WHAT IS AFFILIATE MARKETING

AFFILIATE MARKETING DEFINED

The simplest definition for affiliate marketing is that it is a way to make money online. You are the seller of a product or service that a company wants you to promote, or will allow you to promote. In return, you will receive a commission. However, there are three things to remember:

1) Don't expect to get rich fast;
2) It is a business!
3) There a learning curve you have to walk through. Yes, an online venture can be home-based and it can make you a good income over time if you put the work into it.

What is the Affiliate Marketer's Job?

Many believe an affiliate marketer is a middle man. Granted, the person does take the middle position between merchant and customer, but the person is no middle man. A middle man is an individual who buys a product at wholesale, marks up the price of the product, and sells it.

An affiliate marketer is really an online sales person, who's job is to presale the product or service. If the affiliate represents the product correctly, through the use of a quality landing page, the reader may click on the link to the merchant's site. It is the merchant site, that must close the sale of the product.

Is affiliate marketing easy? No. If someone tells you that it is easy, they must be trying to sell you something you probably don't need. Let's be honest here, there are many things that goes into making money with affiliate programs. Here are a few to give you an idea:

Traffic-without traffic you cannot make sales
Quality of the product you are selling. This is very important. Why? If the product is of low quality it can brand your website in a negative way to the people that come to your website or blog.
Product should be relevant to the niche.
Have you created trust with the individuals who come to your site. If you can't, don't expect to make many sales.
Writing good sales copy (landing page).

Your Passion

If you're thinking about getting into or creating a website on a specific topic, longevity of your presence online comes down to one word. Passion! It is reasoned, rightfully so, that if you are passionate about your subject matter, it makes it easier to handle the frustrations that come with starting and maintaining an online business.

So you have two things to ask yourself:

what is your passion
Is affiliate marketing the right vehicle to make money with your chosen passion.

Affiliate Marketing With or Without a Website

You can get into affiliate marketing with or without a website, but it is getting more difficult to do so with the changes that Google and the FTC has put into place.

On the merchant side, a lot of merchants require that you have a website in which you can place their advertising banners and links. This is understandable, with the strict federal rules that are now in place, affiliate managers want to have an easier way of monitoring their affiliates.

That is correct, affiliate managers will do checks on your site to see how you are promoting their product, and if you are staying within their marketing guidelines. Sometimes they will give you a warning, other times you will receive an email that will request that you remove their links from your site, with possibly an explanation of what you did wrong.

Choosing Affiliate Programs

When you incorporate affiliate programs into your website, you should match/blend the affiliate program to the theme or niche you are in. If you place affiliate programs that are not remotely close to your niche, people will become confused and more than likely click away.

Thus, if you have a theme or niche in mind for a website, it's time to do marketing research to determine if the niche you have chosen is a need that has not been met, and if it can support affiliate programs, or if you have to create your own affiliate product to sale. (For more information about finding an affiliate program look below or go to Find Affiliate Programs on my website.

Researching Your Niche

Begin your research with Yahoo, Google, and MSN. Find out who your competition is-- view their websites for content -- what are they missing -- what do you want to see. Do not copy the site or steal their information -- you are observing and brainstorming here.

If after all your research, you find there is no competition-it could be a good sign or a bad sign. You have to consider two possibilities:

It could mean others have tried and failed;
Competitors haven't found the niche yet.

Setting Up Your Affiliate Marketing Business

Affiliate marketing is a business and has to be treated as such. Thus, you will have to go through all the procedures of having your business recognized by the state you live in, and by the federal government. And yes, you will have to pay taxes on your earnings-whether it is made in the states or overseas.

So what are some of the nuts and bolts of setting up an Internet business?

1) Register your business name with the city government. Since this is a legal document, expect to pay a fee.

2) Apply for an Employer Identification Number with the Department of the Treasury.

To file for an EIN, you will need to complete Form SS-4. You can find the forms in post offices, public libraries, or online. (This document identifies you and your business with the U.S. government and you will need this number when you file your taxes. So put it in a safe place.).

