The Business Model of an Affiliate System Explained

If you have ever considered an online business you have almost certainly come across references to affiliate programs. They are widely used in the internet marketing business; in fact you would be hard pressed to find anything sold online that does not have an affiliate program. It is therefore important to understand how they work.

A business that uses affiliates to make sales is really just one that is uses sales people who are paid by commission only. It has become a very popular model for online businesses as it is one of the most cost effective ways to make sales. Basically the way that it works is that a company that has something to sell will create an affiliate program and allow people to sign up. Those people will then go out and try to sell the company's products and they will be paid a commission for each sale that they make.

There are clear advantages to using an affiliate system to make sales; the biggest of these is that you only have to pay your affiliates when they actually make a sale. This means that your marketing expenses can never exceed the amount that you earn. The other big advantage of affiliate models is that they allow you to greatly multiply your sales force. Top companies like Amazon actually have millions of people working for them as affiliates; smaller companies will of course have fewer. According to Stephen Dent Green Living affiliate an affiliate program is the fastest way for a new company to start making sales without having to invest a lot of money up front.

Not only are there huge advantages to the company that runs the affiliate program but also to the affiliates. The big advantage for them is that it provides a way that they can start earning without actually having a product of their own. Basically affiliates are starting their own business that happens to work at selling products for other people. It is probably the easiest and cheapest way to start your own business.

While there are clearly benefits to an affiliate program Stephen Dent points out that there are some downsides to it as well. The biggest downside is that actually managing an affiliate program can be a major hassle. You have to keep track of where all of the sales come from so that you can pay each affiliate. This is fairly straightforward when you have a couple of dozen affiliates but it becomes a major problem when you have thousands of them. The other downside to affiliate programs is that there are a lot of people who find ways to cheat on them. Usually they find a way to get paid for sales that they didn't actually make. This is something that you have to really be careful of when you are managing an affiliate program.

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