In this economy, cost-effective advertising is key. But being cost-effective doesn't necessarily mean doing it all yourself. It doesn't mean you have to hire an expensive advertising agency, either. Instead, you can have individuals affiliate with you and advertise on behalf of your company or specific products.

It's called affiliate marketing, and it can help small businesses drive shoppers to their Web sites and make purchases while only doing a minimal amount of work. Plus, it can work whether your business sells tangible products or whether you create software utilities. Many people are familiar with Amazon.com's affiliate program. But rather than being the affiliate, in this case, you are acting like Amazon by hiring affiliates to drive buyers to your listings.

The industry group Performance Marketing Alliance explains on its website, "advertisers (or merchants) pay their performance advertising partners (also known as affiliates or publishers) when an action is completed, such as a sale or completion of a lead." Performance marketing includes affiliate marketing, CPA (cost per action) marketing, search marketing, lead generation, and other types of performance-based programs.

The system works like this: You - the businessperson with something to advertise - sign up with a company called an affiliate network. The affiliate network also signs up individuals who will act as the affiliates. They will place ads in various places online, or run the ads on their own websites. The affiliate network sets up a payment system to pay affiliates on a pay-for-performance basis.

You might think affiliate programs are only for big corporate concerns. Not so, according to Jennifer Lovette, a vice-president of advertiser development with one of the best-known affiliate networks, Commission Junction (CJ). Small businesses can use affiliates too - but that, of course, depends on how you define "small." CJ does include family-owned businesses and new startups among its clients. "There is no minimum requirement for an advertiser to start a program," says Lovett. "However, there are some guidelines that should be considered to ensure that your company will be successful." Those guidelines include:

• You should have been selling online for at least a year.
• Your company needs to generate at least $50,000 per month in online sales.
• You need to be active already in other forms of online advertising such as SEO (Search Engine Optimization), PPC (Pay Per Click programs such as Google AdWords) or CPM.
• You need an email communications program so you can remarket to existing customers and confirm purchases and deliveries.
• Your site should have a secure shopping cart and a return policy and guarantee.

One of the most important considerations is the scope of your reach. If you sell products only locally, affiliate marketing may not be for you. Businesses that have a national or worldwide reach will do best.

Your first question probably is: how much does it cost? Hopefully your affiliate network will help you do this. Once you get some affiliates, you might ask them what they would consider fair compensation. Lovette says fair compensation can directly lead to more sales. You might also have a secondary goal, such as building a loyal publisher base (a base of affiliate advertisers). Determine the real cost of reaching your goals, and draw up a marketing budget. Put extra money aside to reward especially good affiliates.

What kinds of products or services, if any, are best suited to an affiliate program? "We have a wide variety of advertisers who range from computer and electronics, accessories, home and garden, travel, financial services, automotive, internet service providers, dating and much more," says Lovette. "As long as the advertiser has products or services that they can sell online, they should consider affiliate marketing. Traditional retail products are the most common."

Software developers can also use affiliates. A company called RevenueWire specializes in helping developers get the word out - even providing them with help developing Websites and logos as well as shopping carts that buyers can use to make secure purchases. But such services are costly. RevenueWire takes a small percentage of each sale. In addition, 75 percent of sale will go to the affiliate; the merchant only retains 25 percent of the sale.

It's also good to be aware of a pitfall in which affiliates occasionally misuse the company names and brands of the companies they advertise and send out spam emails. Put out clear policies and guidelines so your affiliates know you don't allow this, and take action against those who don't comply. If you believe in your products and services and don't want to break the bank taking out costly banner ads, recruiting an army of eager affiliates can boost sales while keeping your budget under control.