Hey there sea changers, as many of you may be aware, one of the main focuses of this site is to assist those withing to fund that sea change via the development of an online affiliate marketing business. Today however I am going take a step to the other side of the fence and run through the processes on how to start an affiliate marketing program for your business. Affiliate marketing is popular industry worth about $12 Billion annually worldwide that:
- Is expected to grow by 10% in the next few years.
- Accounts for 15% of all digital media revenue.
- Can boost revenue by a staggering 30%.
- Together with email marketing, is one of the largest sources of online income
- Accounts for over 16% of all ecommerce orders in the USA and Canada.
So if you have a business that is looking to increase sales, brand recognition or to achieve any number of other strategic purposes, then sit back and let's have a look at the processes required to get yourself a seat at the affiliate marketing table.
What is Affiliate Marketing?
Affiliate marketing is essentially a partnership between the vendor (the company selling the product) and the affiliate marketer (the person marketing the product) in which commissions are paid to the latter on the sales they generate. This works as follows:
- A company (vendor) decides that they want to create and affiliate marketing program (as outlined within this post).
- They release the program out into the online world with affiliate links for their products.
- Affiliate marketers apply/register for the program.
- Once approved, affiliate marketers add links to the products they are promoting to their websites, social media and so on.
- As ‘readers' click on the links within the affiliate marketer's content, they are redirected to the vendor's own website where the sales is recorded and products shipped.
- The affiliate marketer is paid a commission for referring their reader to the vendor.
Advantages to Merchants/Vendors
This process is often referred to as a “win-win” for both the vendor and the affiliate marketer for the following reasons:
- Risk and cost free advertising – Whilst there are some costs to affiliate program owners (we will discuss this below), essentially there is no real risk in terms of marketing costs. Affiliates do all the work in regards to marketing the merchant's products and are only ‘paid' if they make a sale.
- Increased Brand awareness – Even if a sale is not made, the fact that by design affiliates will need to be ‘talking up' the products that they are trying to sell – as well as posting all over their websites and social media – there are definite advantages in terms of gaining brand exposure. If nothing else, this simply increases the sets of eyes that are viewing and sharing products, logos and slogans etc.
- Brand reputation – Believe it or not, there are many affiliate marketers (and influencers) out there with legions of followers. In many cases, if an affiliate is promoting a brand, then its reputation can easily skyrocket leading to increased sales both via affiliate marketing and more traditional options (this can also however be a disadvantage too – see below).
- Increased traffic and SEO – Even if affiliates are referring people to the site of the vendor who do not end up purchasing, there is still the added bonus of increased traffic to their websites. This has major advantages – especially for newer companies – in that Search Engine rankings increase meaning they can also attract potential customers via other means. This is an advantage not to be underestimated.
Disadvantages to Merchants/Vendors
Of course, with anything there are a few disadvantages that those looking to set up affiliate programs should be aware of including:
- Brand reputation – Yep, this is both an advantage and disadvantage as just as affiliates can enhance a brand, they can certainly do it some damage as well. Obviously a rogue affiliate is not going to make any money from the relationship however at the end of the day, the merchant had absolutely no say in how their branding, products and logos are displayed, discussed or promoted once an affiliate is let loose with their links.
- Management can be costly – Just as running an affiliate program can be very beneficial cost wise to a vendor, the actual costs of running the program can outweigh the benefits quite quickly if sales are low. These costs can include:
- Managing commission payments
- Updating creatives
- Policing rules
- Approving applications
Planning an Affiliate Marketing Program
For those organisations that are thinking of setting themselves up an affiliate marketing program, there a quite a few aspects to be considered to ensure that they are able to take the best possible advantage of the process as possible. Let's run through these aspects now:
Ok, the first part is probably the most important (as it is with anything to do within business) in identifying exactly why an affiliate program is needed and its intended outcomes. These could be a number of reasons such as to:
- Open new sales avenues
- Increase sales
- Increase brand awareness
- Promote a particular product
- Increase internet traffic
- Run discounted promotions for superseded or over stocked items
It is important that clear goals, intended outcomes and success points are clearly identified and recorded so that the program can be tracked against tangible targets. In reality, the reasons to create an affiliate program often mirror those of any traditional sales or marketing campaign so as long as the return on investment is there, then it can certainly become a successful part of an overall sales strategy.
