This should actually be the first podcast any company considering starting an affiliate program should listen to.
Karen Garcia of GTO Affiliate Management and Liz Gazer of Growthspurt Media Affiliate Management join Merchant ABCs Training Podcasts host Deborah Carney to discuss the realities of starting an affiliate program. Many merchants think it is an inexpensive channel that they can just put out an affiliate offer either in-house or on a network and the money will start rolling in. Below is a *basic* outline of what we discussed. This podcast contains so much valuable information that it will be made available in other formats, if you want to be notified when those formats are available, go to MerchantABCs.com and sign up for the mailing list.
Whether you are considering opening an affiliate program or already have one running, it would be helpful to you to spend the time to listen to three experienced OPMs (Outsourced Program Managers) that want to help you be sure that an affiliate program is a good addition to your company as a marketing channel.
CAN YOU AFFORD YOUR AFFILIATE PROGRAM?
What an Affiliate Program IS:
• A Cost Effective means of growing brand/sales online
• An effective way to reach segments of the market you might not otherwise be able to reach without a LOT more time, effort or money
• A real marketing channel, requiring all the same components as any other business channel you might employ to get your product to market and grow sales over time
What an Affiliate Program is NOT:
• Guaranteed to double or triple your sales overnight, or within a few weeks or even a few months.
• Something you can launch and leave running on auto-pilot – it needs daily management by someone well-connected, educated/experienced/seasoned and well-versed on the ins and outs of both business management and the ever-changing needs of affiliates
• Something you can launch and then NOT expect to pay for once the sales start rolling in
Affiliate marketing has always been and still is today, one of the most cost effective ways of growing brand/sales online – aside from the costs of actively managing the channel, this method of advertising is always performance based, meaning that you only pay out the commission after the sale has been closed – and usually, verified. Despite that, there ARE costs involved and being honest about whether or not you can afford them up front, can save you thousands of dollars, in the long run.
Examples of costs involved/what to expect:
• Monthly management fees – whether you pay someone in-house on a salary or outsource to one of the many qualified OPMs available to help you run your program
◦ varies depending on experience, reputation, etc.
• One-time network registration/set up fee
◦ varies by network from a few hundred dollars to a few thousand for set up
• Monthly network usage fee and/or network transaction fees
◦ % of sales or % of amount equivalent to affiliate commissions
• Email marketing/newsletter costs (if you hire an OPM this may be covered/included for you depending on your negotiated contract)
• Affiliate commissions as set by you – a % of sales
• Bonuses tied to volume or for promotions/seasonal lift
• Advertising the program in key industry locations online as well as offline and in person (conferences/tradeshows, etc.)
◦ Conference/tradeshow booths (the space, the booth, the materials, the staff) – optional but recommended for best results
COMMON MISTAKES MADE BY MERCHANTS WHO CAN’T AFFORD THEIR AFFILIATE PROGRAMS:
• Being dishonest about what kind of funding exists for the program expenditures during early talks with a prospective or newly hired AM/OPM
• Expecting the channel to pay for itself within a few weeks to a few months of launching
• Pitting internal channel managers against one another (i.e. PPC vs. AM) for “last click” so they work AGAINST one another instead of WITH one another as a team
• Looking for reasons to reverse commissions and where there are none, invent them!
• Cutting commissions – especially before you’ve been around long enough to establish presence & instill any confidence in your affiliate market that you’re “one of the good guys” or “worth promoting”
• Shutting down the program after launch – few weeks or few months in, realizing this actually costs $$
Merchants who can’t afford their affiliate channel often resort to scheming leakage/diversion tactics – excuses for not paying commissions. Remember – Affiliates are SMART – they DO pay attention and they DO expect to be paid for their efforts. Would you continue to work for free if your paycheck was withheld? Make no mistake – the expense you save by making unnecessary/uncalled for reversals to commissions today, WILL cost you down the line. The affiliate who goes unpaid today, will not promote you tomorrow.
Suggestions for managing costs and expectations:
• Look at your profit margins carefully and be realistic about what you can afford to pay, right up front.
• Be honest with your Affiliate Manager/OPM about what you can afford and let them determine if it makes sense for you to move ahead or not
• The biggest mistake you can make is by over-inflating the amount you can afford to pay in early talks with a potential or newly hired AM/OPM (claims like “sky’s the limit, there is no ceiling on what we can afford, whatever it takes to make sales, etc.). Doing so sets you, your AM/OPM AND your affiliates up for inevitable failure.
KEY TAKEAWAY POINTS:
• Be transparent with your AM/OPM about what funding is like so they can determine whether you truly can afford to make this work – not doing so will only cost you in the long run when you have to cut your losses and pull out early after having invested heavily up front to get things running
• Remember the nest-egg concept – Long term investment garners long term sustainable results that will grow year over year with good management, proper funding and careful planning/analysis
• It can often take more than one advertisement in more than one channel to motivate a consumer to close the sale. Studies have shown consumers are exposed to an ad on average, approx. 7 times before they “tune in” to it. Expect that occasionally, some sales may track as having come through more than one channel (i.e. PPC/Affiliate) by the time the sale has been closed. Reversing an affiliate commission because it tracked as a PPC sale as well, is like stealing from Peter to pay Paul and is counter-productive to the mission, in the big picture.
◦ Example: TV/Print/Outdoor advertising. Hugely successful brands like Nike don’t cut billboard campaigns just because a customer who buys shoes says they saw a commercial on TV. They understand it costs money to make money. They understand the need for an intergrated marketing mix. Your online advertising channels are part of that mix. You may have to pay them both, in some cases. Chalk it up to the cost of doing business. If you can’t, you may not be able to afford your affiliate program.
◦ If MOST sales are tracking in multiple channels it may be time to reassess but unless the majority of sales are, see above – chalk it up to the cost of doing business.
• It’s not magic – it’s marketing. Goals should be S.M.A.R.T. – specific, measurable, achievable, relevant, and time-based. The R should also stand for REASONABLE. Give your affiliate program reasonable time to produce results – it can take up to a year especially if you are a new program starting from scratch.
• Know your own business strengths/weaknesses and once again – be transparent/honest with yourself and your AM/OPM so you can build on those strengths and find ways to overcome weaknesses which will in turn make you more competitive in the long run
• Competitive analysis – know what your competition is offering and expect to do your best to meet – if not exceed it.
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Thanks to Geekcast.fm for hosting our podcasts, check them out for lots of other great podcasts about affiliate marketing and marketing in general.