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Chapter 1

How Affiliate Marketing Works

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Affiliate marketing is quite simply one of the most powerful ways to generate an income online. Regardless of your niche, the upside with affiliate marketing is nearly limitless if you go about it the right way!

Part of the beauty of affiliate marketing is you don’t have to invest time in creating the products that will be serving your audience—because, guess what? Those products likely already exist. Because of that, affiliate marketing is an opportunity anyone can take advantage of, and it’s easy to get started.

But before we explore the many ways affiliate marketing can do wonders for you and your business, we first need to understand what affiliate marketing is. By laying that groundwork, you’ll be making the right moves toward doing affiliate marketing right—in a way that truly serves your audience.

Affiliate marketing is all around us—and you’ve probably been involved in affiliate marketing without realizing it! If you’ve ever clicked on a link in a blog post to a product or service being offered on another website, there’s a good chance the owner of the website where you originally clicked the link received a commission from your purchase.

Yes, affiliate marketing is everywhere—but here’s the thing: few people understand how to take full advantage of it. In fact, I believe affiliate marketing is the world’s most untapped source for generating passive income! It’s a beautiful process that’s completely underutilized, and I’m excited to share with you exactly how it all works.

In this chapter, we’ll look at exactly how affiliate marketing works, including the pros and cons, whether you’re a good fit for it, and how much you can earn from it.

Ready? Let’s get to it. Here’s what to expect in this chapter:

So What Is Affiliate Marketing, Exactly?

As a brief refresher, affiliate marketing is the process of earning a commission by promoting another person’s (or company’s) product. You find a product you like, promote it to your audience, and earn a piece of the profit for each sale that you make. It’s similar to a salesperson earning a commission, except you don’t work for the company. Instead, it’s like earning a reward for sending a new customer to the company.

There are two ways to be involved in affiliate marketing—either as a product owner or an affiliate marketer. In this series, we’re going to focus on how to do affiliate marketing from the affiliate marketer side.

Who Is a Good Fit for Affiliate Marketing?

Affiliate marketing can be a great choice for online entrepreneurs, bloggers, and really anyone who has a website and is willing to build an audience they can serve authentically.

If this describes you, products exist right now that people in your target market are probably already buying, and if you can become the resource that recommends those products, you can generate a commission as a result.

Affiliate marketing can be an especially good option if you’re not ready to create your own product or service, but you want to serve your audience by recommending products that may be helpful to them.

Affiliate marketing can also be a good fit for a wide range of people because you can apply a bunch of different marketing methods to promote affiliate products and services. These include the same marketing methods you may already be using—things like search engine optimization (SEO), paid search engine marketing (SEM), email marketing, content marketing, and display ads. You can even take advantage of other nifty ways to market products, like product reviews and unboxings.


Product Review Video

In this YouTube video, I review and demonstrate three USB podcasting microphones that cost less than $75, with Amazon affiliate links to purchase each one in the description.

Click the play button to see a product review video in action.

Finally, it’s important to remember that affiliate marketing works best when you’re sincere and confident about the product you’re promoting. You’d only sell your own product if you knew it could help people, and it’s the same with affiliate marketing. If you go in with a get-rich-quick mentality, you’re not going to be impressed with your results.

The Nuts & Bolts of Affiliate Marketing

Let’s get into the details of how affiliate marketing works. There are three main players in an affiliate marketing arrangement:

  1. You and your website—the “affiliate.”
  2. The affiliate company (or network). In the simplest affiliate arrangements, you work directly with a single company to promote one or more of their products. There are more complex affiliate networks that provide an opportunity to earn affiliate revenue on a range of products, such as Amazon, Rakuten, ClickBank, and ShareASale.
  3. The customer. This is a member of your audience who uses your affiliate link to purchase a product from the affiliate company or network.

A company that offers an affiliate marketing program may call it by a different name—these programs are also commonly called partner programs or referral programs.

Here’s how each party benefits from affiliate marketing:

  1. From your recommendation, your audience learns about a product, course, or tool that may be useful to them;
  2. From your recommendation, the company selling the product, course, or tool gets new customers they may not have found otherwise;
  3. As a result of the sales to your audience, the company gives you a commission.

