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Make Money While You Sleep
by Yatin Patel
Monday, November 15, 2004; 1:00pm EST
Affiliate marketing is a good tool.
IF YOU ARE LIKE MOST BUSINESSES, IT IS A REAL challenge
to attract paying customers to your site and still meet
your ROI needs. Many companies who are successful in this
area have reverted to a very traditional, real-world selling
technique. They have taken this technique that has been
successfully used for centuries and have finessed it into
the cyber world. It is called Commission-based selling.
Its embodiment in the online world takes the form of affiliate
programs.
The easy definition of an affiliate program is “Gain
more customers through smaller sites run by others, which
usually have a strong, loyal following. The small guys
get a commission on sales that they send the bigger guys’
way.” In a sign that the affiliate approach is working,
a 2002 Forrester report said spending toward affiliate
marketing increased by 50% while budgets for portal deals,
e-mail, and banners all decreased significantly. Forrester
also says that affiliate marketing is now driving $10.5
billion, or 15%, of online sales. By 2005, this figure
will jump to $54 billion (Forrester, “eCommerce Brokers
Arrive,”). Today, 97% of online marketing deals have
a performance component. Growth rates for pay-for-performance
spending will be seven times the growth rates for CPM-
based spending through 2006.
“Pre-sell / Warm-up” Phenomena
The most popular model is where Affiliates do not “sell”
the merchant’s product, they “Pre-sell /Warm
up” their visitor and send them to the merchant’s
Web site in an open-to-buy frame of mind.
Some affiliates even have syndicated content from the
merchant on their site and they take the visitor as far
as possible before switching transparently (one hopes)
to the merchant when the visitor is ready to put a credit
card to use.
In the best situation, the visitor doesn’t even realize
that a switch from the smaller affiliate site to the larger
merchant site has even taken place.
Affiliate Revenue Models Sales Commission:
Affiliate receives fixed % of sales as a commission.
Traffic exchange: One qualified clicks from my site is
exchanged for one qualified click from yours.
Pay per contextual visitor Or Qualified Lead: Merchant
pays a fixed amount to the affiliate per qualified click
or lead.
Hybrid Model: A custom solution with two or more components
of above revenue model.
What do affiliates look for when considering your affiliate
program?
Product Profile: The Product plays a very important part
in the success of this program. The basic criteria of
product qualification are:
- Products / services should be a purchasable item
online
- Your catalog and offering should have sufficient
content about the product or market segment
- Miscellaneous, complementary accessories and services
that will boost sales
- A perfect sales pitch with pictures
- Mass appeal is an added plus
- Competitive Price
High commission
Depending on the profit margin, the merchant should offer
a good commission to their affiliates. The simple way
to determine the commission is to calculate the current
cost (Cost per acquisition) to make one sale by means
of existing online marketing efforts using banners, paid
placement, and other traditional Internet media.
Let’s then assume that cost is 15 % of the existing
revenue. It is safe to offer 10% commission to the affiliates
with the other 5% assigned to the administration of the
program. One can calculate the same formula Based on Cost
per acquisition too.
Lifetime commission
Many affiliate programs just set the identifying cookie
to last for a short period of time (perhaps 24 hours,
some only for the duration of the visit to merchant’s
site). If the visitor doesn’t buy within the short
time the cookie is set, the visitor is no longer identified
with the referring Webmaster and there is no commission
paid to that Webmaster.
Good affiliate programs not only set the cookie for longer,
up to a maximum of 10 years, they also use database tracking
on the merchant’s system. So, whenever a visitor
that has been “tagged” and referred comes back
to the merchant and buys, the merchant credits the referring
Webmaster and pays the commission. This long-term cookie
and database backup enables the merchant to provide the
affiliate with a “lifetime customer”. Now that
really is looking after affiliates!
Customer Service and Call Center
Effective customer service and call center support can
make or break your affiliate program. Many online buyers
would like to call when they make an online purchase.
Well-managed CRM activity adds creditability in your offerings.
A separate toll free number for each affiliate can add
affiliate value by personalizing the experience for the
customer and making certain proper credit is given to
the affiliate for call center reservations.
