<em>This is a guest post by <a href="http://www.gypsybandito.com" target="_blank">CT Moore</a>.</em>
Affiliate marketing can be an exceptionally low-risk and cost-effective way to bolster your online acquisition strategy. <strong>First</strong>, the only risks entailed are the initial set-up costs (i.e. there is no real long-term commitment to infrastructure) so if your program isn?t performing, you can pull the plug any time. <strong>Second</strong>, its performance-based model means that you pay only for results; it?s kind of like having an army of salesmen and/or advertisers that worked strictly on commission, so that you don?t pay for anything until it actually converts into a sale.
That being said, affiliate marketing <strong>is not</strong> some miracle acquisition tactic that can cure all your marketing woes. If you do not want to reach a point where you have to pull the plug, and if you want to get the most out of it, it?s imperative that you set it up in the right way.
There are five things you should consider before taking an affiliate program live: <strong>(1)</strong> your own numbers, <strong>(2)</strong> the competition, <strong>(3)</strong> the software that will power your program, <strong>(4)</strong> how you?ll manage your program, and <strong>(5)</strong> how well your own site performs. By addressing each of these before going live, the only limits to your affiliate program will be those set by your pre-existing business model.
<h3>Knowing What an Affiliate is Worth to You</h3>
<a href="http://www.flickr.com/photos/brewskizzlr/413267973/"><img class="alignright" src="http://farm1.static.flickr.com/127/413267973_eafbeaf342_m.jpg" alt="" width="240" height="161" align="right" /></a>The first thing you should do prior to launching a program is <strong>know your own numbers</strong>. This will help you understand what you can afford to pay for an affiliate referral and, down the line, whether you?re in a position to run an affiliate program at all. This includes knowing:
<ul>
<li>your profit margins,</li>
<li>your average cost of acquisition (CPA) across all other channels,</li>
<li>and the average lifetime value of one of your customers.</li>
</ul>
With these numbers, you can calculate whether (1) you have the room to pay out commissions on sales, and if so (2) what that range of commissions will be. If you decide that there?s sufficient room to pay a commission on each acquisition and remain profitable, you can then start taking a look at the affiliate marketplace in your industry.
<h3>Researching the Competition?s Affiliate Programs</h3>
Once you?ve determined that your average CPA leave you room to pay a commission to affiliates, you should undertake a competitive analysis. After all, once you launch and affiliate program, you?re not only competing for customers, but for the affiliates that refer them. Specifically, you should be looking at what the competition offers in terms of:
<ul>
<li><strong>Cookie duration:</strong> Consider for how long after someone refers a customer you are willing to pay them a commission.</li>
<li><strong>Commissions:</strong> Can you afford to offer a commission that?s higher or on par with your competition? If not, can you afford to compensate for that in some other way? Such as with bonuses and/or support?</li>
<li><strong>Payment Frequency:</strong> Look at how frequently pays its affiliates, and ensure that you?re able to pay-out <em>at least</em> as often.</li>
<li><strong> Terms of Service:</strong> Examine the T&S of competing affiliate programs, and identify which clauses (1) seem to be standard, and (2) could give you a competitive edge.</li>
</ul>
Each of these should weighed against your business model so that you can decide how flexible you are on each of these, and whether you can sufficiently meet the competition?s terms that your program is competitive. Both these considerations will help you create a program that will actually appeal to affiliates.
<h3>Choosing Your Affiliate Platform</h3>
<img class="alignright" src="http://i987.photobucket.com/albums/ae360/nvipics/online-revenue.png" alt="" width="224" height="147" align="right" />When launching an affiliate program, you have a choice between launching it in an affiliate network, or by white labeling an affiliate platform that you can install on your own servers. Regardless of the option you choose, you still need to ensure that the affiliate software behind your program is up to par with industry expectations.
Whether you choose to launch your program with a network or in-house, there are several sets of features that the affiliate software must have. There are many different extra features you can always look for, but the basics include:
<ol>
<li>Commission Management Tools</li>
<li>CRM Tools</li>
<li>Tracking Reports</li>
<li>Marketing Tools</li>
</ol>
Of course, there's a lot more nuance to each set of these feature. For more details on what you should expect from each of them, there is a more in-depth explanation account of how to <a href="http://www.revenews.com/ctmoore/choosing-affiliate-software/">choose your affiliate software available here</a>.
<h3>Managing Your Affiliate Program</h3>
Once you've determined that you can afford to pay competitive commissions, you should then consider the costs of managing your affiliate program. <a href="http://www.revenews.com/ctmoore/relationship-based-affiliate-marketing/">Affiliate marketing is relationship-based</a>, so it?s important to consider a dedicated resource to manage your program. Depending on your needs and budget, this resource can be either an in-house affiliate manager or an outsourced program manager (OPM), but having someone look after your affiliate relations will help you both maximize your program?s performance and reduce the costs of tunr-over/recruitment.
