Is It Time To Invite Affiliates To Your Business Model?

When is it time to invite online affiliates into your marketing and sales plan?  To answer this, you need to ask the right questions and assess your businesses’ strengths and vulnerabilities.  Your answers will determine your expectations, and which direction is right for your products or services in the complex landscape of online performance based marketing.

This article delves into the questions you need to ask yourself when analyzing the decision to add affiliate’s to your marketing plan.  Subsequent articles in this series will address how to get started as well as ongoing considerations of maintaining a well run and profitable affiliate marketing channel.

Affiliate marketing, or more appropriately, performance marketing, has for almost 2 decades provided online and offline merchants and retailers with much needed distribution for their products and services.  Performance marketing is the “secret” channel that online success stories such as Amazon, eBay and most recently Groupon have used to catapult their profits.  By employing 10’s of 1000’s of creative and niche focused online outlets to sell their products and services, they have learned how to lower their marketing costs and increase their user base and ultimately positively impact their bottom line.

 

So what is their secret?  Is affiliate marketing appropriate for some business and not others?  Is affiliate marketing a good fit for your business?

To answer those questions you must analyze your business and how you connect with your customers and your existing distribution channels.  Online performance marketing, at its most basic level can be defined as allowing an affiliate to promote your businesses’ products and services through links on their website or other online communication methods and paying them a commission for the action completed.

An “action” can include:

– a click to your website

– a lead form is filled out

– a sale is made

– a newsletter subscription is activated

– an SMS message is responded to

– a piece of software is installed

– a video is watched

While these are the most common actions that can define a “cost per action”, unique business models might also include making a hotel reservation or even a direct mail piece is responded to.  It really is dependent on your business.  Most companies will either be involved in a sale or a lead generation campaign, but there are many other models that can be applied creatively to achieve what your business needs to generate to improve revenues.

A Good Starting Place

For businesses large and small, a good starting place to start analyzing your business’ ability to capitalize on performance marketing online is to look at your existing distribution channel.

I once had the unenviable task of telling the CEO of a travel deals company that opening an aggressive Cost per Action program would probably negatively impact his hand built network of travel agents that provided over 90% of the company’s revenue.  The CEO insisted that aggressively competing with the agents online, after a long held policy of hands off control of their agents online marketing activities, would only make his agents try harder and thus would spend more in promoting his brand over his major competitors.  In essence, he was willing to compete with the partners that had brought him to the party.  The agents were already a network of affiliates, albeit highly trained ones with access to powerful tools to help sell his travel deals.  Nonetheless, his desire to open his business to non-travel agent affiliates could have seriously impacted his relationship with the agents by creating more competition for them in an otherwise established landscape that the agents had organically grown online themselves.  By opening a serious affiliate program, agents would now have to not only compete against the competition, but also with new affiliates who will be bidding on many of the same PPC and PPV keywords that were once the agents bread and butter.  No doubt, this strategy would have undermined his brand’s association with is travel agent base.

A solution to make the CEO’s online affiliate program successful was to involve the existing agents in a way that gave them specific advantages over non-agent affiliates.

In the above example, an affiliate program may have actually cannibalized his existing distribution channel and could have seriously harmed his company’s revenue.  What needed to be done, was to analyze how the existing agent channel, that had been the backbone of his success, could be brought into the fold so to speak, and get them excited about expanded tools and marketing creatives such as flash banners, videos and more custom article based support materials.  By teaching the agent network how to use the tools of internet marketing better, he was increasing his brand’s value to the agent base. They in turn would then expend more energy and dollars online for targeted keywords in the main search engines.  This allowed the CEO to lower his in-house spend on SEM because agents were covering more and more territory for his brand.

That is just one example of how analyzing your business and its present distribution channels can significantly increase revenues.  Analyzing how your present channels could maximize their internet presence to better promote your products and services is the first question you want to consider.  Giving existing affiliates or reseller channels the tools and creatives they need to easily improve their effectiveness is the lowest cost revenue enhancing activity you can do for your business.  This may include online storefronts, custom articles written exclusively for affiliates and creatives such as banners or emails that they can use on their websites or in their emails and newsletters.  In addition, additional videos or interactive games that affiliates can use to promote your product or service, can significantly open the floodgates to affiliates use of social media channels to promote your brand.