When done the right way, affiliate marketing can be a win–win–win. But at the center of this is one thing: your audience’s trust. When your audience believes you have their best interests at heart and trusts your recommendations, then all three parties in the affiliate marketing relationship ultimately benefit.

Examples of Affiliate Marketing

What does affiliate marketing look like? If you’ve visited my website, you may have come across my Resources page. This page contains a list of recommended resources—products, services, apps, and more—to help my audience build their own online businesses.

My Resources page, which contains affiliate links visitors can use to purchase products and services I recommend. These links take visitors to landing pages hosted by companies selling those products and services.

Many of the links on this page are affiliate links, meaning I receive a commission if someone clicks on the link and purchases the product or service it links to.

Here’s what someone sees if they click on my affiliate link for Bluehost, the web hosting company I use and recommend:

My affiliate landing page on Bluehost’s website. If a customer purchases a web hosting plan from Bluehost after visiting this page, I receive a commission from Bluehost for the referral.

And here’s what they’ll see when they click on my affiliate link for ConvertKit, the email service provider I’m happy to recommend:

My affiliate landing page on ConvertKit’s website.

As we discussed above, you can also earn affiliate commissions by signing up with an affiliate network. One of the most popular is the Amazon Associates program, which you can read more about in Chapter 8.

Screenshot of the landing page where you can sign up for Amazon’s Associates affiliate marketing program.

You could easily find tons of other examples of affiliate marketing “in the wild.” That’s because affiliate marketing is essentially about sharing your affiliate links, so however you choose to share those links—whether on your website, on social media like Twitter, Facebook, or YouTube, or via emails to your list—well, that’s affiliate marketing in action!

In this 2016 email to my mailing list, I promoted a special deal offered by Bluehost, which people could sign up for using my Bluehost affiliate link.

Of course, there’s a whole lot more to successful affiliate marketing than just sharing affiliate links! That’s what we’ll talk about next, starting with the key steps you need to follow to get started with affiliate marketing.

The Steps to Becoming an Affiliate Marketer

In later chapters, we’ll cover the nitty gritty of getting started with affiliate marketing. For now, I want to give you the high-level overview of the steps involved. Many how-to guides for affiliate marketing suggest a series of steps similar to this:

  1. Find a company and product you want to promote.
  2. Sign up as an affiliate.
  3. Get your unique affiliate link and add it to your site.
  4. A visitor to your website clicks the link, which takes them to a third-party page.
  5. If the visitor makes a purchase, you receive a commission based on the value of the item purchased.

Now, these steps are definitely accurate—you can’t earn money with affiliate marketing without first finding a product to promote! But more importantly, you shouldn’t be affiliate marketing without first establishing trust with your audience. Audience first, always.

That’s why my methodology for successful affiliate marketing goes like this:

  1. First, build a relationship with your audience.
  2. Then, identify a product that might fit your audience’s needs.
  3. Next, use and test the product yourself, to ensure it’s truly something worth recommending to your audience, so you don’t risk taking advantage of their trust.
  4. Show your audience tangible proof that the product does what it promises via a blog post or case study on your website or YouTube channel.
  5. Then—and only then!—you can start to promote the product to your audience and hopefully start earning some affiliate revenue when they purchase it.

This approach puts your audience’s needs front and center, setting you up for success with affiliate marketing.

Another example of affiliate marketing in action, this time sharing an affiliate link in the show notes of an episode of the Smart Passive Income (SPI) podcast featuring Clay Collins, founder of Leadpages.


This YouTube video featured a panel discussion between me and several course creators, hosted by Teachable, an online course creation platform for which I’m an affiliate. Although I shared my Teachable affiliate link in the show notes, the primary purpose of the video was to deliver value to my audience, not promote the link.

In the next chapter, we’ll go over my methodology for successful affiliate marketing in more depth, but for now let’s talk a little more about the pros and cons of affiliate marketing.

