Affiliate marketing used to be the bête noire of online marketing. It could generate huge payoffs but had a bit of a downmarket air to it. The stream of bad actors amongst the wide variety of legitimate players hasn’t helped its reputation. Estimates project affiliate marketing to experience a compound annual growth rate (CAGR) of 10.1 percent between 2015 and 2020, growing to an $6.8 billion industry. That kind of current growth makes affiliate marketing a perfectly respectable and potentially profitable digital sales and marketing strategy.
I wanted to learn about what affiliate marketing really is, look past its reputation, and see where it’s going. If affiliate marketing remains just a phrase to you, jump down to the final section of this post for a high-level review of affiliate marketing basics; then come back here. If you don’t need a primer on affiliate marketing, keep reading on. In this post, I look at:
- The current state of affiliate marketing
- Review of where the experts say it’s going
- Review of affiliate marketing basics
Current State of Affiliate Marketing
Let’s start with the question most affiliate and would-be affiliate marketers have – what are the hottest niches? In my research, most of the blogs I read on this topic list health & wellness and money making opportunities as the most profitable affiliate niches. Yet I also found one data-based analysis, done by Geno Prussakov at AM Navigator, of the most profitable niches that offered some alternate insight.
Prussakov looked at data from 550 affiliate programs across six networks. Based on his research, the highest performing affiliate niche is… fashion, followed by the sports & outdoors industry (which included fitness programs). Health & wellness/ beauty, which included weight loss programs, came in third.
When Prussakov took a deeper dive into individual affiliate networks, he found the top performing industries varied by network. AvantLink’s top performing categories were outdoor/recreation, followed by hunting/fishing, while CJ Affiliate’s best category was travel, followed by fashion. I think the lesson here for potential affiliate marketers is to ask a more targeted question rather than “what’s the hottest niche?” A more nuanced approach must include consideration of the relative strengths and benefits of a specific network. I offer some more questions to think about when evaluating networks in my review of affiliate basics below.
To understand more about the current state of affiliate marketing, I also looked at the 2016 AffStat Affiliate Marketing Benchmarks report. This survey of affiliate marketers from all over the world found that the most popular category of programs they promoted was computer & electronics, with clothing & apparel a close second. Prussakov’s research had computers & electronics as a top ten performing niche, which adds another layer of nuance to the question of the hottest niche.
Affiliate marketing is hard work. If you need to be motivated by more than money, then selecting a niche that interests you is key. If promoting technology goods and services is what’s going to keep you focused, then it may be a niche for you. You also want to select programs aligned with your website or online platform. While traffic sources are a big issue to affiliate marketing success, the relevancy of the traffic – as it is for all digital marketing and sales – is paramount.
For example, I’ve recently become obsessed with beauty box subscriptions and have gotten sucked into watching beauty vlogger unboxings on YouTube. They are not promoting computer & technology affiliate links. Their links are all in that other relatively well-performing category, beauty, which ranked high both in Prussakov’s analysis and as a popular niche in the AffStat report.
Speaking of traffic sources, the AffStat report identified where the top traffic to affiliate sites comes from. Nearly 70% of respondents said SEO was their top traffic source, but over two-thirds also said social networks are a key for referring traffic. Blogging was third on the list at 64.48%, and then there’s a stark drop-off after blogging. Coming in fourth was email marketing, with 41.47% of survey respondents listing it as a top traffic source.
Hot topics in affiliate marketing
Hot niches and traffic sources have been perennial questions since the advent of affiliate marketing. But what are the key issues and trends facing affiliate marketers in 2017? After reviewing many blogs and white papers on the topic, here are five of the hottest topics today in affiliate marketing:
- Nexus laws: “Nexus laws” is the umbrella term for state laws that specify whether and what sorts of online transactions are taxable in that state, which can impact affiliate marketers differently. Since there’s currently no federal law addressing online taxation, states are figuring it out for themselves. This makes things confusing (and possibly expensive) for affiliates. More states are passing them and there’s growing pressure to have Congress set federal policy. In the meantime, here’s a recently updated list of nexus laws by state.
- Attribution: Everyone in digital marketing is looking for more precise attribution data to improve ROI through campaign and channel optimization. It’s no different for affiliate marketing. Affiliate networks will provide more granular attribution data so advertisers can understand where their high-value publishers are. It will also highlight the new types of nonlinear buyer journeys shoppers make across devices and over time. The affiliate networks themselves will use better attribution to refine their payout programs to the affiliates. Improved attribution will impact pay models as first-click, final-click, and other modes of apportionment start making sense. Attribution modeling and technology rises in parallel with the next two affiliate marketing hot topics: content and influencers.
- Content: With SEO and blogs still the primary drivers for quality traffic, affiliate marketers need to follow the trends driving these sources, which today means quality content. As algorithms prioritize authoritative, high quality, info-rich content, affiliate marketers are going to have to rely on publishing engaging content that can attract as well as motivate.
- Influencers: Improving attribution and content are two reasons that the power of influencers will grow as program managers seek them out in different niches. This trend will bolster those who already have an active community they can move. It’s also a clear marker for new affiliate marketers to select a niche wisely and focus on building their own brand and online community. Lastly, it’s a call to affiliate networks and others to develop influencer identification and recruitment processes, and to provide influencers with the tools they need to create compelling showcases and innovative CTAs to increase conversions. While some affiliate marketers may choose to work in a business model where they’re the influencer, networks and advertisers also need to get pro-active about inducing established influencers to, in essence, become affiliate marketers like the beauty vloggers I wrote about earlier.
