Affiliate Marketing – is it good or bad for you business?
First let’s define Affiliate Marketing.
Affiliate marketing is an opportunity to hire thousands of commission only sales people who will market your product on the Internet for a guaranteed profit.
Limited Risk
The beautiful thing about affiliate marketing is that there is very little risk. Well, OK there are some small set up fees for access to a viable affiliate network and some minor creative costs for banner advertising. After that you only pay for sales made and verified by your affiliates. You set the commission rate to determine what you are willing to pay for sales. However, you do need to be aware that affiliates are in business to make money meaning that commissions, average order, and conversion rates need to be competitive or affiliates may ignore your program offer.
Affiliate Marketing – The last resort
As merchants exhaust or maximize their paid search and organic search marketing efforts they look toward affiliate marketing as another source of customer acquisition.
Internet Consultants recommend first Natural Search, second Paid Search, and then lastly Affiliate Marketing.
Affiliate Marketers are experts at selling your product or service through Paid Search, Email, and Organic Search marketing. Affiliates are also experts at building communities of specific interests such as health, education, parental advice, shopping comparison, discount shopping, reward shopping, charitable contribution shopping, and the list continues to grow.
Email Prospect Marketing
As you probably have already found out Email Marketing for prospecting in the business to consumer world does not work very well. Spam has almost annihilated the channel as a prospecting vehicle. The only time email works is when the recipient has a relationship with you and knows your company. They may have you white listed and will open your email when you send it out as long as it is pertinent and relevant to their interests and/or needs.
Affiliate Marketers have established a relationship with large audiences and can email their constituency with offers from your company permitting a merchant with yet another marketing opportunity to sell more products to people they normally wouldn’t be able to reach.
Small Businesses – Is Affiliate Marketing A Good Fit?
At www.ProfitRank.com we run into small catalogers almost every day who say they can’t afford to divert marketing budget money into affiliate marketing. We feel they are missing the boat. Where else can you be guaranteed to get back a positive return on your marketing investments.
We also frequently encounter smaller catalogers who have tried paid search engine marketing have failed miserably. They say paid search doesn’t work for my offer. Without a dedicated expert managing your paid search program a positive return on your investment is almost impossible. Most all of the outsourced paid search vendors won’t guarantee success in fact most paid search experts contend that you will most likely lose money for the first 2-3 months as they optimize your paid search program.
Unlike Paid Search marketing service companies Affiliate Marketers will gladly run your paid search program for you and invest their own marketing dollars to drive traffic to your website guaranteeing a positive return.
Business to Business Affiliate Marketing
Affiliate marketing started primarily as a business to consumer marketing channel but recently the business to business channel has started to gain momentum. This article will focus on the business to consumer side of affiliate marketing.
This is the only true Cost Per Acquisition marketing channel left on the Internet. Affiliate marketing is a wonderful opportunity for merchants to increase internet sales at an almost guaranteed profit as they only pay for actual sales. Merchants acquire new customers based on what they can afford to pay to acquire a new customer at a profit.
Affiliate Networks
There are well over one million affiliates in the USA alone and the number is growing every day. These affiliates join networks who provide a sort of clearing house for merchants selling products, services, or generating leads. The networks, and there are hundreds, also provide a way to track sales, communicate with and pay the affiliates their due commissions.
The top 3 networks are Commission Junction, Linkshare, and Google Affiliate Network and claim over 1 million affiliate partners each. Overlap of affiliates from one network to the next is estimated to be very high especially in the case of the more successful affiliates who are in constant search of the best performing and highest paid merchant offers. Most of these affiliates are in many of the major networks.
Secondary affiliate networks such as Shareasale and LinkConnector are more economic but often don’t provide the largest affiliate network or the top performing affiliate marketers. Companies with smaller budgets could start with these secondary affiliate networks but will want to upgrade soon after seeing success.
Affiliate Management Software – Should you manage your own affiliate program?
Software programs are available to manage your own internal affiliate program but most do not provide you with an affiliate network limiting your ability to contact the many affiliates at once and tell them about your program. This means that a merchant who chooses to use an affiliate management software solution will need to seek out affiliates individually through search, contact them, sign them up, and negotiate rewards. Unless you have dedicated, full time staff we would recommend you avoid taking this route.
Should I Outsource Affiliate Marketing Management
Expert affiliate management companies like www.ProfitRank.com will set up and manage your affiliate marketing channel, determine affiliate compensation, establish incentive bonus plans, provide needed creative and copy, communicate with the affiliates, solicit new affiliates, and report monthly activities.
Affiliate management companies make a point to establish trusted relationships with successful affiliates giving additional credibility to the merchant offer, and provide client cross sell opportunities thereby increasing the speed with which the merchant offers are accepted and spurring revenue growth.
Merchants who establish an Affiliate Marketing program and who don’t pay enough attention to it will see only limited success. Most of the affiliate networks do offer management services for your program for a fee but there is no guarantee of success and unless you have a significant brand name you won’t get their top talent assigned to your program.
