What is Affiliate Program Marketing?

Imagine telling an advertising agency that you will pay them only when you get leads from an ad. Or, perhaps you suggest paying them based on the sales that you make because of exposure of an ad. Besides having difficulty...

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What is Affiliate Program Marketing?

Imagine telling an advertising agency that you will pay them only when you get leads from an ad. Or, perhaps you suggest paying them based on the sales that you make because of exposure of an ad. Besides having difficulty measuring these outcomes, chances are the agency will not take you seriously.

Approach a web site owner and he or she may actually consider your offer. The Internet enables you to pass this off through a marketing method called affiliate marketing - an effective way to increase your web site’s exposure, identify new customers and increase sales. According to Forrester Research, affiliate marketing is the most effective of all online marketing methods.

With an affiliate program you offer affiliates an incentive to perform a particular outcome. This outcome may be to generate customer leads for your business, increase ‘clicks’ to your site or improve sales - from a banner ad, text link, graphic or other means such as a newsletter. The incentive is usually a fee, provided as a flat rate or percentage depending on your affiliate program objectives.

What are the Benefits of an Affiliate Program?

Developing an affiliate program is no small task. It requires a dedicated program manager, financial investment, a solid strategy, and a focus on finding and keeping the best affiliates. Done right, it can bring a number of benefits.

Affiliate Program Benefits
Win-Win Situation You do not pay the affiliate until he/she has delivered the desired outcome and the affiliate makes money without having to worry about orders, inventory, shipping, or customer service.
Lower Customer Acquisition Costs According to McKinsey and Company, average customer acquisition costs for television advertising can be approximately $230 CDN; for a specialty magazine the cost is around $125 CDN. Affiliate customer acquisition costs average approximately $70 CDN.
Improved Exposure and Brand Awareness Affiliates have access to a large pool of clientele in markets that you may not be able to effectively reach through traditional marketing methods. If you have a large base of affiliates your exposure is increased more.
Reduced Marketing Costs Gaining access to new markets is an expensive undertaking. Affiliates provide access to potential clients. You simply find the affiliates that have access to the markets you are interested in.
Better Reach Affiliates can sell your products and services through various means including banner ads, text links, rich media, or through a newsletter. Utilizing these various marketing methods is important since some forms of online marketing, such as banner ads, are easily filtered by software or immune to potential customers.
Business Focus While affiliates do the pre-selling, you can concentrate on other aspects of your business such as product research and development.
Measurable Results Since you pay for performance it is much easier to measure and predict customer acquisition costs. Affiliate marketing management software also enables you to identify trends in your program and provide you with data that can be used to improve your strategies.

How Do I Roll Out an Affiliate Program?

Is An Affiliate Program Right For You?

Successfully developing an affiliate program requires strong commitment – both in terms of time and money. If you cannot make a commitment, the results of your program will be hindered. For instance, do you consider your affiliates long-term partners? The value that you place on your affiliates will most likely extend into the fees you pay them. If you pay them low, they will not work as hard as they would for someone who valued them as partners and provided fees that were higher. If you do not intend to treat your affiliates as business partners then it is probably not wise to develop an affiliate program.

It is also useful to consider the products or services you sell. Products and services that do not have a high margin to work with are not suitable for an affiliate program. For instance, if you are only making 8 percent profit on a product, it is difficult to give affiliates a reasonable fee. You need to be able to offer a reasonable fee to your affiliates so they will be motivated to promote your products and services.

Identify Your Program Objective

In most cases, the primary objective behind an affiliate program is to obtain a particular sales level. Other common objectives include increasing awareness and gaining new customers.

The objective that you choose will depend on a number of factors. For example, your objective may depend on how established your company is. If you are a new business, then you will most likely focus on increasing awareness and gaining new customers. If you are an older company with a solid customer base you will most likely focus on sales growth through your affiliates.

Determine The Payout

Payouts are the most significant factor evaluated by affiliates when choosing which merchants to promote. Therefore, they are an important consideration when developing an affiliate program.

There are basically three payment structures to consider for an affiliate program – pay-per-click, pay-per-lead and pay-per-sale.

Pay-Per-Click - Each time someone clicks into your site through a banner ad, text link, graphic or other access point from the affiliate’s site, you pay the affiliate a fee between $0.02 and $1.00.

Pay-Per-Lead - When a potential customer clicks on a banner ad, text link, graphic or other access point from the affiliate’s site, a form comes up, which asks the customer to complete and send. Each time a completed form is sent to you, the affiliate is paid a fee – usually a flat rate.

Pay-Per-Sale - Also called a revenue sharing program, the affiliate is provided with a percentage of the profits when they make a sale – usually between 10 percent and 25 percent. Larger companies may pay more.

The payment structure you use will depend on a number of factors including your objectives, the level of risk, the product or service you sell, and the value of your customers.

Objectives - If it is your objective to increase awareness of your site and bring in more sales, then it makes sense to pay your affiliates with a combination of the pay-per-click and pay-per-sale commission structures.

Level of Risk - The least risky of the payment structures is pay-per-sale since you only pay out when you make a sale. The other payment methods offer no guarantee that you are gaining viable customers who will ultimately bring sales to your business. As a result, you could end up paying out more money than you are making. There is also a high risk of fraud with the other payment structures. For instance, many customers prefer not to share their personal information and may not correctly fill out a ‘lead’ form. Consequently, you may end up paying out on false ‘leads’.