2. Competitor analysis
This is almost a ‘chicken and the egg' scenario in terms of where to put this information within this post however affiliate marketing is certainly one area where it certainly pays to not have to reinvent the wheel. We will discuss each of these points as we move forward however once there is a good understanding of why an affiliate program is necessary, then the next step is to check out what competitors are doing. It pays to have a look into the affiliate programs of competitors to attempt to identify:
- Products they promote (i.e. any exclusions)
- Commission structure
- Cookie length
- Management structure (i.e. self managed or via an affiliate program)
Obviously each of these aspects can affect the success of a program and return on investment. Having an idea of what competitors are up to can be a big advantage as these things are planned out for a new program.
3. Products to promote
In most cases, affiliate programs will be open to any and all products or services that the company offers. However, there may be times when some products are removed from the program for any number of reasons such as narrow profit margins, high demand, lack of stock or even manufacturer/wholesaler restrictions.
There are also cases for some products (such as alcohol, cbd oil, fireworks and pharmaceuticals etc.) that have further restrictions based on geographical laws, rules or regulations. As affiliate marketers and their customers can be located anywhere in the world, these need to be considered and limitations may need to be put in place as to where these products can be sold.
4. Commission structure
This is an obvious critical element of any affiliate program in terms of just how much commission is paid to affiliates who refer sales to the programs. In simple terms, the conundrum is as follows:
- Pay too much and it is not worth it (or worse) for the company.
- Pay too little and the program will struggle to attract affiliates to promote products.
When planning how much commission to offer within their affiliate program, vendors need to not only consider their profit margins (as with any sales price setting) , but also:
- The purchase cost of the product – this is an obvious one but affiliate programs should not affect the ability of a merchant to compete in the market – traditionally lower-priced products will have higher commission rates while products with higher prices will have lower commission rates.
- Predicted sales figures – as in “how many widgets do we think we will sell via affiliate marketing?” . Sometimes this can determine commissions as products that sell well might warrant a slightly higher rate in order to attract users to their site in order to expose them to other, less popular products.
- Competitor analysis – we have mentioned this already, but check out what competitors are offering. This can provide an insight into what is sustainable within the industry or within particular products.
- Stock count – another tricky balancing act here for some vendors is to ensure that they have enough stock to cover their traditional retail outlets as well as their online processes. Commission rates are sometimes increased, decreased or set based on stock levels. i.e. too much stock and an increase in commissions can lead in increase affiliate activity to ‘cash in' on higher rates.
At the end of the day, most programs run through the above and set an average rate that is sustainable across all of their products. They can then ‘tweak' their rates for particular products by adding bonus commissions to affiliates or introducing tiered rates (e.g. rates increase as sales target numbers are reaches – 5% for first 100, then 6% for next 200 etc.).
5. Program policies/rules
In addition to commission, new affiliate programs will need to determine the ‘rules' under which affiliates can operate within their program. In most cases this is to protect their brand against many of the disadvantages we discussed above, however it also allows affiliates to gain a clear understanding on what they can and cannot do to promote the products within the affiliate program. Some examples of these rules include:
- Cookie length – how long affiliates can earn commissions on the sales of their referrals. Stats show that in most instances, if a site visitor does not purchase within the first 24 hours, then they are not going to. Longer cookies however give the affiliate a little bit of ammunition in which to keep promoting products – even to those they have already sold to.
- Payment terms – how and how often will affiliates be paid and is there a threshold (i.e. payments made once a $100 commission threshold is reached). This is important for cash flow within the company as well as sets the ability to manage payments into Affiliate networks as we will discuss below.
- Promotional methods allowed – This covers the promotional behaviours that affiliates are allowed to undertake. This can include:
- Use of company logos, pictures and content.
- Where promotions can be made – i.e. coupon websites, social media, email lists or paid ads.
- Affiliate use of links – many ban the use of affiliate links by the affiliate themselves or friends and family.
- Product exclusions – as discussed above, are there any products can are excluded from the program?
- Negative Commentary – Many programs ban affiliates from including any negative comments about the merchant's brands or products (this can include pros and cons lists in reviews). And obviously links placed on offensive or adult content sites are usually banned.
- Affiliate qualifications – Again, in order to alleviate the risk of damage to their brand, some programs limit the acceptance of affiliates based on any number of criteria such as compatibility of their website, social media followers, traffic and competitor content. These decisions are usually made to protect the brand as well as ensuring that they are being promoted by serious online marketers.