The Pros and Cons of Affiliate Marketing

As with anything, affiliate marketing has its upsides and its downsides. In this series, I’ll give you the guidance you need to go about affiliate marketing smartly so you can make the most of the opportunities out there and avoid the potential downsides. Here are the main pros and cons of affiliate marketing.



How Much You Can Earn Via Affiliate Marketing

The beauty of affiliate marketing is that you don’t have to invest the time and effort to create a product to sell. You can begin selling something as an affiliate as soon as you have a platform to sell it on. In this way, affiliate marketing can be a great way to earn some extra income without a lot of hassle or upfront cost.

That said, it’s not a way to get rich quick. Like all passive income strategies, it takes time and effort to create a decent revenue stream. Although affiliate marketing has been my number one source of income for a while, it took me a while to get to where I am, including building close relationships with the companies I’m an affiliate for.

In my very first month doing affiliate marketing (December 2008), I earned a whopping $163.16:

My first month of affiliate revenue. Not terrible, but not exactly life-changing either!

Here’s how I did in December 2009, the month that marked my first full year as an affiliate marketer:

In one year, affiliate marketing had already become my biggest revenue generator!

And here’s what my affiliate income looked like in December 2017, the last month I published an income report:

Affiliate marketing has continued to be my greatest revenue source.

As you can see, I’ve done really well with affiliate marketing in the past 10 years—but it’s taken a lot of time and hard work to get to that point.

So, how much can you make once you’re up and running with affiliate marketing? That depends primarily on how committed you are to making it work and how much time, energy, and focus you’re willing to put into it. It also hinges on a few other factors:

Typical commission percentages vary depending on the affiliate company you partner with, and the types of products or services you’re promoting.

Digital products and services typically offer higher margins due to their lower costs of production and fulfillment—there are no raw materials, manufacturing, shelf space, shipping costs, etc. These margins can be as high as 50 percent. On the other hand, because of all the aforementioned costs, physical products tend to offer lower percentage margins, sometimes in the single digits.

Thankfully, there is no real limit on how much you can make as an affiliate marketer. Affiliate marketing can be a great way to augment your existing income, or even become your main source of income if you’re willing to make the commitment.

But in either case, if you’re looking for long-term success with affiliate marketing, you have to be willing to do it the right way.

Doing Affiliate Marketing the Right Way

A lot of people worry about getting involved with affiliate marketing because it might make them look slimy or too salesy. That’s why I’ve made it part of my mission to teach people how to do affiliate marketing in a way that makes it a win for everyone.

The biggest element to success with affiliate marketing? Trust. Earn trust from your audience first, and only recommend affiliate products that you’ve used yourself and know your audience will benefit from.

And you know what? A lot of people do it the wrong way by taking an income-first rather than a serve-first approach. These folks push random products and overpromote them without providing true value to their audience. This has given affiliate marketing a really bad rap in some quarters, causing many ethically minded entrepreneurs to be wary of affiliate marketing.

But thankfully, you CAN do it right, maintaining your audience’s trust and having them thank you for your recommendations. In the next chapter, we’ll talk about how to get started as an affiliate marketer and make sure you go about things the right way from the beginning.

On to Chapter 2 >>


Red Cover of Pat Flynn's Epic Guide to Affiliate Marketing with cartoon image of a laptop

Get the Epic PDF

If an epic, all-in-one PDF is more your style, you can now read all my affiliate marketing advice in one place! Fill out the form below and I’ll email you my epic guide! It contains all the information you see in this series, just in a more portable package.

Continue reading the SPI Epic Guide to Affiliate Marketing

BEGINNING Affiliate Marketing Strategies

CHAPTER 1 How Affiliate Marketing Works << You are here

CHAPTER 2 How to Start Affiliate Marketing

CHAPTER 3 Affiliate Marketing Tips

CHAPTER 4 Affiliate Marketing Case Study: ConvertKit

CHAPTER 5 Avoiding Affiliate Marketing Mistakes

CHAPTER 6 12 Tools To Take Your Affiliate Marketing To The Next Level

CHAPTER 7 Affiliate Marketing on Amazon

CHAPTER 8 Taking Your Affiliate Marketing to the Next Level


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