- Mobile: What isn’t influenced by mobile now? This recent review of mobile statistics from Smart Insights confirms that people spend more time browsing on mobile devices than on desktop/laptop, but also points out that conversion rates are lower on smartphones. This is logical, although may vary by industry and demographic segments. The real estate to present compelling content on mobile is far more limited, and people are using their time on smartphones differently than their tablet or laptop time. Even so, people are shopping, if not yet as often as they purchase, on smartphones. Here, improving cross-device attribution will refine everyone’s understanding of how to use mobile most effectively.
Other than the taxation issue, the other four trends are tightly related. Growth and advancements in one will push the need to improve output in the others. This doesn’t seem an area where you can pick your trend to surf. To be successful in affiliate marketing, you need to understand how these trends impact each other and develop a strategy that addresses them all.
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The bare basics of affiliate marketing
Hiya! This is where I was when I started researching this post. Affiliate marketing can be a bit deceptive because the basics aren’t difficult to understand. It’s the minutiae and execution that can kill you. I’m still an outsider to all this, but I’m learning more with everything I read. The first thing I learned is that there’s no limit to nonsense and thin sources offering up information on this topic – so pick your online guides and mentors carefully.
But I can give you the basics. This isn’t an introductory how-to; I’ll leave that to the experts. But this will give you a basic understanding of terms and models so you understand how the affiliate marketing relationship works.
Let’s start by defining affiliate marketing: It’s a marketing strategy where a third party promotes someone else’s product or service and gets paid a commission for certain actions.
Aha! Notice I didn’t say “sale.” The first affiliate marketing wrinkle. While trying to get a sale is the most common action sought, the commissioned action may be to fill out a form, watch a video or join an email list. While most affiliate marketing is B2C, that doesn’t mean affiliate marketing can’t play a role in filling B2C and B2B pipelines for products or services with longer sales cycles.
Now let’s meet the players:
- Seller: The person or company that produces the product or provides the service being sold; also commonly called the Merchant or Advertiser.
- Affiliate: The person or company promoting a Seller’s product or service; also commonly called the Publisher. Why? Because the affiliate is the one publishing the content meant to attract and convert the buyer. They can do this through landing pages, blogs, videos, PPC ads – pretty much any digital marketing tool you can think of.
- Network: An affiliate network is a marketplace that matches sellers and publishers. Strictly speaking, one doesn’t have to work through an affiliate network to be an affiliate marketer. An affiliate and seller can set up a direct arrangement. As a practical matter, you’ll be working through affiliate networks if you want to be an affiliate marketer. In addition to providing matchmaking services to advertisers and affiliates, networks also have the tools and infrastructure to execute the technical requirements and cookie tracking needed to determine commissions. They also facilitate payment of the commissions.
- Consumer: Do I really have to say “also known as Buyer”? I think you got this one.
If you’re familiar with digital marketing, then you’ll already know some of the metrics used in affiliate marketing. Metrics like:
- Conversion rate – the percentage of people who saw the affiliate link and took the desired action.
- Click through rate – the percentage of people who clicked on the affiliate link divided by the number of people who saw (impression) the link.
- Cost per click (CPC) – how much is spent on a campaign divided by how many clicks it generated.
- Cost per action (CPA) – how much is spent on a campaign divided by how many conversions it generated.
These are all revenue metrics. There are also upstream metrics to consider, like traffic and referral numbers. You can find a list of more affiliate metrics here and a good glossary to affiliate marketing terms here.
Last, but by no means least, is a quick discussion of affiliate networks. Affiliate marketers don’t need to limit themselves to joining just one affiliate network. However, to make things manageable and not waste time just jumping into any and every network – it does make sense to research them and make deliberate decisions about which you want to join. Some issues to consider are:
- What’s the overall size of their network; what’s the ratio of advertisers to publishers?
- Do they have many programs in your niche(s)?
- What’s the quality of the programs available? Quality refers to the product or service offered, the terms of the offer (i.e. discount or bonuses), as well as the creative they provide for you to use to promote your affiliate link. What’s the duration of the affiliate cookie left when someone clicks on your affiliate link?
- What are their commission rates and payment terms? Officially, affiliate networks bill the merchants, not the advertisers, set-up and membership fees to join the network. However, it’s also common for the network to take a small cut of the commission the merchant owes the advertiser. Since the network is also managing the commission payment and return handling, you want to think about what their payment schedule is and how refunds are handled.
Alright, this is just the bare bones. There are countless tutorials for affiliate beginners as to the how’s and wherefores of becoming a successful affiliate marketer. Indeed, many of those courses are affiliate programs themselves. Of course, there are also free, affiliate marketing 101 posts out there as well.
Now that I’ve started snooping around affiliate marketing, the next step is to take a closer look at specific affiliate networks. So look for the post to come soon.
In the meantime, I’d love to get your feedback. If you’re an experienced affiliate marketer – what are your thoughts on some of the key trends? Are you new or thinking of getting started – what would you like most to learn about?