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A Guide on Affiliate Marketing in 2023: How It Works + The Latest Trends

Last Modified: January 12, 2023

how does affiliate marketing work

Affiliate marketing is a form of digital promotion in which an affiliate partner earns a commission for advertising another company’s products or services. It is a type of performance-based marketing wherein the affiliate partner makes a commission based on results achieved for the merchant. 

Right now, 20% of U.S. brands from a variety of industries consider affiliate marketing as a top marketing channel, and it makes sense why. Affiliate marketing offers a lower-cost method of generating brand awareness, brand loyalty, and revenue for both merchants and affiliate partners. And seeing as 93% of online shoppers prefer looking up product information and reviews before making a purchase, affiliate marketing offers great chances of conversion, such as through informative affiliate reviews and product comparisons. 

Read on to learn what affiliate marketing is and how it works. We also explore the top affiliate marketing trends and insights that you can use for strengthening your affiliate marketing strategies. 

What Is Affiliate Marketing?

Affiliate marketing is a marketing strategy where partners promote and sell other companies’ products for commissions. When customers click on an affiliate link, that will take them directly to a brand’s product or service website, ideally leading to a sale, signup, or even just clicks. The partner earns a commission according to how many users are redirected to the brand via the affiliate link. 

Affiliate marketing is commission-based sales at its core, but it uses technology such as email marketing and cookies to reduce customer churn and engage new leads online. Each affiliate link contains cookies, a tool that lets the merchant know which partner was able to generate sales or trigger other customer actions that will earn the partner commission.

How Affiliate Marketing Works

The industry relies on internet cookies. These cookies help affiliate marketing programs run seamlessly. 

Cookies track the affiliate marketing process, but they only run for a limited period. For instance, a brand will typically assign a 30-day window for cookies. Let’s say that five site visitors click on the partner’s affiliate link, but only two of them ended up buying the product advertised in the first week. The three looked at the product and did not purchase it right away. However, on the 29th day, they decided to buy it anyway. All five sales will earn a commission for the partner because they occurred within the cookies’ active period.

In affiliate marketing, brands typically focus on sales as the primary target. Still, some structures also pay commissions based on high-quality leads, the number of users who opted for a free trial, the number of clicks on a website, the number of downloads, and engagement level. These provide affiliate partners with boundless opportunities to earn a passive income while publishing their creative content online.   

Affiliate partners must disclose in their blog articles, video content, or social media posts that they are part of an affiliate program. Once a consumer clicks on the affiliate link to buy a product or complete the brand’s desired action, the affiliate network records the transaction. The merchant will confirm the sale as being credited to that specific partner. The brand will then pay a commission at the end of each payment period. An affiliate program could have a handful or up to a couple hundred affiliate partners at one time, so using cookies makes it easy to track everything for the brand.

The Popularity of Affiliate Marketing 

Marketers spent around $8 billion in 2022 alone, but does affiliate marketing work? When done effectively, it can be an excellent strategy for businesses of all sizes. Here are several reasons for the success of this billion-dollar industry:

Complements Influencer Marketing

Both affiliate marketing and influencer marketing continue to be effective methods of attracting new customers and retaining loyalty among existing clients. More than 90% of consumers trust an influencer’s opinion more than a traditional banner advertisement or celebrity endorsement. Aside from this high level of trust, most online users do away with website ads. Through Adblock technology, pop-up ads no longer have the same exposure and desired impact as they used to.

Affiliate marketing capitalizes on the solid following that an influencer has. Followers form a parasocial bond and develop trust with influencers, so a product or service promotion from affiliate influencers would be more likely to earn sales when endorsed to a sizable audience. 

Low Risk for Merchants and Partners

What’s attractive about affiliate marketing is it offers partners a quick and low-cost way to provide products and services without having to create one’s own brand or shell out money at the onset. There are around 81.4% of affiliate partners in the B2C sector, while the remaining 18.6% focus their efforts on B2B services.  

Brands and partners alike benefit from affiliate marketing’s low barrier of entry. Simply posting the affiliate link and inviting followers to check out the brand could already earn affiliates a commission. For their part, they only have to promote the brand through quality content and posts. They don’t have to shoulder overhead costs on product development, there’s no buy-in, and they don’t have to complete the sales aggressively.

