Affiliate marketing is a performance-based marketing model by definition. Payment for it works on a simple commission basis, in which two partners come together: the merchant and the affiliate.
- The merchant (also known as the advertiser or the dealer) wants to advertise products or services on an external website. For this, the merchant readies advertising media like banners and offers a level of commission, dependent on the billing model (see below).
- An affiliate (publisher or website operator) offers available advertising space (and in doing so, the reach of their website) to the merchant. Affiliates are essentially middlemen between merchants and potential customers. This service can be offered either by embedding banner ads on the affiliate website, or including affiliate links in editorial entries.
Affiliate networks, or affiliate service providers (ASP), help connect potential affiliates and merchants. The affiliate software enables technical implementation and conversion tracking, which is first possible after calculating the commission. Through affiliate links or banners, the merchant can plainly see if a customer has reached the website through an affiliate partner. Each time the defined target is reached (e.g. if a sale is made in the online shop) then the merchant pays the affiliate the corresponding commission.
The most common exchange in affiliate marketing happens via the website of the affiliate. But affiliate programs can also be integrated into e-mail marketing campaigns (newsletters, mailings) or used via social media networks.