Product or Service - Usually, if you are selling a product, then the most common payment structure is pay-per-sale. On the other hand, advertising sales based sites typically use a pay-per-click payment structure. Subscription based sites will usually charge a flat pay-per-lead fee.

Customer Value - The value that you place on your customers can impact the fees you pay your affiliates. For instance, if you have an objective to maintain your most valuable customers, you may increase the percentage you pay your affiliates each time a customer returns to your site or buys your product or service more than once.

Affiliate payouts are the biggest cost in an affiliate program and can have a large impact on the success of your program. Structure your affiliates’ payouts to reflect your program objectives and the outcomes you want to drive forward.

Determine Whether You Will Outsource The Program

One of the biggest challenges in initiating an affiliate program is the development and installation of software that will manage, track and evaluate your program. Most companies do not have the resources to launch this type of software on their own and therefore outsource the job to outside companies, such as LinkShare, that specialize in this area.

Whether you develop your own software and manage the program within your company, buy the software from another company and administer it on your servers or have someone else control your entire program, there are a number of considerations you should think about including resources, cost, long-term growth and scalability, business functions, control and customization.

OPTIONS Internal Software Development and Management Buy Software and Manage Internally Complete Outsourcing
Resources High level of technical expertise required. High level of technical expertise required. The technology already exists and is administered outside your company therefore low level of technical expertise required.
Cost Very expensive to develop and maintain. Good software may cost more than $5000 to implement. Some companies have high set up fees and a smaller per sale fee. Some may have no set up fee but charge a high percentage for each sale you make.
Long Term Growth and Scalability Scaleable but takes time to build and improve the program. Lack of scalability since it is a purchased/licensed program. Can build and improve the solution quickly.
Business Functions More work for your company. Program may be limited in what it can accomplish due to technical expertise required and cost. i.e. check-writing services. Can choose the business functions most important to your company before purchase A variety of business functions can be delivered through an outside company including check-writing, access to a large pool of affiliate contacts, automated reporting, etc.
Control High level of control. You can control the look, feel and functions on your site. You are responsible for any problems. Medium level of control. If there are problems with the software there is little control. Internal server issues can be solved from within the company. Lack of control. If system goes down you are still responsible to your affiliates.
Customization High customization available. Can change payment structures or add other features as needed. Lack of customization since another company owns the software. Customization may be available at additional cost.

Find And Keep Affiliates

Identifying the right affiliates and keeping them satisfied is important for the success of your affiliate marketing program. If affiliates are not happy with the service you provide they will not be interested in dedicating their time to your business.

Identify and Market to Affiliates

The most important point to consider when looking for the right affiliates is to identify those that cater to your target markets or focus on markets that may be interested in your product or service. For instance, if you sell health products you may consider affiliates that focus on health food stores, gyms, health resorts, or sports stores.

In most cases, when you outsource an affiliate marketing program you will have immediate access to an affiliate network. To gain access to other affiliates, you can list your program on an affiliate directory on the Web. Identifying potential affiliates can be done through a general online search. You can also identify your competitors’ affiliates and engage these same companies for your affiliate marketing program.

Maintain Affiliates

There are a number of tactics you can use to ensure you keep your affiliates and provide them with incentives to work hard for your business.

Provide Solid Software - The software you use to manage your affiliate program should enable affiliates to join with ease and manage their accounts. It should offer stats in real-time, provide payment information, and provide reliable tracking methods. Affiliates need to be able to trust you. Your software will have a large impact on this level of trust.
Sign an Agreement - Provide an affiliate agreement that outlines the payment terms. The agreement provides legitimacy to your business and will build your company’s reputation as a professional organization.
Provide Support – The more support your provide your affiliates the easier it will be for them to do their job and drive your program objectives forward. Support functions may include providing a list of FAQs, offering marketing tools, sending out a newsletter with updates on products and services, and offering targeted coupons or rewards.
Build Relationships – Affiliates should be treated as any business partner. The more involved they are in the marketing process, the more likely they are to remain focused on promoting your company’s products and services. Train your affiliates, motivate them regularly and solicit their feedback. These are the people who know your customers well and can bring success to your affiliate marketing program.

Track and Measure the Program

The success of your affiliate marketing program will depend on the usefulness of the data you gather from your tracking software. Consequently it is important to discern what kind of information you will track to optimize your program and ensure its success.

Your tracking software is the foundation of your affiliate marketing program and should provide insight into many areas of your business. For instance, while you may have a goal to increase awareness of your site and are therefore interested in the number of clicks you receive, it is important to go beyond this measurement and identify your sales performance. Affiliates may be sending you thousands of customers, but the number means little if you cannot determine which visitors are converting into sales and who is sending them.

Additionally, the data you obtain can be used to improve your marketing techniques, alter your payment structure or identify which affiliates you should pay closer attention to. For example:

Are your customers buying online, through email, by phone or by fax? If they prefer email perhaps it would work to engage in more email marketing.
Which customers keep returning? This data can assist you in developing a payment structure that provides higher rates to those affiliates that develop a loyal customer base.
Who are your top five affiliates and what makes them more successful than others? Perhaps they have a newsletter that is working well or have better banner placement.

Tracking software will enable you to build and manage thousands of marketing partnerships, spend more time on improving your business, convert more visitors into buyers and support your affiliates to improve their performance.