Affiliate marketing is a prominent performance-based advertising model that employs affiliates (or “publishers”) to promote products or services online. Every time the publisher accomplishes the specified action – such as clicking on a link or purchasing the product – they receive a commission.
Merchants that use affiliate marketing to promote their products or services can use several Cost Per Action pricing models. Their options range from Cost Per Lead and Cost Per Sale to compensate their affiliates. These popular schemes are known as Pay Per Sale and Pay Per Lead, respectively.
If you’re considering starting affiliate marketing and becoming an affiliate marketer or using the model to promote your business’s products or services, here are affiliate marketing pros and cons you must weigh out to understand the workings of the industry inside and out.
The Pros and Cons of Affiliate Marketing in 2023
Comparing the advantages and disadvantages of affiliate marketing is essential before you decide to hedge your bets or make the best of the opportunity to partake in the industry – whether you’re a doubtful merchant or an affiliate marketing skeptic.
The Benefits of Affiliate Marketing✅
1. Low Staffing Costs
Hiring marketers in-house entails a high training cost besides the salary and employment benefits.
Merchants that employ the affiliate marketing model pay for performance and evade additional costs. An affiliate marketer’s compensation is limited to the leads or conversions they generate.
Merchants do not have to pay affiliates for visitors converted beyond the cookie timeframe (typically between one and thirty days). Consequently, merchants receive the entirety of the profit of those sales, making this a nice side-benefit of employing affiliate marketing.
Affiliate tracking software solutions play a critical role in affiliate management, and merchants can find them online offered on a monthly fee model. The cost ranges from $25 to $69. But a merchant’s expenses don’t end here.
Merchants with a high volume of affiliate programs typically employ full-time affiliate managers and divide the workload. New merchants and merchants driving lower sales volumes sometimes hire part-time affiliate managers or rely on affiliate marketing agencies for their management expertise.
Cool Fact: Publishers can earn an average of about $51,000 annually from affiliate marketing.
Successful merchants with strong teams generally only need to shed a fraction of their earnings for staffing.
The low staffing cost stands out as a key advantage when weighing out the pros and cons of affiliate marketing for brands.
2. Low Financial Barrier to Entry
New merchants do not need to invest any money since there are several ways to get an affiliate marketing business started with zero capital. But starting your business this way may not be the most effective approach.
Investing small amounts of capital into effective software tools and paid ads equips merchants to set up a business that will start generating profits faster. Besides getting more out of the time and money you invest, your efforts will compound over time.
One of the main benefits of the affiliate marketing industry is that it serves as a rewarding learning ground for those with an entrepreneurial mindset.
On the other side of the equation, becoming an affiliate marketer requires no experience and is much less involved than creating a product from scratch and selling it.
Finding the right niche and acquiring the necessary marketing skills takes a short amount of time and some consistent effort.
Easy to Break Even and Profit
Traditional businesses involve long periods before investments return profits.
Besides, establishing a traditional business costs the time and effort to dream up competitive products or services, establish a business plan and find appropriate financing. The to-do list can seem endless while the profits don’t arrive until later.
The adoption of affiliate marketing has never been higher with the once apparent and now celebrated benefit of fast returns.
Earning is easy for affiliates and promoting third-party products and services is much less complicated than starting a business from scratch. Most of the work is done for affiliates, with most advertisers providing copy and creative for campaigns.
Instead of spending time and money developing and testing a product, you can direct your efforts to build an audience online by creating engaging content.
3. Effective Method of Driving Traffic Quickly
New brands have several avenues to grow their reach, ranging from content marketing to YouTube and social media marketing.
While these marketing approaches can reap results, recruiting publishers that are already carrying out different marketing approaches can help the brand grow its reach and profits much quicker.
Affiliate marketing is one of the most efficient ways to drive traffic. Advertisers can sign up YouTubers to promote your product on their channel that consistently engages with your target audience.
In contrast, creating a YouTube channel from scratch and taking the time and effort to set up proper video production and monetization (amongst other things) may take months before producing notable results.
Bloggers are among the best publishers to recruit since their websites link to the brand’s website, boosting the site’s search engine rankings. Google prioritizes ranking websites with a high number of backlinks, indicating that the website is trustworthy.
4. Merchants Receive Helpful Feedback About Products
Affiliates that publish product reviews on any platform can provide insight by objectively comparing the product with another or detailing the negatives of the product. Merchants can use the feedback to improve their products and get a competitive edge in the market.
Some affiliates publish biased reviews which don’t provide much other than the basic information about the product and its main advantages.
5. Converts Some Affiliates to Customers
A lot of affiliates get involved with marketing products in niches that they’re passionate about. For this reason, some of the affiliates that promote a product may purchase from the merchant.
This is quite common in the internet hosting niche but not uncommon in other niches.