As for brands or merchants, they don’t have to spend as much on affiliate marketing as they would on traditional mass media ads or CPC ads. Affiliate marketing brings brand awareness to a broader but more niche audience through affiliate partners.

Applies Across Industries

Affiliate marketing has become integral to a variety of industries. There are five categories that affiliates primarily promote: fashion and apparel (41%), computer and electronics (40%), online services (30%), accessories (29%), and beauty (28%). Markets in the business (25%) and marketing (20%) sectors are also strong.

Additionally, there is exciting growth in the home and garden sector, which was likely influenced by the COVID-19 pandemic. Data suggest that as high as 209.72% YoY growth occurred in 2021/2022. 

Affiliates in these industries can effectively promote affiliate products and services to their respective audiences. Brands are protected by affiliate marketing agreements because they will only pay commissions to partners who successfully deliver or meet the marketing goals set (e.g., clicks or downloads). 

Targets Different Marketing Goals

Whether your brand is after more sales, broader brand awareness, a higher level of engagement from existing customers, or any other goal, affiliate marketing can achieve these things if proper strategies are put into place. 

Affiliate marketing is an excellent way for companies to build brand recognition and improve their customer acquisition strategy. Affiliates are people spreading the word about your business in an enthusiastic and positive manner. They can help strengthen a brand’s identity and trustworthiness.

Provides Unique Content

An affiliate marketer can adopt various promotional styles and content perspectives depending on the product. These can range from unique blog posts, product reviews, and comparisons to video ads about your business. Each affiliate partner contributes their own flavor to promoting the brand, resulting in a more authentic approach.

Has a Flexible Approach 

An affiliate marketer can choose which products to promote and how to promote them. In addition, affiliates have the option of working with more than one brand simultaneously. For brands or merchants, affiliate programs can be easily scaled up or down at no cost. This is also a great way for businesses to scale up without the need for a large amount of capital.

Top Affiliate Marketing Trends

Affiliate marketing is expected to continue to grow in the coming years, creating plenty of opportunities for brands and affiliate partners alike. Here are some of the trends in the market that you should take note of:

  1. Changes in cookies 

Cookies have traditionally facilitated affiliate marketing because they enable merchants to track which sale or user action is directly related to an affiliate link. These text files work with web browsers to save user preferences and purchase information. But now, there are changes to browsing regulations and the use of this tool. 

The biggest one is that Google may no longer allow third-party cookies. Third-party cookies are the ones generated by marketing and analytics platforms, which collect data in order to serve ads and retarget users.

Safari and Firefox have already removed their third-party cookies, while Apple allowed blocking the Identifier for Advertisers (IDFA) tool to curb user tracking. Google is set to follow suit by next year or so and use only first-party cookies. This type of cookie records an online user’s actions on your site, including clicks, frequency of visits, items on cart, checked-out items, and other essential information.

With Google set to block third-party cookies, affiliate marketers can expect to gather customer insights from sources, such as on-page analytics, social listening tools, and consumer feedback via surveys. Third-party cookies will be a thing of the past.

While there are other ways to navigate analytics and affiliate marketing beyond third-party cookies, it’s best to consult with experts and discuss new tactics with affiliate partners once the ban is implemented.

  1. More influencer collaborations

As many as 84% of brands plan to work with influencers in the coming year, and this may even experience an upsurge as the years go on. Influencer partnerships open up creative opportunities while at the same time keeping costs lower through affiliate marketing’s performance-based model. 

Affiliate influencers can implement several strategies, including coupons and discount code offers, programs to mentor followers, location-based optimization to target hyper-local audiences, and other approaches to keep brand engagement interesting.  

  1. Focus on information

Things are moving away from overt marketing and toward more genuine, informative, and candid content delivery by affiliate partners. Brands can leverage this trend by keeping partnerships authentic with the most trusted influencers and micro-influencers. This trend is advantageous to consumers because the content relating to the affiliate brand will be value-driven rather than plain promotional. Plus, a stronger emphasis will be placed on the finer points of a product or service to distinguish it from those of the competitors. 

Creating space for this content to thrive will benefit brands, as they are more likely to build trust and increase revenue through affiliates. At the same time, authenticity benefits affiliate influencers, as they can create content that not only appeals to their audience but also helps them generate passive income.

