Ever since we had products for sale in the offline world, we had 
sales agents. You know the ones - the multi-product travelling 
sales "reps" carrying products and business cards from different 
manufacturers. They made sales without having to carry inventory, 
handle payments, and sign contracts. Their focus was to make the 
sale by getting the order, which was then processed by the 
manufacturer. 

In the online world we now have the same model, with a twist. 
Instead of agents we have affiliates. Affiliates are highly 
targeted pay-for-performance sales agents which pre-sell your 
customer and are paid a commission when the desired event occurs. 
The most common reward is pay-for-sale, where the merchant pays 
the affiliate who referred the paying customer.

Affiliates are treated as a complementary sales channel. The 
merchant still receives their own direct traffic and makes his 
own sales in parallel to the affiliate channel. The twist is that 
the affiliate doesn't need to handle the order. This is taken 
care of by the merchant, who has a tracking system to determine 
which affiliate sent the business to them. These tracking systems 
typically start with what are called affiliate links, which are 
the links that the affiliate puts on their site or in an email.

What's an affiliate link look like? There are several variations, 
but most have the affiliate link embedded in the linking URL. 
E.g. If you ever see a link like 
"www.some_clever_merchant.com/shop/?affid=1232" you can be pretty 
sure that the affiliate with id 1232 will receive money from 
some_clever_merchant when someone buys after clicking that link. 
Other affiliate links are more complex, encrypted, or set up so 
that the referring domain is tracked so no affiliate id is even 
needed in the link. Some sites will cloak their links so that the 
curious surfer can't detect that they have clicked or are about 
to click an affiliate link.

Amazon has one of the oldest affiliate programs. The Amazon 
Associate program rewards sites whenever someone purchases a book 
or Amazon product after being sent to Amazon via an affiliate 
link. 

Other affiliate business models can be:

- "Pay per click" - the merchant pays the affiliate for the 
  traffic they send them
- "Pay per lead" - the affiliate sends traffic to the merchant, 
  where the prospects register their interest and a possible 
  sale occurs later. The merchant pays for the registration 
  information - usually some sort of application form on the 
  merchant's site.
- "Pay per subscription" - the merchant has recurring revenue 
  from the customer and the affiliate benefits accordingly

Merchants who are new to e-commerce usually don't establish an 
affiliate network as the first channel. Like the offline world, 
merchants typically build their own sales force first and fine-
tune their sales and marketing strategy before taking on dealers 
and independent agents. The key for a new merchant is to ensure 
that their e-commerce platform will support an affiliate strategy 
later on. For merchants having a well tuned e-business, an 
affiliate channel has been shown to add 20-30% to their existing 
online sales.

However, it's not a free ride and many merchants end up with 
failed affiliate strategies due to their lack of investment in 
other related areas. The merchant needs to invest in a tracking 
system, which is usually an outsourced affiliate network or an 
in-house affiliate software system. Another expense to consider 
is having sufficient human resources to recruit, screen, manage, 
and motivate the affiliates. Without a good support system in 
place, the affiliates will not produce the desired results.

What types of businesses use affiliate strategies? It is usually 
any online business that sells products which can be pre-sold by 
an affiliate. Service businesses can also benefit from an 
affiliate program via a pay-per-lead program. If the service 
business has recurring revenue from a customer, they need to 
consider if they want the affiliate to receive a recurring 
commission - it depends on the industry and what the competition 
is doing.

Once a merchant has decided to establish an affiliate strategy, 
they need to define the unique aspects of their affiliate 
offering. Some questions to answer are:

- What are the benefits to the affiliate?
- What is the competition doing? 
- What is the pay-for-performance model?
- What criteria should be used to screen the new affiliates?
- Who will manage the affiliates and motivate them?
- How are the affiliate to be paid and does your e-commerce 
  system support the accounting required?
- What affiliate management features do I need? Which ones will 
  differentiate me from my competition?
- What affiliate software tracking system or network should be 
  used?

An affiliate strategy done right can increase your online sales. 
There are over 20 affiliate software packages – hosted, in-house, 
and networks to choose from. There are over 200 features in 
affiliate software and network offerings. Selecting the correct 
affiliate software will depend on your strategy and desired 
features. With the proper analysis of your strategy, selection of 
the correct affiliate tracking system, and an investment into the 
affiliate management resources required you will be well on your 
way to boosting your online sales. 

Peter Koning is the founder of www.Affiliate-Software-Review.com. 
He has been active in the international IT, telecom, and Internet 
industries for over 20 years.

Merchants can compare affiliate software products side-by-side, 
see examples of products in the categories mentioned, and 
instantly create free feature comparison charts by visiting 
http://www.affiliate-software-review.com