If you neglect your traditional distribution partners you will be missing out on the lowest hanging fruit.

I should also note that there are some businesses’ that are difficult to translate into performance marketing.  If your business has a very small number of potential customers, has a long sales cycle or are in the manufacturing industry, it may be hard for you to visualize how affiliate marketing could possibly work for you.  In many cases it can, but it will be in the form of a lead generation program.  The key to lead generation for these businesses will be balancing the close ratio on leads and the dollars generated from the lead to know what to pay for a lead.

In addition, to considering your existing distribution channels and partners needs and limitations, you must also consider the following before deciding to jump in:

–          Can I afford up to $10,000 to get my program launched?

–          Do I have any team members that can manage this?

–          What are my expectations for the program?

–          How will affiliate marketing impact my present internal marketing efforts?

–          How long am I willing to commit to this channel should I not see immediate success?

Can I afford it?

Affiliate marketing comes with several up front costs.  Business owners who believe that they can be successful without supplying enough fuel for the fire to burn will find themselves sorely disappointed by their results.

Let’s get real.  It does cost money to make money.  Performance marketing has its costs.  Let’s break it down.  In order to begin an affiliate program, you’ll need a platform as well as creative/technical resources, manpower and time.

Your Affiliate Management Platform

An affiliate management platform is one of the most important pieces you need to be able to work with affiliates.  It is the interface where affiliates receive their linking code and are able to track their “actions”.  Most importantly for affiliates, it’s where they see how much money they have made.  There are various platforms to choose from, and they range from $100 to over $10,000.

Choosing which platform is best for you can be a complicated matter.  There is stand-alone software that you run in-house and have to administrate many of the technical aspects of the program.  These can range from $100 to over $1000, and vary widely in the array of features.  Unless you have a very talented technical team who have experience with this type of software, I would not recommend you go this route.

There is also an option to use a managed solution, such as a CommissionJunction, Linkshare or ShareASale platform.  These managed solutions are easier to administrate as most of the heavy lifting has been done for you.  Managed solutions often carry a higher price tag, ranging from $1000 to over $10,000 for a full blown network introduction, and there are ongoing monthly costs as well.  One other advantage with managed solutions is that there is a built in pool of affiliates to prospect from to promote your product.  Managed affiliate platforms allow you to focus on prospecting affiliates as well as helping to increase individual affiliate’s performance.  Most larger managed solutions have additional support teams that can be retained to help you launch your program, recruit affiliates and manage your program.  By far this is the costliest route, but also the one that has a higher degree of success for larger brands.  In a managed solution, advertisers are able to approve of reject affiliates that apply to run their campaigns.  Commission payments are normally made in the form of a “revshare”, or a revenue-share of the price paid for an item or service.  If a recurring payment is part of the sale, for say something like a home security system, the advertiser will usually pay the affiliate who “sold” the customer and ongoing monthly recurring commission such as 10% of the monthly cost to the customer.

A third alternative, is Cost per Action (CPA) networks.  In these networks, affiliates apply to the network, and once vetted sign up to promote offers in almost the same way that they do in a managed solution platform.  The difference is that the advertiser – you – will never know who the affiliate is that is running your campaign.  Advertisers must trust the network to vet the affiliate and their promotional methods before the network allows the affiliate to promote the advertiser’s program.  Advertisers often place restrictions on the amount of traffic as well as the quality of the traffic generated in order for the network to receive a commission, which they then in turn pay out a portion of (normally 80%) to the affiliate.  This arrangement is really more for seasoned online advertisers who are well aware of the risks, and know how to manage these network relationships.  The upside is that unlike in-house or managed solutions, CPA networks can drive immense amounts of traffic when managed correctly as they control a large portion of what is seen on niche based websites where you can engage your target audience for a fraction of what a traditional CPM campaign could return.  CPA networks pay a bounty for an “action”.  This is a flat one-time fee paid usually net 15 from the end of the commission period (normally end of month).  The advertiser pays the network, and the network pays all the affiliates (sometimes referred to as publishers).

