What Makes a Niche Good For Affiliate Marketing?

Affiliate marketing is a way of outsourcing marketing by basically turning your customers – or non-customer mercenary advocates – into your sales team. 

And it’s way better for many businesses, too; affiliate marketers are like a no-win-no-fee lawyer — if you can’t drive results, you don’t get paid.

Some companies have hoards of raving fans who love the brand and their products, and tell their friends about you regardless of any personal gain – they don’t need affiliate programs to make sales; word of mouth is already so strong. (Or they self-identify as a “tastemaker” and want to claim ownership of the original discovery, whichever works.)

But for most companies, a number of factors make affiliate marketing very attractive.

Affiliate Marketing is Here To Stay

In most cases, the sweet smell of blue Benjamins can sway otherwise-apathetic customers or middlemen, and in turn they’ll giddily entice their peers to purchase your wares in exchange for a percentage of the loot.

And affiliate marketing is only growing and becoming more mainstream.

Amazon, despite $469.8bn sales in 2021, is still experimenting with affiliate marketing (and increasing their rates in April, July, and almost the entirety of Q4 2022).

Almost every big brand has some kind of partnership or affiliate program: from high fashion retailers like Nordstrom and Neiman Marcus, to new-school business models like WeWork, and historical financial institutions like AT&T and Citibank – they all use affiliates to drive sales.

But not all niches are the same, and some areas are inherently more affiliate-friendly than others. Here are some factors that determine how in-demand you’ll be as an influential player in your niche.

There are also a few clear reasons why companies set up affiliate programs:

1. Free traffic (and only paid out if sales are made) creating brand awareness benefits
2. Low costs – You don’t need to pay a big listing fee on most platforms, and you don’t need to hire full-time employees for outreach marketing.
3. SEO benefits – some sites leave do-follow on (and even no-follow links from authority sites can be beneficial, especially if you “activate” them with links to their page)
4. You can become an authority via the influencer’s trust by osmosis
5. Low brand risk – you can vet your affiliates so no low-quality clients you don’t want to be associated with are allowed to join

1. Margin & Profitability

One of the most obvious factors that affect a niche’s suitability for affiliate marketers is margin and profitability. 

Margin and profitability are different — making a lot of money on one sale is one thing, but making repeated sales on one transaction elevates the value of a customer to a whole new dimension.

Margin

Margin is simple: the larger the margin a seller makes, the more % they’re willing to give to someone to drive those sales.

Sunglasses are a high-margin good, and all the affiliate programs range from 6% minimum, up to around 15%. Jewelry is customarily 20-30% affiliate commissions. Semrush offers a flat fee of $200 for every subscription sold.

Software and online courses are even crazier. All your costs are up-front in developing an online course, and for software, while you have updates and patches and bugs that cost money to fix, and resources required to serve all these web visitors, the bulk of the cost is pre-loaded, so margins are almost infinite. It costs little to sell another 1,000,000 licenses after you’ve sold your first. 

With such amazing margins, it’s no wonder vendors are willing to fork over as much as 50-70% of each course sale, and rates are often 35% or higher for software. I promoted an excellent niche site SEO course over Black Friday that paid me 50% commissions on sales.

But the profitability of a customer is even more valuable.

Profitability

When I was 17, I worked as a charity fundraiser for £7.50 an hour near Pentonville Road. Our job was to call people up and ask them for money for whichever charity we were calling for that week, and as part of our script we first asked for £10 per month, then £5, and lastly just £2 per month.

£2 seems like nothing, and not worth it considering our wages — but the average sign-up stayed subscribed for 4 years. 

So, even a single £2 per month sign-up paid for 3 shifts of our wages. Overturning a call recipient’s objections to just £2 actually led to an average of £96 donated.

We’re trending towards a dystopian cashless economy where we’ll all own nothing, pay monthly to rent everything, and be told to be happy about it. One small positive from life’s sweet slow asset stripping is that there’s big bucks to make if you can sell recurring subscriptions – again mostly software and online courses (if they’re subscription-based).

Andrew Tate’s Hustler’s University course is an example, with 50% monthly subscriptions. Clickfunnels offers 40% recurring for every subscription sold, CSSIgnitor’s WordPress themes earn 50% recurring revenue on all sales. Tweet Hunter Pro offers 30% recurring commissions (it’s excellent btw, and you should buy it with this link), and SurferSEO offers 25% recurring commissions (also excellent, and you should buy it with this affiliate link).

