Almost every day I am asked this question.  The answer is as always – It Depends!

Affiliate marketing works best in a business to consumer environment or when the business to business offer is a generic offer that can be used by both businesses and consumers. Office Depot and 1800InkJets for example are general affiliate offers crossing both business and consumer markets. Almost everyone has a printer and a home computer so these programs do very well in the affiliate space because of their general public offer, high conversion rates, and are highly sought after by affiliate marketers.
That being said it does not mean that you can’t run a successful business to business affiliate program. It simply means that doing so will require more effort in finding and acquiring affiliate partners. We’ll talk more about business to business affiliate marketing in a follow up article.

Before you launch your affiliate program you should ask and answer the following questions;

Is my product sought after by Internet searchers?

To answer this question you will want to research how many search engine keyword queries were performed in a given period for your product/service offering. If the search volume is low or non existent then perhaps your advertising dollars would be better spent on public relations for brand recognition and awareness. You can do the research yourself or outsource it to a search marketing service company.

Are my competitors in the affiliate channel and to what degree of success?

Research can performed within the affiliate networks to see your competitor’s affiliate programs in their entirety.  Simply sign up as an affiliate in a few of the affiliate networks, login and using keywords search for your competitors or similar offers. Many affiliate networks will accept your application although the more niche networks perform a screening of affiliate partners and may decline your affiliate application. Merchant success is usually measured by the affiliate network’s EPC (Earnings Per 100 Clicks) ratings.  EPC is factored based on buyer or lead generation conversion rates and average order as compared to the number of clicks to the merchant web site.  A higher the EPC rating usually means a higher conversion rate coupled with a high average order.  Note: While EPC ratings are an indicator of success they do not provide information about traffic volume. 

Do I have sufficient profit margin to be competitive?

First you need to decide if your business goal to is be profitable on the first sale or is it geared toward acquiring new customers and generating profit from the life-time value of those customers.
Affiliate marketing commissions vary by product vertical and by life-time customer value. For example; Consumer electronics have tight margins and pay affiliates as little as 3%-7% while retailers often pay 7-12% or more in affiliate commission. Other programs may offer even higher commissions and still others offer flat dollar amounts.
Keep in mind that you are not only paying the affiliates a commission but that the affiliate network charges a percentage of the affiliate commission (from 10% - 30%) and you will also need to factor in either internal or external management costs.

Example;      Affiliate Commission =10% of gross revenue
        Network fee = 30% of the affiliate commission. In this case 3% of gross
        Management fee 2%-10% or a flat rate $500-$5000.

Do I need an experienced affiliate manager?

We have seen many affiliate merchant programs that are launched and then left to run on their own. These programs fail to achieve merchant revenue goals. Affiliate marketing requires significant time spent daily to manage and recruit the top performing affiliates.   Experienced affiliate managers and Outsourced Program Manager’s (OPM’s) will also have developed many personal relationships with top performing affiliates and will target the affiliates who market to your audience demographics. This will give your program a huge kick start and the ability to continually grow the affiliate channel.
Whether you hire a person in house to run your affiliate program, or hire an Outsourced Program Manager (OPM), or engage the services of your selected affiliate network you’ll need experience in the affiliate channel. There are many decisions to be made when launching an affiliate program and you’ll want to make sure you do it right the first time. 
Banners and text ad creative must be interesting but not intrusive. Flash or animated banners are often rejected by affiliates as these types of banners create too much of a distraction to the affiliate site’s customers. Many affiliates use text ads or product data feeds.

How many affiliate partners will we need to be successful?

The success of any affiliate merchant program is not about how many affiliate partners you have but the volume of qualified traffic each affiliate partner can drive to your site and how well that traffic converts into sales. Most affiliate merchant programs will have thousands of joined affiliate partners however far less than 5% of those affiliates actually drive sales. The larger more productive affiliates often have options for buying placement within their website or in their email marketing programs.  Super affiliates also have the ability to drive significant traffic volume. An experienced affiliate marketer manager will know which top performing affiliates to partner with and what the opportunities are to promote a merchant program within that affiliate’s marketing mix.

How long does it take to launch and create a profitable affiliate marketing program?

Once you select an affiliate marketing network your program could be launched within 1-2 weeks. However we find that it typically takes up to 30 days. You will need to review and sign the affiliate network agreement, create your program description and affiliate compensation model, install and test the tracking pixels, create and load text ads/banners, create a product data feed, and announce your program in various affiliate marketing blogs and forums. 

What percentage of my revenue will affiliate marketing generate?

Merchant affiliate marketing programs will generate an average of 5% to 20% of your total revenue. Of course these numbers change depending on how aggressive you are within the affiliate marketing channel and your initiatives in other online marketing channels. 

Mike Gunn is an experienced Affiliate Marketing Professional with an extensive back ground in the retail and catalog marketing industry. Mike is Founder and CEO of ProfitRank.com an Outsourced Affiliate Marketing Management and Consulting Company. For more information visit www.Profitrank.com or contact Mike at mgunn@ProfitRank.com or 1800-713-0462.
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