  1. Video content is key

Deloitte’s findings suggest that video content will be instrumental in the coming years. Video is an excellent fit for affiliate marketing, which is a highly customizable, highly involved type of marketing. Creators can do presentations, unboxing and reviews, product comparisons, live streaming, and Q&A, among other things. 

Blog content remains a great avenue for affiliate links, but video’s inherent ability to captivate interest can bring your affiliate marketing strategy to a whole new level. Maximize affiliate marketing on YouTube and Instagram, where you can publish video content that offers valuable information to target customers, as well as build product familiarity and trust.

  1. Merging affiliate marketing with loyalty marketing

Loyalty marketing focuses on reducing churn rates and maintaining brand loyalty among existing customers. This is one of the most crucial elements in branding because existing customers spend 67% more on a brand than newly acquired customers.

Affiliate marketing can maximize retention by utilizing brand affiliate partners, website owners, influencers, and niche authorities to promote repeat purchases. They can offer customers points, rewards, incentives, and other perks to motivate repeat purchases or upsell products and services.

Besides increasing customer perks, offering loyalty incentives allows brands to deliver a more personalized buying experience. This encourages your niche audience to authorize data tracking because they get redeemable offers and valuable perks in return. 

  1. Multi-approach to blogging 

Blogging paved the way for affiliate marketers to dominate product promotions. It is still highly relevant now, but it should manifest in more collaborative ways that enrich backlinks.

For example, guest posting on another authority site helps drive healthy backlinks to the affiliate site. Getting published on sites with a high domain rating allows the affiliate partner to promote the brand and garner quality backlinks simultaneously.

Another approach is commenting on roundups. Generally, people are more likely to link to authoritative sites, so getting exposure on these sites will inadvertently promote affiliate products or services. Collaborations, interviews, and articles with experts can also enhance credibility and help make blog posts profitable. 

  1. Podcast potential

Affiliate marketing can also tap into the growing sector of podcasters who publish talk series on a wide variety of topics across podcast platforms. In the U.S., podcast advertising grew two times faster than the total online ad growth rate; this occurred in 2021 and is expected to continue. 

Affiliate marketing for podcasts would work in the same way as affiliate marketing for traditional channels. The merchant will provide an affiliate link or promo code, which will be endorsed during podcast episodes. Once there are customer sales and engagement from that link, the merchant will pay the commission. 

This is still a largely untapped market for affiliate merchants, and whichever brands capitalize on the market first can start building on brand loyalty before competitors come into the picture. With about 2 million active podcasts right now, you can easily find a podcaster whose values and niche audience align with what your product or service can offer.

  1. Digital payments and currencies

Today, there are new payment options that customers can utilize beyond the traditional debit and credit card systems. Online retailers have ventured into offering digital payment options—namely Apple Pay, Amazon Pay, Google Pay, Klarna, and PayPal, among numerous options.

Cryptocurrency payments are also gradually being accepted in standard payment channels. Affiliate marketing has the potential to be more appealing and expansive because of these more inclusive payment methods for customers. 

Additionally, crypto affiliate networks have sprouted as a new way for affiliates to earn money by promoting specific cryptocurrencies. Some of these companies offer substantial incentives and commission rates, which draws many influencers and authority figures to get involved with these new crypto products.

Affiliate Marketing Trends: The Takeaway

Affiliate marketing requires research and careful consideration of new technologies in order to be successful. With a solid effort at the onset, both merchants and affiliate partners can enjoy its advantages in the long term. 

To stay ahead of the competition, affiliate marketers should be aware that tech and algorithms change regularly. To ensure success in this industry and avoid being left behind by changing policies, they need to have cutting-edge AI tools and specialized affiliate marketing platforms. 

Companies who want more traffic and sales directed towards their products and services need to strengthen their monitoring capabilities and at the same time foster effective collaborations with the right affiliate partners. Authenticity is what customers are drawn to, and it will likely remain that way for years to come. Ultimately, brands must strategically decide which affiliate partners to work with for their affiliate program. A good affiliate candidate is one who can creatively promote the brand, enrich the customer experience, provide valuable content about the brand’s offerings, and nurture potential leads who will benefit from these said products and services. 

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Written by

Werner Geyser
Werner Geyser