and partner in my company’s program.) Its program works by allowing affiliates to promote their services on personal websites or social media profiles. And since the affiliate gets paid when someone books a room using a Booking.com link, the advertiser knows exactly how many sales the strategy is generating.
What do you need to know about ROI?
ROI evaluates the efficiency of an investment. You likely already know that a high ROI means the investment was a success when comparing it to the initial costs. Knowing your ROI can help you decide if a marketing strategy is worth your time.
When it comes to affiliate marketing, you can calculate ROI if you know exactly how much money you spend on your affiliates. First, you will need to subtract the total cost from the total profit. Then, divide that figure by the cost itself. This gives you the final amount. As an example, if you spend $20 on your affiliates and you earn $30 from them, you will have a profit of $10 and an ROI of 50%.
Depending on the product or service you are selling, increasing the revenue might be a matter of getting more customers. In other words, the conversion rate is essential when looking to see how much money you can make from affiliate marketing. For companies that have a yearly conversion rate of about 3% to 4%, they would get 30 to 40 new customers every 1,000 visits.
How can you get started?
Switching to an affiliate strategy can be a daunting task, especially if you have little to no experience. Everything from finding reliable affiliates to training them can seem impossible for a newcomer.
Advertisers who decide to delve into affiliate marketing can go three ways: Start their own affiliate program, join a network or do both. Some companies prefer working only through networks, as it saves them the time they would spend on integrating and training affiliate partners, developing customer support and their technology platform. Others might want to run programs on their own or do a hybrid approach.
If you do choose to start your own affiliate program, you will need technical and customer support, and you will also need to figure out your ROI. How much money can you make for each user who joins your program through your affiliates? Depending on that, you can set up the fee (or commission) you are paying the affiliate marketer for bringing users to your program.
No matter which approach you choose, affiliate marketing is continuing to be a promising advertising strategy for companies out there.