If you are a sole proprietor and you have no employees and do not file any excise or pension plan returns, you do not need to get an EIN number. You can use your social security number as your tax identification number.

If you are a sole owner of an unincorporated LLC (Limited Liability Corporation) with employees you will need to get an EIN to file employment taxes. (Law begins in January 2009).

3) You should also check with your State Government to determine what additional special licenses you may need. Such as Retail Sales Tax Permit -- if you are planning on selling items offline or online.

Note: If you only plan to utilize affiliate sales, you will not need a retail sales tax permit.

Affiliate Marketing and Taxes

There is always one question that enters the conversation with a newbie about "Affiliate Marketing":

"If I Go into Affiliate Marketing, do I need to pay taxes?"

The answer is a simple "Yes". Though it is on the Internet, you are still creating income.

You will have to check with your State to determine how you will have to pay your taxes. In most cases, if you are a single proprietor, you will pay quarterly state and federal taxes.

Federal and State Estimated Taxes

You will be required to pay federal and state estimated taxes on a quarterly basis.
The first year in business will be a little difficult in determining your taxes because you will have no idea how much money you will be making.

However, keep in mind that you will only pay what you owe against that of your expenses (your net income). For example, if your best guess estimate is that you will have $3000 in expenses during the year -- and you believe that in your first year you will bring in $6000-- you would report the following:
.
$6000 (Money Made)- $3000 (Expenses) = $3000 (What you owe)

Thus, you would pay taxes on the $3000 to your state government and federal government in quarterly installments on the $3000 you earned.

Other Things to Consider With Your Estimated Taxes

If you find that you are doing better than you thought-and you are making more money, and you have paid in for one quarter -- you will have to adjust the balance and divide it between the remaining quarters.

However, you are not required to make estimated tax payments if you did not make enough money in that quarter. That being said, if you don't make your first payment until a later period, you must divide your entire estimated tax by the number of payment dates remaining.

For example, you have three payment dates pending, you would pay one third of the total tax by June 15, the other third by September 15 and the last by January 15.

To obtain more specific information you can read IRS Publication 505: Estimated Tax payments.

When Are Federal Estimated Taxes Due?

Federal Estimated Taxes are Due on the following dates:

April 15
June 15
September 15
January 15

Note: If you have any questions, or unsure about anything, you should enlist the help of a CPA.).

The due dates on your state estimated taxes MAY be around the same time as the Federal Estimated Taxes, or a little later. It is wise to check with your state to make sure you do not miss the due dates.

Home-Based Business Expenses

For the single proprietor there are some expenses that you can take off for your business.

1. Home Mortgage.- No you cannot take off your whole home mortgage. You can take a portion (percentage) of your home mortgage off if the room you are using, is used solely for the purpose of conducting your business. So how do you determine the percentage of your home mortgage that go toward your business? There are two different methods:

1. Number of Rooms
2. Area Method

My suggestion is to use the area method, because I cannot image all the rooms in the house to be the same size. That being said, how do you figure the percentage according to the "Area Method".

With the area method, you would take the area of your home office divided by the area of your home. Example:

Your Office= 10' X 10' = 100 square feet
Your home is 1000 square feet
Your deduction = 100/1000 or 10%

Indirect Expenses

Indirect expenses are expenses that you can take off for business use, but only on a percentage basis because the whole house utilizes these services as well. Thus, the above area formula will come into play with your indirect expenses. What indirect expenses can you include:

1. Utilities
2. Telephone
3. Garbage collection
4. Internet connection (If other people are using the Internet)
5. Use of Auto (Auto Insurance)

Direct Expenses Direct Expenses -- these are expenses that relate solely to your business and are not remotely tied into your home.

1. Supplies
2. Advertising
3. Business account bank charges

Are you ready to find an affiliate program for your website or blog? Affiliate Programs To Join is where you begin to find information about affiliate programs and where to find affiliate programs.

More Reading

The Rules of Affiliate Marketing

Affiliate Marketing Expectations