How does money flow in affiliate marketing?

Affiliate marketing has become one of the most popular ways to earn money online, not just for big businesses but for individuals, too. It’s a simple concept: affiliates promote products, merchants get sales, and everyone shares the profits. 

But behind the scenes, the flow of money is what keeps this system running smoothly whether you’re an affiliate, a merchant, or just curious, understanding how the money moves can help you make smarter decisions and maximize your success. 

Let’s dive in and break it all down.

How Does Money Flow in Affiliate Marketing? #

1. Affiliates #

1. Affiliate promotes merchant’s products: The affiliate places a unique affiliate link (provided by the merchant or the affiliate network) on their website, blog, or social media platform.
   
2. Customer clicks the affiliate link: A tracking cookie is dropped on the customer’s device, containing the affiliate’s ID to credit the sale. Cookie durations vary significantly between programs, ranging from 7 days to 90 days or more. Longer cookie durations increase the chance of the sale being credited to the affiliate, even if the purchase isn’t immediate.
   
3. Customer completes a purchase: If the customer completes the purchase within the cookie duration, the sale is attributed to the affiliate.
   
4. Merchant validates the sale: After the sale, the merchant verifies the purchase (e.g., ensuring no return or fraud).
   
5. Commission is sent to the affiliate (directly or via network):
   • If using an affiliate network:
     • The merchant pays the affiliate network.
     • The network retains its service fee and passes the remaining commission to the affiliate.
   • If direct:
     • The merchant pays the affiliate directly.
       
6. Affiliate receives payment: Affiliates typically receive payments after reaching a specified threshold, such as $50 or $100. This ensures small amounts aren’t paid out frequently, which helps merchants or networks manage payment processes efficiently. Payment methods include bank transfer, PayPal, or other options.

2. Merchants #

1. Merchant creates an affiliate program and join the network: The merchant sets up its program independently or via an affiliate network, defining commission rates and terms.
2. Merchant provides affiliate links/materials: Merchants create unique links to track performance and sales from affiliates.
3. Affiliate drives customer traffic: Affiliates direct customers to the merchant’s website using their unique affiliate links.
4. Customer makes a purchase: Merchant receives the payment directly from the customer for the product/service.
5. Merchant tracks and validates sales: The sale is tracked using the affiliate’s ID in the link or cookie, and the merchant verifies the transaction (e.g., checks for cancellations or returns).
6. Merchant pays the affiliate (or network):
   • If using a network:
     • Merchants transfer the commission to the network, and network take their cut and transfer the rest to the affiliate.
   • If direct:
     • Merchant pays the commission directly to the affiliate.
7. Merchant retains revenue minus commission: After paying the affiliate, the merchant keeps the remaining revenue from the sale.

3. Affiliate Networks #

1. Merchant joins the affiliate network: The merchant pays the network an upfront fee or ongoing membership fee to join.
2. Affiliate joins the network: Affiliates sign up for free or a nominal fee and gain access to the merchant’s affiliate program.
3. Network tracks clicks and conversions: The network uses tracking systems to record affiliate-driven traffic and sales.
4. Merchant pays network fees: For each sale, the merchant pays the affiliate network:
   • Affiliate commission: Passed to the affiliate.
   • Service fees: Retained by the network for facilitating tracking and payouts.
5. Network pays affiliates: The affiliate network disburses the commissions to the affiliates after deducting any applicable taxes or processing fees.
6. Network earns service fees: The network keeps its share of the payment as a service fee.

4. Customers (Earning Cashback via Cashback Site) #

1. Customer signs up on a cashback site: The customer creates an account on a cashback website.
   
2. Customer clicks on the merchant’s link: The cashback site uses its affiliate link to redirect the customer to the merchant’s website.
   
3. Customer makes a purchase: The merchant receives payment for the purchase directly from the customer.
4. Merchant pays commission to the cashback site: The merchant sends the commission (via the affiliate network or directly) to the cashback site after verifying the sale.
5. Cashback site allocates a portion of the commission: A part of the commission is earmarked as cashback for the customer, while the cashback site retains the rest as profit.
6. Customer receives cashback: After the verification period,
   • The cashback is credited to the customer’s account.
   • The customer can withdraw it via available payment options (e.g., bank transfer, PayPal).
7. Cashback site profits: The cashback site keeps the remaining portion of the affiliate commission after paying the customer.

Conclusion #

At its core, affiliate marketing is about rewarding results. Affiliates earn for their efforts, merchants pay for performance, and networks ensure everything runs smoothly. Whether you’re just starting out or looking to refine your strategy, understanding the money flow is key to making the most of affiliate marketing.