A MARTECH RECORD EGUIDE
In the U.S., about 80% of all brands have affiliate programs. A staggering figure. But that still means that 20% of brands don't yet participate in this burgeoning channel. If you are a leader for one of those brands and want to understand how to participate in this large and fast-growing channel, this guide can help.
Affiliate marketing spans commerce, from small businesses to massive enterprise brands and retailers.
Launching an affiliate program can be a terrific way to increase sales and reach new markets. This article will introduce affiliate marketing, including what it is and how it works, and list some of the benefits of operating a robust affiliate program. We will also discuss some critical steps for launching your affiliate program.
We've built this guide in a sequential Q&A format to make it easy to consume. We hope you find it helpful.
What is an Affiliate Program?
An affiliate program is a type of performance marketing in which a brand (also called a merchant or an advertiser) rewards one or more affiliates (publishers) for each customer brought to the brand. The affiliate earns a commission for introducing customers to the merchant's products and services. It's essentially a scalable and sophisticated form of referral marketing.
Affiliate programs are often integral parts of successful online businesses. They can drive traffic to a website, build brand awareness, and generate new leads and sales. The most popular type of program rewards affiliates that drive site visits from people who eventually transact. When you make a sale, the affiliate is credited with that purchase and gets either a percentage commission for the total sales price or a flat fee, like $10 per order. There are many ways to structure commission programs, but these are the most common.
What are the Benefits of Having an Affiliate Program?
There are many positives of having an affiliate program.
Merchants can benefit from lower customer acquisition costs, increased brand awareness, and increased revenue. Affiliate marketing places the "risk" on the affiliate, compensating them only if they drive the desired outcome, like a sale or a lead. Brands love the certainty of knowing that the commissions will be paid ONLY if the desired result is achieved. By contrast, with most advertising, the advertiser bets on a good outcome but must pay regardless of whether that outcome occurs. The advertiser also benefits from association with the affiliate publisher, which already has a relationship with the site visitor. Their endorsement may make people more likely to click, visit, and convert. Further, publishers attract tens of millions of site visitors daily, so affiliate programs are a fantastic way to increase message reach and drive additional brand interest.
Affiliates benefit from new revenue streams, excellent brand content, and a way to bring value to their site visitors. As most marketers know, Google, Facebook, and Amazon now dominate the online advertising business. They will capture 65.2% of total online advertising spending in 2022. Affiliate allows other publishers to cultivate profitable revenue relationships with brands outside this oligopoly. Affiliate income has become a significant revenue stream for many content companies.
I Hear People Talk About Affiliate Versus "Partner Marketing." What's the Difference?
People have different answers to this question. I think the most common - and appropriate -- way to differentiate between affiliates and other performance-based partners is that affiliates exist for the express purpose of making money through affiliate programs. Other types of partners have multiple reasons for being and view affiliate program commissions as one of numerous potential revenue streams.
My advice: don't get your knickers in a twist over this. As you learn more about the industry, you can develop your own way of differentiating between the terms.
What Types of Businesses are Right for Affiliate Programs?
Many businesses can benefit from running an affiliate program: businesses with physical products, digital products, and service-based offerings.
An affiliate program is a wonderful way to increase physical product sales. Affiliates can promote your product on their websites, apps, or social media pages, and when someone clicks and makes a purchase, they earn a commission. This type of program is excellent for generating immediate sales, leads, and increasing brand awareness.
Digital or virtual products make tracking and commissioning easy, making them the perfect product to sell through an affiliate program. For example, consumer games often have effective affiliate programs.
Service businesses can also drive outstanding results with affiliate. Service businesses often structure programs to reward sales, but they can also commission affiliates for leads.
Naturally, not every product in one of these classes works nicely for affiliate digital marketing. You need to have an average transaction value of a threshold size. $20 AOV is a good "floor" for affiliate because a commission for such a sale could be meaningful to a publisher. If your average sale is only $5, you will struggle to find many publishers interested in a percentage commission on that sale.
Net-net: Dresses work. Individual packs of Juicy Fruit don't. Further, the potential interested universe for a product needs to have some critical mass, meaning that there need to be enough people that might buy it to make it worthwhile for a publisher to promote. The "critical mass" figure depends on how many partners you work with, your average transaction value, and your commission amount.
The best way to think about this question is to put yourself in a partner's shoes. Would you participate in this program if you worked at a publisher?
Are Affiliate-Driven Sales Incremental for My Business?
Sales incrementality measurement determines whether a given marketing action leads to increased sales. Businesses compare the number of sales generated from a specific marketing campaign against the number of purchases that would have been generated without the campaign.