Cool Fact: Affiliate marketing conversion rate averages between 0.5% to 1%
6. No Earning Limit for Affiliate Marketers
Developing online marketing skills takes time and effort, but once you equip yourself with the right tools, find programs that work, and start earning commissions, you will be able to tackle marketing any product in any niche.
If you’re able to generate leads and sales for products that are challenging to market, you could earn high commissions. Some brands offer 50%-70% commission for promoting their products.
Affiliates typically drive traffic through paid aids, blogs, social media, and email lists – all of which are scalable. In other words, the product or service can reach bigger and bigger audiences, subsequently growing the brand and the affiliate’s earnings.
For instance, creating a video and uploading it to a YouTube channel takes the same amount of effort. However, channels with three million subscribers earn more for their content since earnings compound.
Cool Fact: Over 84% of publishers join affiliate marketing. A whopping 94% of publishers join 2 or more affiliate programs, while 39% and 20% of publishers use 3 or more and 5 affiliate marketing programs, respectively.
7. Extensive Choice of Products and Marketplaces
Affiliates get access to thousands of products across several marketplaces, making finding the right product to promote for target audiences simple.
The large volume of affiliate marketing programs allows affiliates to choose products in the niches that interest them the most.
One of the best things about affiliate marketing is that you get to choose to become a part of affiliate programs that offer high commissions. You don’t have to settle for promoting products that you don’t think will earn you much money.
Cool Fact: The top affiliate networks have over 100,000 affiliates.
8. Facilitates Partnerships
Merchants and affiliate marketers work closely to promote the products, providing them opportunities to build strong, long-term partnerships.
Most merchants and affiliates sign up to more than one affiliate network, giving them a chance to work with people with expertise in various niches.
9. Provides Multiple Sources of Income
Affiliates can find several affiliate programs across markets, all of which they can add to their portfolio. If you feel prepared to sell products in a niche and find a relevant affiliate program, you can easily make money from the program.
As you continue to promote products, your previous work may continue to provide you with daily passive revenue.
The Disadvantages of Affiliate Marketing
1. Relatively High Chances of Failure
The majority of affiliate programs perform poorly, and there is no shortage of examples of affiliate programs that shut down for not meeting internal targets.
Merchants must manage their affiliate program cautiously since working with the wrong person or team can lead to the staffing cost exceeding the sale revenue.
But this is only one of the many problems merchants are vulnerable to. A poorly-constructed landing page and an uncompetitive commission rate can result in low affiliate acquisition. Consequently, the merchant may not attract enough affiliates to justify the expenses.
Regularly reviewing the reports and transactions is a must since bad actors can eat into the profits you earn. Working with the right affiliate manager is critical to a merchant’s success since poor communication skills can cause affiliates to disengage from the program.
Seeking guidance about setting up and managing affiliate programs is an excellent way to ensure your performance targets are met. Monitoring competing programs for insights is a key merchant responsibility.
Becoming an affiliate marketer may be easier than becoming a merchant, but it is challenging nevertheless. Almost half of all affiliate markers earn less than $20,000 per year from their marketing efforts. While the top 3.2% earn over $150,000 annually, it takes skills, years of experience, and luck to get to that point.
2. May Jeopardize a Brand’s Image
Affiliates that do not comply with the brand’s policies can become a financial and brand liability.
An example that made headlines in 2018 involved DJ Khaled and Floyd Mayweather, who were found guilty of illegally promoting I.C.O. The promotions did not disclose these influencers’ relationship with the brand, costing the advertiser Centra Tech almost a million dollars in fines.
The founders of Centra Tech were charged with defrauding investors, and the incident put a negative spotlight on the brand.
The best way to avoid similar circumstances is to send semi-annual compliance email reminders to the affiliates, notifying them of the program’s policies and guidelines. Continually reviewing affiliates to ensure their compliance is an effective way to enforce the program’s policies.
Brands must always remain transparent about their affiliate activities. We recommend following the FTC’s best practices.
3. Reducing the Efficacy of Performance Marketing
With user data privacy concerns rising, companies such as Apple and Mozilla have fortified their browsers, equipping them with enhanced privacy controls to counteract tracking from cookies.
The 2017 release of Apple’s Intelligent Tracking Protocol has proven an effective measure to thwart third-party cookies.
Most affiliate tracking tools rely on cookies for attributing sales to affiliates. With cookie technology facing more and more pushback, it will become more challenging for merchants to measure a program’s performance and RoI.
Additionally, affiliates will earn less money with privacy enhancements and inaccurate performance data getting in the way of high earnings.
Merchants can avoid trouble by enquiring how their affiliate tracking tool provider overcomes ITP and other browser privacy challenges.
4. No Control Over the Product or Payment for Affiliates
The lack of control over a product’s quality, customer support, and branding leaves affiliates with much to be desired. Affiliates only drive traffic to the offer and cannot course correct the merchants’ strategies.
Furthermore, affiliates do not have control over the payment, which drives away many interested in affiliate marketing.
