What is an affiliate program? I’ve been bombarded with this question from Internet business newbies since I got myself involved in this very interesting but challenging
online business.

Many years ago, ever since we started manufacturing products for sale in the offline physical world, we had been having sales agents representing different manufacturers to help the latter to expand their markets. The agents conclude sales without carrying inventory, handling payments, signing contracts, sorting, packing and shipping of the products. Their main focus had been to make the sale by getting the orders from the prospects and existing customers, which were then processed by the manufacturers or merchants.

In the Internet online world we have affiliates instead of agents. Affiliates are highly targeted pay-for-performance sales agents.

There are also some forms of Internet advertising that rewards the affiliates for driving traffic to the advertiser i.e. the manufacturers or the affiliate program owners. The advertiser pays the affiliates to place a link on their website, and the affiliate sends traffic to the advertiser in return. In other words, it's about the affiliates receiving commissions for helping in making the sales.

The most common reward is pay-for-sale, where the merchant pays the affiliates who referred the paying customers.

Affiliates are being considered as a complementary but very important sales channel although the merchants themselves continue to get their own direct traffic in making their own sales.

The affiliates do not have to suffer from the occasional sleepless nights worrying about the processing of orders, packing and shipping etc because this are being taken care of by the merchants who usually have an effective tracking system to determine which affiliates drive which orders to them starting with the so-called affiliate links. These are
the links that the affiliates put on their websites, newsletters, ezines or emails.

How does an affiliate link look like? You may ask. The most common affiliate link is embedded in the linking URL. For example, if you see a link like "http://www.abcmerchant.com/?xxxx=3456", you can be quite sure that the affiliate with the ID (identification) 3456 will receive money from ABC Merchant when someone places his order after clicking that link.

Other affiliate links are more complex and encrypted with some sites having their links masked so that the prospects won’t be able to detect that the URL they’re clicking is an affiliate link.

An excellent example of an affiliate program is that of Amazon.com who happens to have one of the oldest affiliate programs in the Internet. Other possible affiliate programs are as follows:

1) "Pay per click" - the merchant pays the affiliates for the driving the traffic and the resulted orders to them.

2) "Pay per lead" - the merchant pays the affiliates for directing the prospects to register their interest with a possibility of making the sales later.

3) "Pay per subscription" – if the merchant has a recurring revenue from the customer’s repeated orders, the affiliates will benefit accordingly.

Why bother about Affiliate Marketing at all then?

The following are some of the reasons why Internet marketers the world over swear by the affiliate marketing as a form of their Internet advertisement and strategy:

1. Low budget
Many are hesitant to venture into any home based businesses because of the lack of fund or the unwillingness to part with money due to uncertainties. In affiliate marketing, you don't have to invest a lot financially to start pulling in profits.

2. No inventories
There is no need to keep and manage an inventory as this would be taken care of by the merchant.

3. Passive income through leverage
One could copy what the truly wealthy people are doing (or rather not doing). They earn their income through various leverage strategies which allow them to make money while they’re sleeping, meddling with hobbies, or having vacation in far away places such as the beautiful beaches in Hawaii or Malaysia.

Unlike a paid job, affiliates could just drive traffic to the merchants’ websites without having to sweat after having provided them your ad copy and links.

4. Minimal risk
The main reason for most successful Internet marketer's extensive use of affiliate marketing is the low-risk nature of the program. This is especially attractive to those with low budget for advertising

5. Globalisation
With affiliate marketing, you are dealing with an unending global market place. All you have to do is study, research and select a niche product or service and prepare all the necessary marketing tools for your affiliates to direct traffic from just about anywhere around the world to your website.

6. Getting paid while you sleep
This system allows you to “recruit” thousands of “salesmen” who are willing to work for you 24 hours a day and 7 days a week. The best part is the fact that they’re willing to do so for nothing! This is a system that allows you to switch your business to “Autopilot” mode so that you could continue to earn money whether you’re awake, asleep or holidaying in Bangkok or Penang. It is a system that allows you to work from home or some places 10,000 km or more away from home.

Having said this, it must be stated that not all affiliate programs are successful. Many affiliate program owners fail because of their lack of the necessary investment, for instance, the merchant needs to invest in an effective tracking system, which is usually an outsourced affiliate network or an in-house affiliate software system. Another factor to consider is having sufficient human resources to recruit, manage, and motivate the affiliates with the right technical support and remuneration. Without a good support system in place, the affiliates will not stay long enough to produce the desired results.

Most online businesses use affiliate marketing strategy to sell their products which could include physical products, software or e-books. Service industry can also benefit from an affiliate program via a pay-per-lead program.

Before a merchant could establish an affiliate strategy, he should consider many factors among them are the answers to the following questions:

1) What are the benefits to the affiliates? What commission rate should be offered to affiliates to attract them and motivate them?

2) What are the competitors doing? Are there any innovative strategies that could produce product differentiation?

3) What pay-for-performance model should be adopted?

4) How to manage the affiliates and motivate them?

5) How are the affiliates paid using the latest technology without affecting their moral due, for instance, to delayed payment of their commission?

6) What affiliate software tracking systems are available and which is the best for the purpose?

A well designed affiliate program could bring very explosive positive results to the affiliate program owners’ business and the stream of income for the affiliates themselves.

An affiliate strategy done right can increase online sales tremendously. There are well over 30 affiliate software packages to choose from. There are also more than 200 features in affiliate software and network offerings.

With all these possibilities, no wonder many success stories of the Internet businesses today are the results of suitable application of affiliate programs. Indeed, most online businesses could not survive today without effective affiliate programs.