And finally, how are affiliate managers going to track their programs to ensure that they are meeting the needs and targets that we discussed above? This will depend on how they choose to promote their program (which we will get into next) however it is imperative that there is a clear idea on what it is that will be tracked and measured as the program takes off.
Promoting an affiliate program
Ok, once all of the details above have been ironed out, the next step is to actually set up the program and, most importantly attract affiliates. This is usually undertaken in one of two ways:
- Join an affiliate network
- Set up a self managed program
Both have their advantages and disadvantages so let's check out the basics:
Affiliate Program Networks
In simple terms, affiliate program networks work as intermediaries between merchants and affiliates. The main advantage of affiliate network programs is that they assist and take care of many of the strategic requirements that we discussed earlier including:
- Support in setting up and maintaining the affiliate program
- Tracking and reporting tools
- Marketing tools – product feeds and hosting of creatives etc.
- Affiliate payment solutions
Advantages of using an affiliate network
- Program management and tracking services undertaken.
- High visibility to affiliates looking to promote programs.
- Affiliates are vetted and ‘policed' by the affiliate network.
- Integration services for other marketing processes are often included.
- No need for extra tracking software or even an affiliate web page (although this is probably recommended).
Disadvantages of using an affiliate network
- Initial costs can be quite high – As the programs manage affiliate commissions, vendors are usually required to inject an initial cash amount into a ‘pot' to cover future payments – usually before sales are even generated.
- Affiliate networks take a ‘cut' of commissions.
- Some affiliates do not like working via network arrangements.
At the end of the day, affiliate networks can provide a great service for those who are looking to set up an affiliate program, or if they do not have the time to fully manage the process themselves. Common affiliate networks include:
Self Managed programs
Alternatively, program managers may choose to set up and manage the affiliate programs in-house. This requires a little extra work to start with but is good for those looking to get the program up and running on a budget, or maintain greater control over what it is that they are working with.
In general terms, self management means that the whole process is managed ‘in house' including program advertising, affiliate approval, affiliate policy management and commission payment. This may seem like a lot of work, and it probably is, however fortunately there are some good affiliate program management software packages out there that can assist. These include:
Advantages of self managed affiliate programs
- No upfront payments required – i.e. commissions are paid after the sales are made.
- Greater control over affiliate structures.
- Cheaper ongoing costs via choices in management software.
Disadvantages of using an affiliate network
- Affiliate program will still need to be set up.
- Greater administrative burden.
- Affiliate program will need to be marketed via other non-network means.
- Increased exposure to affiliates pressure to provide freebies and increased commissions.
Regardless of the method chosen to set up and manage the program, it is critical that affiliate managers continue to monitor and manage their program. This includes constant tracking of:
- Statistics such as number of link ‘clicks'.
- Conversion rates of sales per click .
- Average sale amount.
- Average commission amount.
- Most/least popular products .
Not only is this information critical in terms of ensuring that the program is meeting the initial strategic requirements that we discussed earlier, but is also important for future potential affiliates as they decide whether or not to join the program. One common mistake made by affiliate program managers is that they attempt to operate them as a ‘set and forget' type arrangement. As the program processes however, it is imperative that it is managed in the same manner as any other sales process within the company in that adjustments are made to improve any area that is under performing.
So there you have it… How to start an affiliate marketing program for your business. At the end of the day there is really four steps to it:
- Determine your need and expected outcomes.
- Plan the details of the program.
- Choose a method in which to set up and manage the program.
- Keep an eye on it and tweak as necessary.
Each of these steps is critical and if done right, then hopefully your business can create a program that is both beneficial to you as the business owner and the affiliate marketers who promote your products. I hope this has been helpful and as usual, please do not hesitate to comment below if you have any questions, need some advice or have any experiences to share.
Do you want further assistance with any of the above or need help to build your own online business?
Are you looking for a comprehensive training platform that can give you step by step training, 24/7 support, tools to ethically develop and host your very own website, ongoing assistance with SEO, post ideas, social media and access to some of the best affiliate marketing minds on the planet, then click on the following link to read more about Wealthy Affiliate.
Until next time
Note: If you make a purchase from this page, there is a very good chance that I make a commission from it – these commissions do not increase your sale price.