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Overview of Affiliate Marketing
What is Affiliate Marketing? - by offering the
proportion of the margin of your product or service to a large number
of affiliates, you can dramatically boost sales albeit at a lower
overall margin rate. By sharing the profits of a sale with other
websites, it is possible for webmasters to generate higher sales
volumes. By devising an attractive affiliate scheme and promoting and
implementing that scheme in a professional manner, it is possible to
generate thousands of website visitors using an affiliate of channel
online. Search engines become less relevant if affiliates are sending
your website the bulk of its traffic. Amazon.com is one of the
pioneers of this business model selling million of books via ten's of
thousand's of Amazon affiliates. Today, affiliate marketing is a
very well established method of selling online. The main advantage of
affiliate marketing is high sales volume with nominal sales effort at
an extremely low cost.
The main disadvantage is much lower margins, (as affiliates need paying
commission to remain motivated).
What is an Affiliate Program? - an affiliate program
is a contractual arrangement between the owner of a product or service (the
Merchant) and a separate 'Affiliate' organisation, to pay a commission, in
exchange for promotion of its goods and services. Typically, this entails an
affiliate website adding advertisements (in the form of banners, buttons links
and other textual material) promoting the Merchants offering. There are
literally thousands of different affiliate programs in existence on the
Internet today. It is usually the responsibility of the affiliate to
redirect visitors to their website to the merchant's website. At that point
any customer service issues (such as ordering a product, dealing with
customers on telephone delivering issues) are dealt with by the Merchant.
Affiliate schemes are normally automated and structured. Affiliates
must pre-agree to abide by the merchant's terms and conditions when signing
up before entitled to promote anything. For instance, Merchants make it a
condition that affiliates do not alter the Merchant sales copy to avoid any
potential accidental or deliberate misrepresentation (and ultimately customer dissatisfaction).
Affiliates usually have a unique tracking ID associated to their registration
or website. By adding this html code to their site, Merchants can track
where each individual sale came from. The tracking html is usually
combined with a cookie or CGI script to allow the Merchants Affiliate Tracking
system to collate a database of visitors and sales. It is normal that
affiliates get paid one month in arrears and have an access to a monthly
report outlining leads, sales and conversions. Affiliates are primarily
motivated by money and so they are usually very interested in knowing the conversion rate of
the Merchant.
Merchants benefit hugely from an affiliate marketing model as there is
a virtual
unlimited supply of keen entrepreneurs seeking out business
opportunities to make money (in exchange for promoting an online business
idea). Most affiliate schemes operate in a commission scheme
based on payments monthly in arrears, payable from the merchant to the
affiliate of either via PayPal or an alternative independent escrow service,
or check in the post. Some merchants exclude or reject applications from
prospective affiliates who do not meet their guidelines for type of website,
physical location or regulatory approvals (particularly in Financial
Services). The main benefit of an electronic affiliate business model is that
it is completely scalable - it is possible to recruit an unlimited number of
affiliates to promote your product and the cost of doing so can be
negligible...
Types of Commission Schemes - there are various types
of affiliate models in use today. Historically, affiliate models existed based
on banner advertising which were rewarded on a per impression basis. However,
click through ratios were extremely poor and banner exchange schemes gave the
sector a bad name. In addition, fraud impacted confidence in this method of
marketing. The last nail in the coffin for banner advertising was that 'in
your face' flashy moving images also tended to annoy users. Today, textual ads
are the primary form of affiliate marketing. These are highly customised
to the users needs using contextual advertising (based on the user's
individual search profile and IP geographic location) are the preferred means
of advertisers to reach their target markets.
Pay per sale - the merchant pays the affiliate an agreed sum of
money each time a user visits the affiliate's website, clicking through's
to the merchant website, and buys something. Most merchants affiliate
programs tend to have a fixed commission schemes on a pay per sale basis.
This could mean either a commission value for sale or a commission based
on a percentage of the sale. These tend to have certain restrictions or
caveats such as a minimum order a sale value, whether the client is a new
business customer or existing customer. In addition, there may be bonuses
based on volume of sales over a given period - all these types factors are
used as carrots and sticks to motivate affiliates to behave in a certain
way.
Pay-per-click - this affiliate commission scheme is based on the
number of unique visitor clicks from an affiliate website through to the
merchant's website. Unique clicks are identified using IP tracking to
prevent click fraud. The user clicks on a text link with an embedded
affiliate code or perhaps clicks on a search result or advert. The
commission per click is obviously a lot lower than on a pay per sale
basis. The affiliate benefits from of an instant and reliable source of
commission. If the number of click thorough's from an affiliate's site is
high and conversion rates of the merchant low, a pay per click model is
ideal to maximise commission.
