You’ve heard about affiliate marketing, but do you really know much about it? Most small business owners shrug it off as something that works for larger businesses and don’t give it a second thought, but there’s reason to believe that your business could benefit from an investment in this area. How Does Affiliate Marketing Work? There are a lot of myths and misconceptions surrounding affiliate marketing. It came to prominence in the 2000s and was viewed by many as a black hat promotional strategy that was more spammy than anything else. And while there have certainly been bad affiliate programs over the years, there are actually plenty of instances where a transparent affiliate marketing program can bring a high return on investment. Before getting too deep into this discussion, let’s make sure everyone understands what we mean when we use the term affiliate marketing. “Essentially affiliate marketing involves a merchant paying a commission to other online entities, known as affiliates, for referring new business to the merchant’s website,” Acceleration Partners explains. “Affiliate marketing is performance-based, which means affiliates only get paid when their promotional efforts actually result in a transaction.” From a business perspective, the beauty of affiliate marketing is that it’s performance based. If an affiliate doesn’t bring you any business, you don’t have to pay them. You only pay for the revenue they drive. 6 Things You Need to Think About The big issue you’re wrestling with is whether or not it makes sense for your business. While there’s no blanket answer that applies to every brand, there are a few things you can consider. When you view all of these issues together, you should get a better idea of what affiliate marketing can do for you. #1. Is Your Brand Established? It’s important that you understand the reputation affiliate marketing has. It’s often viewed as one of the only legitimate ways to make passive income online. Everyone knows someone who has tried to be an affiliate and most of the experiences are positive. Not everyone gets rich, but the majority of people are able to earn a few bucks here and there. That being said, a startup isn’t exactly conducive to this sort of marketing strategy. As Acceleration Partners’ Robert Glazer puts it, “Affiliate marketing typically works best for companies that already have an established business model and clear brand recognition. Affiliates invest time and money in promoting brands and don’t want to take a risk with unproven concepts. So to acquire partnerships, it’s important to be mindful of that.” #2. Don’t Ignore the Investment From a business perspective, getting started with affiliate marketing is easy and cheap. It doesn’t require much of a financial investment, but it does require time. If you don’t account for this time – particularly as it pertains to helping your affiliates succeed – you could quickly find yourself in over your head. “I’ve not found it to be a huge time commitment,” blogger Darren Rowse admits, “but there are some extra logistical tasks that you might find yourself doing when you introduce affiliates into your strategy. These include paying them (depending upon the system you use), providing them with sales material, motivating them, helping those who have limited technical knowledge to set up links, and so on. You will find that some affiliates need a bit more hand-holding than others—and some can be quite high maintenance!” #3. Evaluate Your Margins Carefully Just as every business isn’t conducive to affiliate marketing, it doesn’t make sense to use affiliates for every product. You need a lot of meat in your margins in order to make it worth your time. While some affiliate programs give affiliates just a small percentage of the sale – such as 5 or 6 percent – other affiliates demand much higher rates for their time and effort. (And if you want to get good results, you really need to be offering double-digit commissions.) Is there room in your margins for competitive commissions? #4. Choose Your System Wisely While it is possible to create your own platform where you connect with your affiliates and track their progress, most businesses go with established affiliate marketing tracking software platforms. They’re fairly cost-effective, very easy to use, and eliminate much of the time commitment. The key is to choose the right system for your needs. Some of the top systems include CAKE, HasOffers, LinkTrust, Lead Dyno, and OmniStar. Each has different costs and features. Compare systems like these to make sure you’re selecting the right one. #5. What’s the Competition Doing? If you’re considering affiliate marketing, so is your competition. They either already have established programs or are in the process of researching and developing. Feel free to do your own thing, but it’s smart to keep an eye on what the competition is doing. For example, let’s say the competition is paying out 9 percent in commission to its affiliates. You need to pay at least the same rate in order to sway affiliates to join your program instead. If you only offer 5 percent, you won’t last very long. #6. Have an Open Mind A lot of companies give affiliate marketing a try and realize that it’s not for them – and that’s perfectly fine. The important thing is that you go into the process with an open mind. Give it a few months and see what happens. If things work out, great! You just found yourself a new sales channel. If things don’t work out, that’s okay. You can pull out and you haven’t lost much of anything in the process. It’s really a no-brainer. Do Your Due Diligence An affiliate marketing program isn’t something you want to start without doing your research. In order to maximize your inputs and ensure you receive the highest return possible, it’s absolutely imperative that you do your research and develop a program that’s tailored to your needs and objectives.