This is especially true for not losing your affiliates to you competitors? affiliate programs. For example, if you have a strong relationship with an affiliate, and a competitor tries to recruit them, they will be more likely to let you know what they?ve been offered, and give you a chance to work something out with them.
Furthermore, serious affiliates receive a load of solicitation emails, so it?s better to ensure that they know who you are. In that same vein, you should be aware of how your affiliate prefer to be contacted. This will help you (1) protect your relationship with them, and (2) ensure you can get their attention when you need it.
Overall, there is a considerable <strong>business development</strong> aspect to affiliate marketing because it?s part internet marketing and part <strong>relationship marketing</strong>. So it?s important to make sure that someone is dedicated to building and maintaining that relationship on behalf of your brand.
<h3>Site Ecommerce Performance</h3>
No matter how good your software is or how well managed your program is, if your site cannot convert visitors, affiliates will not promote it. So you should also make sure that their site converts before launching an affiliate program.
As a general rule of thumb, your site conversion rate should be at least 3% before you start investing in recruiting affiliates. If it?s below this point, you should undertake some design and usability testing to get it up there before launching.
<h3>Getting Affiliated</h3>
Imagine running a PPC campaign without a budget, any keyword research, <a href="http://www.acquisio.com/ppc-bid-management-software.php">bid management software</a>, or someone to manage it. The results would be disastrous. Well, just like any other acquisition channel, affiliate marketing requires that you have the right tools and resources in place so that you can generate a positive return on your investment.
Just because it?s performance-based model keeps risks at a minimum and lets you pay only for results, it doesn?t mean that you should treat the program lightly. At the end of the day, ?getting affiliated? with a variety of publishers and marketers is very much a biz dev activity, and all business development requires that there is someone to manage those relationships, and that they have the tools to do so effectively.
<span style="color: #999999">
<em>An accomplished writer, blogger, and <a href="http://www.gypsybandito.com/speaking/">speaker</a>, CT Moore is a new media strategist who helps brands reach their business goals by building and optimizing their online revenue strategies. By day, he is an account manager for the interactive marketing agency, <a href="http://www.nvisolutions.com" target="_blank">NVI</a>.</em>
Affiliate marketing can be an exceptionally low-risk and cost-effective way to bolster your online acquisition strategy. <strong>First</strong>, the only risks entailed are the initial set-up costs (i.e. there is no real long-term commitment to infrastructure) so if your program isn?t performing, you can pull the plug any time. <strong>Second</strong>, its performance-based model means that you pay only for results; it?s kind of like having an army of salesmen and/or advertisers that worked strictly on commission, so that you don?t pay for anything until it actually converts into a sale.
That being said, affiliate marketing <strong>is not</strong> some miracle acquisition tactic that can cure all your marketing woes. If you do not want to reach a point where you have to pull the plug, and if you want to get the most out of it, it?s imperative that you set it up in the right way.
There are five things you should consider before taking an affiliate program live: <strong>(1)</strong> your own numbers, <strong>(2)</strong> the competition, <strong>(3)</strong> the software that will power your program, <strong>(4)</strong> how you?ll manage your program, and <strong>(5)</strong> how well your own site performs. By addressing each of these before going live, the only limits to your affiliate program will be those set by your pre-existing business model.
<h3>Knowing What an Affiliate is Worth to You</h3>
<a href="http://www.flickr.com/photos/brewskizzlr/413267973/"><img class="alignright" src="http://farm1.static.flickr.com/127/413267973_eafbeaf342_m.jpg" alt="" width="240" height="161" align="right" /></a>The first thing you should do prior to launching a program is <strong>know your own numbers</strong>. This will help you understand what you can afford to pay for an affiliate referral and, down the line, whether you?re in a position to run an affiliate program at all. This includes knowing:
<ul>
<li>your profit margins,</li>
<li>your average cost of acquisition (CPA) across all other channels,</li>
<li>and the average lifetime value of one of your customers.</li>
</ul>
With these numbers, you can calculate whether (1) you have the room to pay out commissions on sales, and if so (2) what that range of commissions will be. If you decide that there?s sufficient room to pay a commission on each acquisition and remain profitable, you can then start taking a look at the affiliate marketplace in your industry.
