Last Updated on September 23, 2021
Introduction – 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 thousands 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' organization, to pay a commission, in exchange for promotion of its goods and services. Typically, this leads an affiliate website advertising 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 delivery issues) are deal with by the Merchant.
Affiliate schemes are usually 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 extremely customer dissatisfaction). Affiliates typically 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 implemented based on banner advertising which were rewarded on a per impression basis. However, click through ratios were extremely poor and banner exchange schemes given the sector a bad name. In addition, fraud affected confidence in this method of marketing. The last nail in the coffin for banner advertising was that 'in your face' flashy moving images also intended to annoy users. Today, textual ads are the primary form of affiliate marketing. These are highly customized 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.
1) Pay per sale – the merchant pays the affiliate an agreed sum of money each time a user visits the affiliate's website, clicking through 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 motivation affiliates to have in a certain way.
2) 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 possibly 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 site is high and conversion rates of the merchant low, a pay per click model is ideal to maximize commission.
3) Pay per lead – a pay per lead of commission based model is typically used by merchants in situations where the product or service can not 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 2% from sales from 2nd tier affiliates they are enrolled 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 associates 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.
1) Critical success factors – there are typically 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.
2) Offer a Differentiated or Unique Product or Service – prospective affiliates will be associated 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 summarize your unique selling points so they can clearly see there is an opportunity to make money together.
3) 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.
4) Great Merchant Customer Service – by providing professional and service to your prospects, your sales conversion ratio obviously improvements. 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 that 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 accidently deleted or ignored by the merchant.
5) 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.
6) 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 affiliates's leads and sales. This is equally important for accounting purposes as the larger your affiliate program becomes, the more important it is to justify outgoing costs (affiliate commission payments).