You could never get 50% commissions by getting someone to buy an everyday good like shampoo or a TV. They cost too much to make. 

But digital sales for online courses, software (with subscriptions!), gambling and crypto trading are so profitable that if you can drive them sales, they’ll pay you more than handsomely. Oddschecker.com currently earns £69m a year and is worth around £150m — mostly from gambling affiliate commissions.

2. Level of Differentiation

Some products are clearly better than others, and you can tell from a quick look online. For example, you can instantly tell if you’ll prefer one t-shirt design to another — you don’t need much advice to make a decision.

This is a visual difference, but the same goes for a performance difference. It’s easy to show performance differences between the new M2 Mac and a standard $299 laptop — you can literally see them boot up side-by-side, or have them both render video for speed and cooling fan differences, or even just compare their RAM, CPU specs, etc. The same goes for brand difference — brands with pull like Apple don’t need to pay big bucks to get people to recommend them.

The more clearly differentiated something is, the less useful affiliate marketers are to an industry.

Affiliate marketers become very valuable, and very useful, when there are very nuanced issues to which an expert can add high-level insights to move customers through the buying process, and where companies struggle to convert without an “unbiased” source to herd the sheep to the slaughter. 

They’re even more useful when the products are identical, to help companies selling identical things build brands that people associate with the sector, such as price comparison sites for insurance or household bills: think Comparethemarket.com, etc.

A good example is VPNs. VPNs are basically all the same, they help disguise your IP and boost security, get around family restrictions for watching certain types of content, and let you watch Netflix in different countries for certain region exclusives. While some may be more effective than others, they’re a difficult product for customers to differentiate between, and so advice from so-called unbiased sources becomes relatively more valuable.

So, the niche is super profitable for any affiliate marketers who can drive sales: NordVPN offer 30% commissions, FastestVPN 60%, and PrivateVPN 50%. 

Another area, gambling, have enormous commissions because roulette, blackjack, poker and sports betting are all basically the same wherever you play – so capturing customers is relatively more difficult as you can’t stand out purely based on product, and so affiliates are paid well for driving punters.

Compare that to easily differentiable products like fashion, and you have affiliate programs like Calvin Klein’s offering just 3%, or Lacoste who offer 4%.

3. Ability to test before purchase

Another factor affecting differentiation, and therefore affiliate marketing suitability, is the buying process – and the level with which you can “try before you buy”.

A general rule is that most consumer products follow a simpler buying process than services.

You can’t try a service before you experience it, reducing your ability to ensure you make a good decision before you pay for it. As a result, you seek out more third-party help before committing to a decision.

This is why third parties are so key to service marketing. You can’t really trial a massage before you pay for it, and you ask around for who your neighbours used for their extension before risking it with a builder to provide you building services.

When I was doing local SEO work for a physiotherapy clinic, heavy focus fell on optimizing the Google My Business profile, and collecting 5* reviews — as these were third-party endorsements that allowed new, risk-averse customers to trust the clinic with their money and bodies in the hope that their aches and pains would be solved.

Software without free trials is somewhat similar, though even then you can watch YouTube or written reviews. 

The less clear the “try before you buy” element of the buying process, the more valuable third-party influence is, and therefore affiliate marketers are more valuable.

4. The Intimacy of Sale / Level of Activation Energy

In 2020 I joined a computer science EdTech SaaS startup as a co-founder, and found success in our content marketing by following a principle of declining activation energy.

Activation energy is basically the level of commitment required to take action:

• A high activation energy action is buying a car: it’s expensive and is a large life change. 
• A low activation energy action is signing up to an email list, or signing a petition for a social cause.

Within our informational blog content, the first CTA would command the highest activation energy: asking them to sign up for our SaaS, and pay monthly for it. 

Most found this to be too much, too soon. So they’d continue reading the blog post and gaining information about the topic. 

Then the second CTA in the middle of the article would ask if they wanted to sign up to our newsletter, for free tips on computer science for new learners. Much lower activation energy, and much more helpful vs commercial.