<h3>Researching the Competition?s Affiliate Programs</h3>
Once you?ve determined that your average CPA leave you room to pay a commission to affiliates, you should undertake a competitive analysis. After all, once you launch and affiliate program, you?re not only competing for customers, but for the affiliates that refer them. Specifically, you should be looking at what the competition offers in terms of:
<ul>
<li><strong>Cookie duration:</strong> Consider for how long after someone refers a customer you are willing to pay them a commission.</li>
<li><strong>Commissions:</strong> Can you afford to offer a commission that?s higher or on par with your competition? If not, can you afford to compensate for that in some other way? Such as with bonuses and/or support?</li>
<li><strong>Payment Frequency:</strong> Look at how frequently pays its affiliates, and ensure that you?re able to pay-out <em>at least</em> as often.</li>
<li><strong> Terms of Service:</strong> Examine the T&S of competing affiliate programs, and identify which clauses (1) seem to be standard, and (2) could give you a competitive edge.</li>
</ul>
Each of these should weighed against your business model so that you can decide how flexible you are on each of these, and whether you can sufficiently meet the competition?s terms that your program is competitive. Both these considerations will help you create a program that will actually appeal to affiliates.
<h3>Choosing Your Affiliate Platform</h3>
<img class="alignright" src="http://i987.photobucket.com/albums/ae360/nvipics/online-revenue.png" alt="" width="224" height="147" align="right" />When launching an affiliate program, you have a choice between launching it in an affiliate network, or by white labeling an affiliate platform that you can install on your own servers. Regardless of the option you choose, you still need to ensure that the affiliate software behind your program is up to par with industry expectations.
Whether you choose to launch your program with a network or in-house, there are several sets of features that the affiliate software must have. There are many different extra features you can always look for, but the basics include:
<ol>
<li>Commission Management Tools</li>
<li>CRM Tools</li>
<li>Tracking Reports</li>
<li>Marketing Tools</li>
</ol>
Of course, there's a lot more nuance to each set of these feature. For more details on what you should expect from each of them, there is a more in-depth explanation account of how to <a href="http://www.revenews.com/ctmoore/choosing-affiliate-software/">choose your affiliate software available here</a>.
<h3>Managing Your Affiliate Program</h3>
Once you've determined that you can afford to pay competitive commissions, you should then consider the costs of managing your affiliate program. <a href="http://www.revenews.com/ctmoore/relationship-based-affiliate-marketing/">Affiliate marketing is relationship-based</a>, so it?s important to consider a dedicated resource to manage your program. Depending on your needs and budget, this resource can be either an in-house affiliate manager or an outsourced program manager (OPM), but having someone look after your affiliate relations will help you both maximize your program?s performance and reduce the costs of tunr-over/recruitment.
This is especially true for not losing your affiliates to you competitors? affiliate programs. For example, if you have a strong relationship with an affiliate, and a competitor tries to recruit them, they will be more likely to let you know what they?ve been offered, and give you a chance to work something out with them.
Furthermore, serious affiliates receive a load of solicitation emails, so it?s better to ensure that they know who you are. In that same vein, you should be aware of how your affiliate prefer to be contacted. This will help you (1) protect your relationship with them, and (2) ensure you can get their attention when you need it.
Overall, there is a considerable <strong>business development</strong> aspect to affiliate marketing because it?s part internet marketing and part <strong>relationship marketing</strong>. So it?s important to make sure that someone is dedicated to building and maintaining that relationship on behalf of your brand.
<h3>Site Ecommerce Performance</h3>
No matter how good your software is or how well managed your program is, if your site cannot convert visitors, affiliates will not promote it. So you should also make sure that their site converts before launching an affiliate program.
As a general rule of thumb, your site conversion rate should be at least 3% before you start investing in recruiting affiliates. If it?s below this point, you should undertake some design and usability testing to get it up there before launching.
<h3>Getting Affiliated</h3>
Imagine running a PPC campaign without a budget, any keyword research, <a href="http://www.acquisio.com/ppc-bid-management-software.php">bid management software</a>, or someone to manage it. The results would be disastrous. Well, just like any other acquisition channel, affiliate marketing requires that you have the right tools and resources in place so that you can generate a positive return on your investment.
Just because it?s performance-based model keeps risks at a minimum and lets you pay only for results, it doesn?t mean that you should treat the program lightly. At the end of the day, ?getting affiliated? with a variety of publishers and marketers is very much a biz dev activity, and all business development requires that there is someone to manage those relationships, and that they have the tools to do so effectively.
<span style="color: #999999">
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</span><em>An accomplished writer, blogger, and <a href="http://www.gypsybandito.com/speaking/">speaker</a>, CT Moore is a new media strategist who helps brands reach their business goals by building and optimizing their online revenue strategies. By day, he is an account manager for the interactive marketing agency, <a href="http://www.nvisolutions.com" target="_blank">NVI</a>.</em>