There are a very few Affiliate Management companies who will, just like the Affiliates, work on a straight commission basis. We recommend that if you don’t have dedicated staff and your brand is not quite a national household name you seek out one of these performance based service companies.
Is Affiliate marketing a good fit for my company?
Affiliates are looking for generous commissions, high average order, good conversion rates, and unique products to sell. Discounts or coupons are also an excellent method to sell product. Profit Rank has identified hundreds of top perfroming affiliate marketers who have significant traffic and offer coupons to their audiences.
In Direct Marketing efforts a merchant will try to acquire new customers for break even and some cases might even lose money. With the continuing rise in postage and paper costs direct marketers are feeling the pain of lower profitability and reduced acquisition volume from direct marketing efforts.
Profit Rank suggests that most merchants should be willing to spend between 25-30% of the gross sale amount to manage and grow the Affiliate marketing channel. While this may seem too high to many marketers they should compare this amount to what they spend on their other marketing channels. As most Direct Marketers have a 40-50% gross margin this means a 15-25% contribution and best of all without risk.
Can Affiliate Marketing Hurt My Brand
We frequently talk with merchants who are concerned about damaging their brand with affiliate marketing.
At Profit Rank we contend that there are two kinds of Internet Shoppers;
1. The Loyal Convenience Buyer
They know what they want and where to go on the web (direct URL) to get it or they perform a search engine query and look for a trusted name brand. They will click on the first search result brand name they recognize and if the product is in inventory and it is easy to buy they will purchase it from someone they know.
Often we find that this customer may also be a philanthropist and will first look to see if there might be a related charitable cause associated with the merchant. There are many charitable cause donation communities within the affiliate marketers. The affiliates give a portion of their commissions to certain charitable causes thereby producing a loyal customer who are more apt to buy product from a website offering charitable give backs.
2. The Discount Shopper
The discount shopper never pays retail. They won’t buy a product unless there is a discount. While this is not the ideal customer for a merchant there is still money to be made marketing to these people. This is also a good place to dump excess inventory. Discount shoppers should be flagged in your customer database and test marketed as you would any other list. It just may be that unless you have something unique to offer these people won’t pay full price. Are they bad? No, they are just not as profitable.
Marketing discount offers shouldn’t hurt your brand. Unless people are looking for discounts or coupons they won’t find them. Besides, how many merchants have sales and discounts to generate revenue in the off peak months.
Can I control how the Affiliates Market my products?
In almost all of the affiliate networks a merchant sets the affiliate marketing terms and conditions.
Controls can be put into place such as “No Brand Name Bidding in Paid Search”.
Any affiliate breaking the rule and using the branded term in their marketing efforts are denied commissions. This puts an immediate stop to their use of the branded terms as there will be no profits from these keywords. We recommend that a merchant or their outsourced management partner monitor the search engines on a regular basis for brand name bidding violations.
Email marketing can also be managed by having affiliates apply for email marketing rights before launch. You can also provide an “opt out” suppress file, CAN AM Spam act adherence should also be demanded.
A merchant also can set automatic approval of affiliates who wish to market their product or review every affiliate before acceptance. Typically affiliate networks screen affiliates prior to acceptance into the network and then a second screening by the merchant can be performed. Affiliates who are unscrupulous or violate network or merchant rules can be eliminated from the merchant program and possibly even the affiliate network.
Growth Of Affiliate Marketing
In 2003 Jupiter Media claimed that almost 50% of merchants had an affiliate marketing program. Today it is estimated that over 70% of merchants have an affiliate marketing program. Most merchants have discovered the benefits of affiliate marketing and have dedicated staff to manage the process. Affiliates work mostly on a cost per acquisition basis meaning that they only get paid when they sell your product or service or generate a lead. Recent studies indicate that affiliate marketing can account for over 30% of your online sales. This number varies according to how much latitude you allow affiliates in marketing your products or services.
Affiliates are expert Internet Marketers
Affiliates also known as publishers are experts in all facets of Internet marketing. Merchants may permit affiliates to market using paid or organic search, email marketing, blogs, forums, and by any other form of marketing that works as long as the merchant brand is not damaged in any way.
Case Studies
Home and Garden cataloger sold over $400k the first year at 25% profitability ($100k contribution). Sales for second year projected to double.
Jewelry Auction Site stalled under major affiliate network management. Sales doubled within the first 3 months under out sourced performance based affiliate marketing management.
Conclusion
Merchants if you don’t have an affiliate marketing program we suggest you start one and if you have a program but you’re not satisfied with the results then you should seek expert advice on how to make it grow.
Mike Gunn has been personally managing affiliate marketing programs for merchants since 2004. His company www.ProfitRank.com works on a hybrid minimum monthly fee and pay for performance model. Mike can be reached at 847-496-7810 or e-mail mgunn@ProfitRank.com.