This is a very simplified comparison of affiliate platforms.  The bottom line on an affiliate marketing management platforms is, do your research and seek out the advice of a professional.  Making the wrong choice could seriously inhibit your chances of success.  The best affiliates will gravitate towards the best tools and most reliable reporting.

In addition to the cost of a management platform, you will also have to budget for these items as well:

–          Graphic Design.  Banners and html based emails are the bread and butter of any affiliate program.  Keeping these creatives fresh and themed for timely seasonal promotions will keep affiliates interest in your program.

–          Copywriting.  Affiliates are hogs for content.  Original articles that affiliates can post on their websites akin to gold for them.  Search engines value great content, the more you can supply your affiliates, the better their chances of reaching page 1 status with your brand for particular keywords they dominate.  Assisting them with custom resources only endears your brand to live on their sites forever.

–          Programming.  While affiliate marketing is not rocket science and most platforms make it easy to install cookie or javascript based tracking, you will more than likely need additional programming dollars in the budget to handle any customizations or linking/tracking issues that develop.

–          Promotional Activities.  Affiliate marketing is also very competitive.  Your competition wants your affiliates and you want theirs.  At the end of the day, most affiliates are loyal only to their bank accounts.  But affiliate marketing is also a very personal business that is based on trust.  The more an affiliate trusts that you will pay them on time every time will buy you credibility.  In order to gain their trust you have to promote yourself and this means interacting with them at trade shows such as Affiliate Summit or AdTech.  Much can be done online through forums, IM and email, but it does not replace the face to face trust that sitting down with an affiliate can foster.  You will also want to advertise your campaign where affiliates are looking for vertically organized niches.  This comes in the form of affiliate directories that list networks and offers for affiliates to promote.  An example of this would be Offervault.com or AffiliatePaying.com.

–          Ongoing Site Optimization.  A hidden cost of affiliate marketing is the work that has to be done to have a high converting landing page.  Without conversions, you will never keep an affiliate long enough to pay them.  Optimizing every aspect of the sales funnel for affiliate traffic pays off when you don’t have to cave in to an affiliate demanding more money or they will pull your links and send all their traffic to a competitor.  If you have optimized and done the proper strategic comparison testing, you know that your page converts better than your competitors.  The affiliate will be back soon enough when the higher payout fails to offset their miserable conversions with a competitor.  High conversions do not happen by mistake, they are engineered and there is a very real cost for this.

 

Do I have the talent in-house to do this?

Being able to should the up-front costs of affiliate marketing is only one aspect you need to consider, the other is staffing.  Realistically, is there anyone on your team that has any practical experience in performance marketing?  Has anyone on your staff ever been an affiliate?  This is a terrific question to ask.  Being an affiliate is not easy, and anyone who has tried it has a new appreciation for how hard it can be to get a person to buy something online.

If you have the personnel that are capable and have experience, consider yourself lucky.  If you need to outsource this function or hire a new person, there are several factors you will want to consider.

Choosing an Outsourced Program Manager (OPM) to manage all aspects of your affiliate program is an excellent choice if in-house staff is short on experience.  Typically, OPM’s charge a minimum monthly fee of anywhere from $2,000 to $5,000.  That is maintained until they can be paid at least that amount from commissions earned by affiliates they manage for your brand.  You pay an OPM on top of the commissions you pay to an affiliate, and on top of the % taken by a managed solution provider such as LinkShare.  They can be expensive, but they can also bring in their Rolodex of top affiliates to promote your campaign as well.

Hiring in-house management is a bit more long term thinking and usually has terrific results when you get a self starting individual in the position.  Because there is no limit to affiliates marketing creativity, an affiliate marketing manager can make a tidy amount if they have the right skills to motivate affiliates and rally support in-house for efforts to support the affiliate channel.  When hiring, make sure that they have at least three years of provable program management with positive results.