If they didn’t sign up for this, at the end of the article was a third, even lower activation energy CTA: join our fun Discord server where we have fun and play games, and also give advice on learning JavaScript, Python and Golang.

In the same manner, different purchases require different levels of activation energy, mainly because they have different levels of intimacy of sale.

Intimacy of sale simply means the level of emotional importance the buyer attaches to the purchase, and therefore the potential pain of making a poor decision, which informs the level of risk-averseness the buyer approaches the purchase with.

Kahnemann and Tversky’s Prospect Theory details how we weigh wins and losses differently. People are loss-averse: they dislike losses more than an equal win. Even if there’s a low chance of a loss, people are very risk-averse when there is a high cost of loss – and so the buying process is more difficult.

Source: dreamendstate

Everyday goods have almost zero intimacy of sale, and require no activation energy. Like buying table salt. Many other fast-moving consumer goods fall into this category, especially habitual goods, wherein there is zero activation energy, you just do it. Lower-priced fashion, and most FMCGs fall into the lower intimacy of sale and activation energy spectrum.

So, goods with a higher required activation energy, and that have a higher intimacy of sale, are those that companies are willing to pay more to affiliates to convert for them, because the sales process is a more difficult one to traverse.

However, while this is good for the company, it isn’t necessarily good for the affiliate. Affiliate marketers should instead search for areas where commissions are high, but the customer buying process is not long, and activation energy and intimacy of sale is lower.

It takes a very talented sales copywriter to convert people to make life-changing, high-price decisions. While it’s good to seek a challenge, you can make more money in less intense industries.

TL;DR:

Products that customers place a lot of value in to change their lives require a longer buying process than habitual, normal purchases. So affiliates are more valuable in traversing the buying process in high-customer-value products. But, the best niche for an affiliate is an area where affiliate commissions are high, but customer buying process is not long or difficult and highly emotional.

5. Maturity of industry, and return on being big

New industries, especially in tech, software, crypto, and other industries that scale well, often start out with many fledgling competitors vying for the multi-billion dollar prize, stuffed with VC funding and vying to grow as fast as possible.

They’re almost always unprofitable for years – and they don’t need to be profitable anyway – the industry is growing so quickly that they’re just paying to be in the running for the huge profits once the industry matures into an oligopoly.

These industries usually follow these criteria:

• The industry is new and fast-growing
• There are large rewards for being a big company in this area
• There are large incentives therefore for growing very quickly
• Companies do not feel the need to make profits in the short-term, only revenue

These industries are perfect for affiliate marketing.

Especially if VC funding is at play, companies need to keep showing revenue growth in line with very ambitious targets, and if they don’t hit these, it’s often a death blow to the company. Some startups end up turning over $1 in marketing spend for every $0.80 in revenue brought back in, just so they can scale. They’re desperate to pump up the numbers.

If these industries involve easily sellable products, affiliates are perfect. So, in new industries with startups eager to scale and become one of the survivors as the industry trends toward oligopoly see affiliate marketing as an amazing coup. They don’t even have to flood Google Ads anymore just to break even! The %s get much higher.

Recent examples are the fledgling CBD industry, consumer software like productivity tools and project management tools, and crypto and new-age fintech firms.

6. How Accessible Alternatives Are

Amazon is probably the most accessible store around. Everyone has an account, and most have Prime, reducing the activation energy to sale and encouraging you to buy stuff you don’t need so you feel you’ve got value for your one-day delivery subscription.

So, it has the lowest rates. It doesn’t need them to be high – people come anyway. Arguably they don’t need an affiliate program at all.

But what if there aren’t accessible products in this niche on Amazon or any other related store?

If there aren’t any accessible products on Amazon or similar stores, any purchasers likely have to go direct to the brand. Since the brand therefore holds more leverage, rewards for affiliate marketers may be lower.

However, if there are many low-cost alternatives on Amazon, rates are likely to be higher to encourage affiliate marketers to send them directly to their site.

Amazon also take a fair cut (up to 15%) from sales, so we’ve found many affiliate partners willing to up our rates to the 10-15% level to send them direct, which still saves them money. 

Also, if the product is expensive, and if cheap alternatives exist, brands are likely to offer a higher commission rate to encourage affiliates to send customers to the more expensive upsell. More expensive products typically have higher margins, and therefore likely to afford higher commission rates to the affiliate.