Most times, the money from the sale goes to the merchant, and affiliates only get paid after the purchase is fully processed and given that the sale was appropriately tracked.
If you’re worried about the uncertainty of payments, joining an affiliate network that doubles as the merchant on record is the right way to go. It will ensure that you get paid on time for every sale.
5. High Competition
The idea of a big payday from affiliate marketing is very appealing, and thousands of people sign up to become affiliate marketers every day. In other words, there’s a lot of competition.
This is not to say that new affiliates do not have the opportunity to earn the big bucks. The size of the affiliate marketing industry is growing exponentially, and the industry is ripe with opportunities, making it a good time to begin affiliate marketing.
That said, affiliate marketers who want to earn profits consistently must invest a lot of time and effort in improving their marketing skills. The only way to beat the competition is to outsmart them by gaining the right expertise.
6. Freelancing is Not for Everyone
A freelance lifestyle is not meant for everybody. Some find working by themselves and managing their workload lonely and stressful. It’s not uncommon for freelancers to feel a sense of stagnation regardless of the kind of task ahead of them.
Working as a freelancer is much different from working a day job, and dealing with such feelings is a part of the lifestyle. Staying close to your loved ones is among the best ways to overcome mental blocks.
Switching it up and finding a new working space for the day or going outside to a specific spot to work every day can help you keep a fresh mind when working as an affiliate marketer.
The local coffee shop is often an affiliate marketer’s favourite hangout, but you can use any other remote working spots around your city and find one that suits you.
Renting a desk at a coworking space is another great way to make your solo affiliate marketing journey more social. It can also help you build new connections.
Cool Fact: Publishers whose age range is between 35 and 44 comprise the majority of the total affiliate marketer population.
7. Unreliable Payouts
Payouts are the financial compensation that affiliates receive for attracting leads and driving sales. The payout size makes up a good chunk of the average affiliate’s income. Payouts depend on the program’s commission rate and the number of leads or sales the affiliate drives.
Gambling affiliate programs typically offer the highest payouts. However, if a merchant initially stipulates small payments, there is no reason for affiliates to expect to turn a major profit with the program later. Joining several affiliate programs instead of focusing your efforts on one program is the best way to earn.
Learning about the two common malpractices that malicious merchants carry out is essential before becoming an affiliate marketer.
Joining an affiliate program comes with the risk of never seeing the money you earnt via commissions.
Some advertisers scam affiliates by shutting down the affiliate program without any notice, leaving the affiliates unremunerated for the leads and sales they generated. Other advertisers neglect their responsibilities, leaving affiliates unpaid for long periods.
The other common malpractice among merchants is posting high payouts to attract affiliates to their program before sharply reducing them at a later point without any explanation.
For this reason, finding the right advertisers to work with is an essential part of affiliate marketing. Signing up for the first good offer you find is not the right way to go. Affiliates must do their due diligence and research the advertiser before signing up for their program.
8. Affiliates Help Build Another Business Instead of Their Own
Affiliate marketing can involve tasks such as building an advertiser’s email list, which enables the advertiser to drive leads through sales funnels effectively. Affiliates are limited to similar brand-growth activities and only receive a fixed commission.
While an affiliate could build an email list before directing the traffic to the advertiser’s site, since the traffic is going to another site, your visitors may choose to visit the other site over yours in the future.
9. High Chance of Fraud
Like all other industries, the affiliate marketing industry has its bad apples. There have been countless instances of fraudulent practices, such as providing fake leads to earn commissions instead of helping a business grow ethically.
One notable incident is when eBay aided the FBI in stopping two scammers in 2013. The scammers almost got away with $28 million from their fraudulent affiliate marketing program.
Unethical affiliate marketers employ a handful of methods to defraud advertisers:
- Bots and scripts that imitate site visits and clicks.
- Purchases from stolen credit cards or other sources and cancelling or refunding the purchases later.
- “Cookie stuffing” visitors, so if they purchase from the advertiser at a later time, the sale is attributed as an affiliate sale.
- Spamming pre-made email lists with the advertiser’s products or services.
Getting the right affiliates on board is essential to avoiding fraud when using affiliate marketing for promoting products or services.
There are a few different ways of vetting an affiliate. Merchants can check the affiliate’s website and portfolio for anything suspicious. Checking the affiliate’s social profiles is another great way to filter candidates.
If the number of followers on their handles is much higher than the engagements on their content, there’s a good chance the affiliate has fake followers.
With the advantages and disadvantages of affiliate marketing compared above, it should be easy to gauge whether it’s right for you.
For some, this affiliate marketing pros and cons list will serve as a green flag to get involved in the industry. For others, the disadvantages of affiliate marketing will outweigh the benefits of affiliate marketing.
The bottom line is that affiliate marketing offers win-win outcomes to merchants and publishers. Becoming an advertiser or a publisher is a few taps away if you decide to give affiliate marketing a shot.