This article is addressed to those who are entirely new to the affiliate marketing industry. The intent is to explain in simple terms what affiliate marketing is and, briefly, how it works.

The concept of affiliate marketing is relatively straightforward. There are generally two parties involved (although sometimes more). In the most simple of scenarios it works something like this: There is a company or individual with a product or service she is trying to sell. There is a separate company, group or individual with the skills, tools, or ambition necessary to find customers for that product or service (the affiliate). The former then cuts a deal with the latter; if you sell my product, I will give you a share of the sale price ( e.g. you sell a $100 book for me, I'll give you $20).

It makes sense for the producer / service provider so long as the share of the sale price given (commission) is sufficiently less than the "spread" or profit margin. Using our previous example, if the publisher calculates that there is a $50 spread on his book, any commission she must pay to the seller of her product that is less than $50 will leave her with some profit. Naturally the publisher will want this commission to be as small as possible in order to maximize her own profit. However by decreasing the commission the publisher lessens the incentive for salespeople to promote their product, because they earn less for each sale.

With this logic it is clear that a balance must be found, and the general source of this balance is a combination of natural economic forces at work in the affiliate market. If the publisher offers only a 1% commission, his product had better sell itself; otherwise no affiliate would waste their time promoting it. It simply wouldn't be worth it for 1%, particularly when there are so many other affiliate programs offering commissions all the way up to 75% or more.

To make sure the message is clear a quick quiz is necessary. I write an e-book and advertise an affiliate program in which I offer a 30% commission. You find a customer and send them to my website. They buy the e-book at its purchase price of $100.
Who is the affiliate?

How much money do you make (nominally)?

How much profit is included in the sale price (total)?

The answers:

1. You are the affiliate.

2. You make 30% * $100 = $30.00

3. Trick question. You don't know for sure, but you can assume is that I'm making something otherwise I would have no incentive to offer the program. Nominally, then, there must be at least a $30.01 profit priced into the e-book (i.e. I make $.01 per sale). This number is likely much larger, but there is no way for you to know exactly how large it is.

I hope this was sufficient to give a complete newbie a cursory understanding of the affiliate marketing business. Things get far more complicated when you consider additional factors such as affiliate networks and the various mediums for affiliate marketing.

Read around, participate in some forums, and enjoy making money in affiliate marketing!