Pay per lead - a pay per lead of commission based model is
typically used by merchants in situations where the product or service
cannot be easily downloaded or purchased using your credit card, or where
the sale requires human call-back and has a long sales cycle. For
instance, where the merchant is a mortgage broker and requires the user to
fill in a call back form with their contact details on. Each completed
contact form would count as a 'lead' and will be paid to the affiliates on
a qualified 'per lead' basis.
Two Tier Affiliate Schemes - a two
tier affiliate scheme is a multi tiered program where affiliates in the first
level of can also earn commission from the sale was generated from affiliates
that they are recruit who sit in the second level or 'tier'. Typically the
first tier would earn 10% commission on sales it indirectly generates from
Merchant sales. In addition, the affiliate may earn a much smaller percentage
e.g. 2% from sales from 2nd tier affiliates they recruited to the Merchant. A
two tier scheme is aimed to motivate affiliates to recruit like minded people
to also become affiliates. It requires additional sales copy marketing
material and a good quality affiliate manager software tool. This tool links
affiliates together and details of any sales, in order to calculate
potentially vast commission sums. Key to success is a higher margin product,
where margin can be allocated two separate levels to the point where
affiliate's remain motivated and enthusiastic.
Affiliate Networks - an affiliate network
website is an independently run collection of affiliate schemes which
allow members of the network to join either one, some or all of the
affiliate schemes registered with the affiliate network. It is a club
making recruit of affiliates a straight forward process. This is ideal for
portal websites where a range of different topics and schemes that can be
advertised across a large number of different pages. Affiliate networks
charge the Merchant to be part of the network and may even take a large
slice of affiliates commission. In exchange, the affiliate network
provides the merchant with an instant access to hundreds or even thousands
of potential affiliates who have already joined the network in the past.
In addition, it provides a central management console for affiliate's to
track sales and leads. It is quite simply a middleman for a large and
complex number of affiliate schemes all promoting themselves alongside
their competitors. An example of an affiliate network is Commission
Junction.
Critical success factors - there are usually a range of
factors that are critical to the success of your affiliate Marketing
strategy:
High Commissions - affiliates marketing efforts
are directly proportional to the commission they receive (relative to your
competitors affiliate commission levels). A successful affiliate business model relies
on a sensible amount of available margin to be divided between the website
owner and its affiliate on each sale.
Offer a Differentiated or Unique Product or Service
- prospective affiliates will be attracted to have something a bit
different with professional
online marketing literature. If your web site
is very similar to dozens of other websites, all promoting their own
affiliate scheme, why should a prospective affiliate sign up to your
affiliate scheme as opposed to your competitors? Therefore, you must
really try and sell to the prospective affiliate (via your website
affiliate signup page), in order
to recruit them as an affiliate. It is critical
to summarise your unique selling points so they can clearly see there is
an opportunity to make money together.
Quality Feedback & Reporting - constant
reassurance through online reporting and real time statistics help
motivate affiliates. The more management information you can provide to an
affiliate, the more confidence they will have in your ability have to
close the sale. As an affiliate, it is a real confidence boost to see an
email confirmation every time a lead is generated or sale made that has
come from the affiliate's website. Consequently, the more motivated they
will be to send additional leads in the future.
Great Merchant Customer Service - by providing
professional and service to your prospects, your sales conversion ratio
obviously improves. Prospective affiliate's will be looking for affiliate
schemes that provide good quality conversion ratios and have a good market
reputation. Affiliates need to know that that every single
visitor they send to your site has the greatest possible chance of making the money vie
you're selling effort. There is nothing more de-motivating for an
affiliate than a lead that does not get followed up quickly enough or is
accidentally deleted or ignored by the merchant.
Merchant Affiliate Recruitment Efforts -
patience/ time to recruit the desired number of motivated affiliates is
very important.. . Ask
yourself basic questions... if it takes 6 months to recruit 100 affiliates
who generate 200 sales equivalent to £100,000 profit in that time, could
you have generated more than 200 sales in that time (and at what profit)
if you had concentrated on direct selling only.
Affiliate Management & Tracking Systems - as the
merchant you must have a thorough understanding of online affiliate
tracking software and services to ensure affiliates are paid on time,
sales are allocated fairly and automated new affiliate recruitment can be
initiated. If you have no systems in place there are many commercial
affiliate services
available or software packages to provide an end to end service to manage
and track affiliate's leads and sales. This is equally important for
accounting purposes as the bigger your affiliate program becomes, the more
important it is to justify outgoing costs (affiliate commission payments).
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