What are my expectations for the program?

Managing expectations can be the difference between failure and success.  Affiliate marketing can take several years to gain momentum depending upon the product or service marketed.

One of my long time clients took several years to get their program profitable.  Because at the time they launched the Internet was still capitalized and dial up was the norm, I advised them that their video delivery model would probably have to wait a few years for the technology to catch up to them.  But by launching an early adopter affiliate program, they captured the most influential websites in their niche by being their initially and supporting their efforts.  When broadband hit, their affiliate revenue was booted by 500%.  But this took years and many arguments between the owners, some who supported the expense, others who though it was a waste of money.

By setting realistic expectations and not drinking the Kool Aid that your program will set the world on fire and light the proverbial flame under an affiliate’s rear, you are not setting yourself up for failure.  Even the most connected Affiliate Manager needs time to seed their affiliates with your program and allow affiliates to test the waters and give you feedback.  Armed with that feedback you can optimize the sales funnels, payouts and support materials to better hit your target market through affiliates promotional activities.  Expecting immediate success, however you desire to measure it, will almost certainly doom your effort.  It can take months or even years for an affiliate program to unseat a strong rival and carve out their place in their niche.

How long am I willing to commit to this channel should I not see immediate success?

This needs to be established early on.  Not giving the program long enough to mature and get feedback from initial efforts will doom even the best products chances.  Too often I have worked with advertisers that gave a 6 month timeline for affiliate success.  Six months in barely enough time to get your name out in front of affiliates who are already ensconced with other advertisers.  To complicate matters, if you are working with CPA networks, it can take several months to get your campaign materials such as landing pages and sales funnels built and tested.  Failure to launch a well optimized website and funnel will result in lackluster results.  Affiliates test, you should too (more on how to do this in later articles in this series).  Commit the resources for at least one year.  This way you can see the cycles that affiliate channels experience.  As always, Christmas is the most profitable time of the year for affiliates.  Advertisers need to be planning their seasonal campaigns with affiliates in mind as early as June in order to get the jump on their competition.

How will affiliate marketing impact my present internal marketing efforts?

This is one of the biggest questions you have to consider.  Are you already maximizing search engines ion both organic and paid results?  Are you already buying up massive amounts of media in niche markets that affiliates otherwise would be buying?  Would inviting affiliates to the party lessen the effectiveness of my present efforts?

In almost all cases, affiliate marketing will impact your existing brand’s marketing strategy.  In some cases affiliates will end up competing with your internal team for keywords, to the point of one side purposely backing down to give the other the advantage.  In a previous business, we were spending $500,000 a month in PPC advertising, and our collective affiliates were matching it.  When our two largest affiliates began to promote our competition, we backed off the keywords we were competing against and allowed them to dominate those high converting keywords.  We in turn, took part of our budget and invested in areas that affiliates were not exploiting and found a whole new source of traffic.

The point is, affiliate will be creative and they will have some impact on your existing strategies and plans, so prepare for it.  Run through “what if” scenarios with your team to see how the end game plays out.  If allowing an affiliate to take the lead in some cases, are you able to re-allocate your media buys to other just as profitable niche traffic sources?

One strategy is to create an alternative brand or an alternative landing page that only affiliates promote.  By separating out your in-house landing page from an external sources only landing page, you can lessen the amount of competition inherent in the performance marketing game.  If your brand is Widgets.com, then you may want to create an alternate website and funnel that only affiliates promote by purchasing BuyWidgets.com and allow affiliates to link to that site instead of the brand’s main website.

The key piece to analyze is what will be the net impact of adding affiliates to your marketing mix.  It is not always as simple as buy a platform, put a few creatives in the back end and post up a few things in social media and voila you have a successful program.  Affiliate marketing takes a keen sense of knowing how to promote your product and how to lead others in promoting it as well.  Analyzing your business to know if you are ready to start an affiliate program is the first step.

In subsequent articles I will discuss additional aspects of launching and managing an affiliate program for your business.