Suppose the number of sales generated with a program is higher than would have been generated without it. In that case, the marketing activity can be deemed successful and responsible for increased revenue. This method can measure the success of any kind of marketing activity, including online ads, email campaigns, and social media promotions.
The main question is this: are affiliate sales incremental? In other words, do they add or cannibalize sales from the company's other marketing channels? The answer is that it depends on the situation. Affiliate sales are incremental when they attract new customers who would not have otherwise purchased the product. Some affiliate networks have software to help you calculate incrementality for affiliate programs. Consult with your provider for more information.
Most affiliate programs still use last-click attribution to award credit. Last-click attribution gives all the credit for a conversion to the last touchpoint before the customer takes the final action. This model is easy to use and understand, which is why it's so popular. However, it's also wildly inaccurate because it doesn't consider all other touchpoints that may have influenced the purchase. Some affiliate networks, platforms, and agencies offer tech to attribute sales accurately.
I've Heard that Affiliate Tracking Relies on Third-Party Cookies. Is That True?
Traditionally, affiliate programs were tracked with third-party cookies, but that has changed rapidly, especially following the recent decisions by Apple, Google, and Firefox to deprecate them. All the top affiliate networks now offer tracking methods without third-party cookies.
There are several methodologies in use. Some are technically not "cookie-less," substituting first-party cookies, which are unaffected by third-party cookie deprecation initiatives. Ask the network or platform you choose about their “cookie-less” tracking methods. Then, be sure and use them for your program.
What About Tracking Conversions That Take Place on Mobile Devices?
Millions of web pages have been written about the issues of mobile tracking. We won't get into specifics here, but certain networks and platforms have ways of tracking interactions on both the mobile web and apps. Many do so in part via integrations with mobile app tracking providers like Branch, Appsflyer, and Adjust. Ask about mobile tracking options before choosing your network or platform to ensure they can track “small-screen” taps and conversions.
How Do I Find the Right Commission Rate to Offer Partners?
Setting the proper commissions starts with your average transaction size and the gross margin of the goods or services you sell. What maximum could you offer as a commission on a sale and still meet your profitability targets? You don't need to set your commission at this maximum; it's your upper limit.
Profitability naturally plays a vital role in commission rate setting. For example, hotel room rentals tend to have high margins, especially for multi-day stays. By contrast, economy class airline and train tickets have razor-thin margins. So, hotel commission rates are usually much higher than economy airfare commissions.
Remember also that most affiliate programs offer discounts or bonuses to entice customers. The affiliates promote your brand and include these offers to drive more people to click. You must factor deal costs into your profitability calculations—few partners are interested in advertising programs that offer no discount. Discounts need to be affordable but sufficient to motivate customer response. Ensuring your offers are comparable to competitors is often essential here.
From there, you can see what commissions similar sellers offer to partners. If your competitors have affiliate programs, take note of their commissions because you will be competing for publisher attention with these programs. Then think about the amount of commission that would enable your affiliate partners to earn a reasonable amount on each sale and in total for a given period, like a month.
Ensure the commission rate is attractive enough to motivate potential affiliates to promote your products. Setting commissions isn't something to do lightly. Getting them right is one of the reasons why you want expert help to launch your program. That can come from an affiliate expert you hire, an affiliate network that offers services, or an agency.
Should I Launch an Affiliate Program If My Competitor Already Has One?
There’s probably room for another affiliate program in your industry. Launching an affiliate program can be a great way to grow your business. When you offer an affiliate program, you give people the opportunity to earn a commission by promoting your products or services. This can be a terrific way to attract new customers and grow your business.
If your competitors already have an affiliate program, that doesn't mean you can't launch one too. In fact, their program is probable evidence that the channel can work for your business, too!
You Mentioned Expert Help. What are Affiliate Networks, and Do I Need One?
Affiliate networks are trusted third-party tracking services that brands and affiliates rely on to measure sales. They also make it quite easy to confirm valid purchases and make compensating partners simple. This payment service is a big deal. Your Finance department does not want to send monthly payments to 100, 500, or 5,000 partners. With the affiliate network model, you approve payments to affiliates and deliver one consolidated amount to the network. The network then sends the individual payments to the various partners.
The networks’ payments solutions are also valuable because some of your partners may be headquartered overseas. Affiliate is a global business, and many affiliates operate internationally.
I've Also Heard There are Affiliate Platforms Instead of Networks. What's the Difference?
