The main premise behind affiliate marketing is two foldfirst to reach a very targeted group of folks who've already gone to another site in the same or similar industry; second to network with other online businesses to efficiently and cost-effectively share leads.

Here is how affiliate marketing works. Say you're a new sole proprietor and you own Chris' Cardsa greeting card and banner design firm. You are brand new, you don't have a lot of money for advertising and you don't want to throw good money after bad paying for ads that don't work. Affiliate marketing may be the most cost effective way for you to advertise your new company. The first thing you're going to want to do is make a list of related industries and services. Think, what else are people going to want and need who are looking for greeting cards? Or a better way to ask that question might be, "Who buys greeting cards and why?"

Your answer to that question might be that friends and family and loved ones buy greeting cards for birthdays, weddings, funerals, illness, and promotions at work, saying goodbye, and holidays. Let's look at the example of birthdays. If someone is having a birthday what might that greeting card buyer need in addition to that card? If she or he is the parent, or the spouse or the primary loved one of the birthday celebrant, she or he might need a cake, a hall, games, wrapping, decorations, rental of chairs and tables, a caterer, and so forth. Any of these services or product vendors who have a Web site might be good candidates for an affiliate marketing agreement with you.

Let's say you find "Patsy's Parties" on the Web. Patsy is a specialist at putting together great children's and adult birthday parties. She doesn't offer greeting cards, however. You could go to Patsy and say, let's do some affiliate marketing together. I'll put a link to Patsy's Parties on my site if you'll put a link to Chris' Cards on yours. Then you agree how you'll each compensate each other. Generally, there is a dollar amount associated with each click to the other's site through the link. Some agreements are limited to a payment only if the link results in a purchase. You'll have to decide that together with Patsy.

But that, in a nutshell, is affiliate marketing. What's especially good about affiliate marketing for new business owners is that they're only paying for what brings them results and they're only marketing to those that have come to the Web looking for theirs or similar services. There's no costly "casting a wide net" process of advertising to everyone and hoping somebody in that big global group wants your product or services. The consumers who come to your site through affiliate marketing have already indicated a need or desire for yours or similar products.