How does affiliate marketing work, and how do people make money from it?

[Jay]

Typically, you're asked to sell a certain amount of product. In additional, you're suppose to recruit others to do selling. For those you recruit, you get a cut.

That's one kind of "affiliate marketing" and is the "bad" kind because it's a pyramid scheme. There are alternatives that do fancy things so as not to be labeled as such, but they all have the problem that those that at the bottom end up losing because there's no one else to recruit.

The other kind is where you sell a product for a company, such as cell phones or satellite dish services. This allows the primary company to expand their sales force, without actually having people on the payroll. You get paid by the sale. The other benefit to the company is that they aren't responsible for the sales tactics of the affiliate. Sometimes, an affiliate will make promises to a customer that the main company will need keep. By the time that the the customer finds out, the affiliate is either gone or simply says "not my problem."

This isn't to say all affiliate marketers are dishonest, of course. And if you work hard to market your product, you can make nice commissions. But it's up to you to sell. In some markets, there is an over saturation.