Broadly, networks are service businesses that help you manage your program. Platforms are software businesses for program self-management. Platform companies tend to be newer and got started offering better access to partner-level data than was then available from networks. But the line between networks and platforms has gotten quite blurry. Several affiliate networks say their software is the best available, while some platform companies now offer program management services to many customers. The labels matter less than what’s behind the walls of affiliate solutions providers.
Every affiliate marketer has an opinion on what is best here. As you consider your options, ask multiple questions about what you are getting from each vendor alternative. A platform company, for example, may tell you their offering is for software only - for service, you should work with one of their agency partners. They may also offer throttled software for low-value contracts. Similarly, networks have different service levels, from self-serve to full-serve enterprise program management. The devil is in the details.
Can I Skip the Networks and Platforms and Go It Alone?
My advice: don't try. You might consider managing affiliate marketing alone after cutting your teeth in this channel, though very few companies do. The percentage of affiliate programs that use a network or platform is in the high 90s.
Without a network, identifying the right partners is hard. Recruiting communications are hard. Getting partners signed up and distributing affiliate links is hard. Keeping them motivated is hard. And making payments is hard. By contrast, networks and platforms charge a small percentage of your total commission bill for their services. If you prefer predictable, SaaS-style payments instead of varying monthly usage fees, many providers will give you that option.
Amazon operates its affiliate program without a network or third-party platform. So do a handful of businesses that employ lots of affiliate channel experts. Everybody else finds a network or platform.
Should I Hire an Agency?
Some do, some don't. Both approaches can work. But strategically approaching this question is essential. Recognize that you need expert help to get the best results from affiliate. That expertise can come from an internal team, a network or platform that offers services, or an agency. But novices alone cannot get the most out of this channel.
Many companies start with a single person or small internal team and leverage network services to co-manage programs. You can set the amount of support provided by the network based on your needs. Some companies have used this method successfully for decades.
Many other companies start by hiring an agency to support an internal person or team. That system works well for other companies who say the agencies deliver a better level of service quality than the networks. More enterprise-sized businesses are moving to agency-led program management in recent years. Like any other service businesses, the quality of affiliate staffing available from networks and agencies varies widely. Dig into who will be managing your program before you sign an agreement with a network or agency.
On the agency services front, there are affiliate marketing-specific agencies called OPMs (short for outsourced program managers) and other agencies that offer multiple service lines, including affiliate. Both models have strengths to consider. In the affiliate marketing business, great results come from great people, but some networks and agencies also offer proprietary tools and partner relationships that you can leverage.
How Do You Set up an Affiliate Program?
First, you need to do the math to determine the proper commissions and offers and prove a program's financial value. If the math works, you can move to the next step.
Second, you need to figure out internal staffing. If you hope to drive bona fide scale form affiliate, I recommend having someone on staff with at least some experience in affiliate. Using your network or agency to do all the work is theoretically possible. You don’t HAVE to hire internal experts, though most industry observers would tell you that you’ll get more from your program if you have an internal champion – even if outside teams are doing a great deaf o the actual program management.
Third, identify the right network or platform for your business. While they all do basically the same things, some are better than others, and some are better for specific verticals or commissioning approaches.
Fourth, determine the right approach for management. You can hire an internal person or team and have them manage the program via self-service or with some level of network or platform service. Or you can hire an agency to manage program management. There are advantages and disadvantages to each approach.
Fifth, once your network is identified, someone will need to input the details of your program and upload creative assets and your affiliate link inventory.
Sixth, identify whom you want to partner with. Millions of publishers participate in affiliate. Not everyone will be a good fit for your program, so select affiliates based on their target audience composition, niche, reach, and engagement levels. Rely on experts to help identify the right affiliates for your program launch.
Seventh, you must recruit your affiliates. Recruiting affiliates takes time and attention.
Eighth, you and your team are ready to launch.
It sounds like a lot to do, but don't be discouraged. Tens of thousands of brands have done it before. However, the length of this list underscores why you need expert help to execute your program successfully. Additionally, affiliate isn't a set-it-and-forget-it business. Your in-house or outsourced team must constantly optimize efforts, communicate with partners, and bring innovation to your program for the best results.
Launching your best affiliate program can be a fantastic way to promote your products and services to a larger audience. Not only do you get access to a pre-existing group of people who are likely to be interested in what you have to offer, but you also benefit from the affiliate's promotional efforts.
Get more insights on the channel by joining our active affiliate professionals community. It’s free to join and is a constant source of ideas, strategies, and insights to help drive channel growth.
Martech Record has fast become a leading industry voice for the affiliate and partnership marketing industry in the U.S. and globally. By joining our community you can connect, learn and grow your relationships and business in this fast-growing and exciting arena.