Affiliate marketing, or performance marketing as it seems to have recently been renamed, is as old as the Internet. In essence, an affiliate program is a mechanism whereby a product owner (merchant) allows other sites (affiliates) to offer out their product and services for sale and pay them a commission or referral fee for sales they introduce.
For merchants, this can be a great, low cost, risk free way to drive more sales and leverage other people’s traffic. For affiliates it has become a standard method to monetise a website. So a win-win.
Fun fact – Amazon was not the first programme launched as seems to be widely reported, in fact PC Flowers and Gifts launched an affiliate program in 1989 – (7 years before Amazon). Fast forward to 2015 and the performance marketing space has grown rapidly with a large number of different ways to reward affiliates and in this article we want to share an overview of the different ways you can run your own affiliate program and add additional revenue to your business.
Is It Worth It?
In 2015, in the UK alone, affiliate program generated £1.3billion in sales so, as you can see, this is not something to be taken likely and would be a great way to diversify sales in your online marketing strategy. Before we jump straight in and talk about how to run a program, let’s take a look at the different ways you can remunerate affiliates as this in itself is a vital component. Get this right and everyone wins. Get this wrong and it can cost you a huge amount of money.
Types Of Commission Structures
There are four main remuneration models online for affiliate programs, all have different advantages and disadvantages. Picking the right methods for you will come down to a few things:
- Do you sell online? If you have the facility to track from visit to completed sale, you have more options to offer
- Do you have a long sales cycle that happens offline with lots of follow-ups? (For example, if you are a service-based company)
- Are you looking to simply drive traffic?
- Are you looking to drive email subscriptions and build your email database?
And here are the four types of commissions:
- CPL – Cost Per Lead – You pay for completed web form based enquiries
- CPA – Cost Per Action – Such as App download or email signup
- CPC – Cost Per Click – You pay for actual clicks to your site
- CPS – Cost Per Sale – You pay a percentage or fixed fee on any sales carried out on your website
As you can probably start to see, some sites simply can’t offer certain types of commission. For example, a site without any online transactional facilities will find it hard to offer a cost per sale program.
So before you start looking at ways to run a program, you need to understand which commission model will work for your business. There is no right or wrong way, but each will have their advantages and disadvantages, as well as risks.
The graph below shows the risks associated with each type of commission structure. As the merchant, the nearer you can set your program to the actual sale, the lower the risk for you – as you only pay the affiliates after you yourself have been paid.
With a cost per click, the affiliates has no risk as he just need to drive clicks, but you have more risk as you don’t know if these clicks will turn into business.
Running Your Program
Now you have given that some thought and understand the different payment mechanisms, you can start to look at how to manage your affiliate program. Basically there are two main ways of running an affiliate program – in-house or using an outsourced network.
If you decide to initially keep costs lower, it can work out cheapest to invest some time, looking at ways of running a program. These tend to work best when you are looking to start out small or want to only have a small number of active affiliates, say 20 or 30. Here are a number of different ways we have helped companies develop an affiliate program:
- Google Analytics And Campaign URL Builder – Google Analytics is a free service you should be using on your site to manage and analyse the activity on your site. By combining the tracking and setting up different campaign URLS for each affiliate, you can easily track the activity they generate for you. And if you have goal tracking or sales tracking in place you can offer any of the 4 main commission models. There will be a manual element of accounting and paying affiliates but with a small number of affiliates, this could be a great way to start a program.
Outside of Google Analytics, there are a number of specialist off the shelf packages you can buy to run your own affiliate program. Here are a small selection of those we have deployed over the years and actually do what we need them to:
- HasOffers – runs in the cloud and allows you to run your own affiliate program. In fact, you can run a whole network with HasOffers so you can offer different products from different sites or brands if this is something you need to consider.
- Post Affiliate Pro – runs on your own server. Is a powerful way to build an affiliate program for your business and offers a wide range of commission structures. This can also integrate with payment mechanisms to auto mass pay affiliates, which will save you time and effort.
You can also find a number of packages that work on specific Content Management Systems:
Google your content management system to see if they have an affiliate module if you decide you want to include the affiliate software piece within your content management systems.
If you have an IT department, they will be able to configure the software for you or some of the solutions so you have installations and setup services.
Pros And Cons
Pros of running in-house:
- Low cost to entry
- Total control
- Builds private network of affiliates
Cons of running in-house:
- Takes time to grow the program
- Needs management.
A opposed to running an in-house program, you could simply pay some money and sign up to an external affiliate network who will have software that you can use to track sales, AND that will additionally already have a ready made number of affiliates (this can run into hundreds) who could start to promote your products and services quickly.
There are several types and sizes of networks you can sign up to. The bigger affiliate networks tend to have bigger fees as they feel they will be driving you more sales and therefore can charge a premium. From our experience, the bigger networks include:
There are lower cost and smaller networks out there than can also be used to launch a program. These include:
There are also a number specialist niche affiliate programs, which could be a great way to find relevant affiliates as these networks will understand your industry. Take a look at these:
- Clickbank – Electronic Info Products
- OMGPM – Finance and Insurance
- AffiliRed – Travel
- Healthtrader – Health
As you can see, there are plenty of places to find just what you need. So what’s the tally for outsourcing? Let’s take a look,
Pros Of Outsourcing:
- Quick delivery of a programme
- Can drive volume sales quickly
- Increased brand exposure
- Access to a large number of affiliates in different marketing verticals.
Cons Of Outsourcing:
- Potentially large setup fees, monthly management fees and overrides
- Self management will still need some management
- Need to choose the right network for your niche. While some will suggest they can drive volume traffic, they might be specialists in Fashion, Travel, Finance, etc.
As you can see there is a lot to think about, but by doing your homework ahead of time, this will help you launch a successful program. It should also be noted that there is nothing stopping you starting in-house and then adding on an external affiliate network as things develop to help grow your traffic and sales via the affiliate channel.
In this way, you can create an in-house program for your direct relationships and then offer out your program to a wider number of affiliates via a network 6 months down the line once you understand how well the channel works for you.