Syndication Capabilities: You can affiliate with web sites
in two ways—first, by placing offers on your affiliates’
sites that link back to your company servers, where the
sale is made; second, via hybrid models. The program models
come in six basic types, and your company can offer any
or all of them to potential affiliate partners: Banner
or text links, Storefronts, Pop-ups, Embedded commerce,
Email, Hybrid
Some merchants that go all out to support their affiliates
and help them succeed offer newsletters, promotional ideas,
up-to-date information, even whole web sites devoted just
to affiliate support.
Contextual Relevancy
The Affiliates that are successful are those who are becoming
ever more context-centric and offer contextual relevancy
That is, what’s being offered to site visitors closely
matches the content of the site itself. Place the product
or service in context and more people will buy. An affiliate
site would be more effective selling video games than
lawn mowers on a site targeted to teenagers. It’s
about presenting the right message to visitors in the
right place at the right time.
After sale reporting and transaction
Affiliates like to see their transactions in detail on
a daily basis to measure the performance of their investments.
A detailed reporting mechanism for everyday sales, product
names, and product categories are a very important part
of successful program. Affiliates use these statistics
to optimize their offering and marketing methods.
Also paying your affiliates on time and offering alternate
payment methods is a must.
Wrong Assumptions about affiliate marketing
Wrong Assumption 1: Having many many small sites promoting
my product in mass will bring success to my affiliate
program. It is not about how many affiliates you have,
what really counts is how many affiliates producing significant
results. Identify which affiliates are producing results
and work with them closely to bring their revenue up.
The 80-20 rules applies: 80% of revenue is probably coming
from 20% of your affiliates. Your results will be dependent
on finding the right partners, big or small, that drive
results.
Wrong Assumption 2: Affiliate programs will get new customers
automatically with a low acquisition cost. Affiliates
are becoming smart business entities day by day and they
have a wide variety of offerings to choose from. They
also understand the value of the traffic their sites are
getting. They know that in their focus market segment
good traffic is costing more, because it is worth more.
You get what you pay for. As a merchant, create a process
that generates performance for both the merchant and
the affiliate. To do that, you need to identify sites
that will perform, based on their contextual relevancy
and amount of traffic, and make sure you pay them enough
to make it worth their while. It’s not as easy
as the mythology might suggest, but if you do it right
it will certainly be worth your while.
Wrong Assumption 3: Action or Performance-based marketing
has no risk. Straight media buys offer more control
than performance-based marketing. Affiliates may be
offering content and promoting your products, but there
is a chance that the quality of consumer is not what
you expected. There is a chance that they will produce
more then you have budgeted for. There is a chance that
your product will be misrepresented by the affiliate.
By playing an active role with the program and handpicking
your affiliates, you can minimize all of these risks.
Paying on results sound lucrative to the merchant, but
affiliates need to make their fair share of revenue,
too. Commissions work when the risk on both sides is
evenly weighted.
You don’t get that performance by putting a link
on the World Wide Web and hoping for the best. You get
it by taking control of your affiliates as a serious
reseller channel.
Wrong Assumption 4: Since I have an affiliate program
running I will not have to buy advertising on a CPM
basis. Affiliate programs often can generate 30 percent
of overall revenue if merchants focus on them. Obviously,
the other 70 percent comes from somewhere else.
So companies must know how to live in both worlds (Pay
per performance and pay per impression). CPM can be
countered productive if you don’t know the performance
metrics behind the campaign.
However, if you know the number of new customers acquired
and the amount spent on the media buy, you can determine
if this meets your acquisition cost goals.
Your affiliate technology will allow you to track these
metrics in a turnkey way to determine whether buying
on CPM makes sense for you. You may find buying on CPM
is cheaper than paying CPA.
Win-Win
One of the reasons affiliate programs are so popular
is that that offer a win-win situation for both merchant
and affiliate.
Merchant’s Win: The merchant’s cost for advertising
a particular product is mostly limited to the commission
paid to an affiliate, and the merchant only has to pay
when a purchase is complete.
This is superior to banner advertising, where the merchant
pays—purchase or no purchase. Impressively, the
amount paid to an affiliate for a purchase through an
affiliate link is probably only 10% to 20% of the cost
of that sale through banner advertising.
Affiliate’s Win: The site owner should make money
if enough visitors click on the affiliate links and
make purchases. The affiliate doesn’t have to go
through the setting up e-commerce functions, taking
credit cards, or shipping products. They just join affiliate
programs and let someone else do the “hard stuff.”
About the Author
By Yatin Patel
Published in http://www.siliconindia.com
August 2003
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