An affiliate program that adds value represents one of the most lucrative revenue streams, characterized by high value, low risk, and reliability. This series of articles aims to educate you on how to successfully launch, oversee, and expand such a program.
To begin, let’s establish the concept of “value-adding.” In this context, value-adding traffic refers to visitors that complement rather than compete with your existing marketing efforts. Even if your SEO rankings fluctuate, you face social media bans, or encounter issues with your email and SMS lists, affiliates can sustain a steady flow of customers and sales, providing essential stability.
However, leveraging this channel involves risks and demands significant marketing efforts. Unless you’re a prominent brand, there won’t be a large pool of individuals naturally inclined to promote your offerings and drive sales. Hence, having a well-devised strategy to launch, manage, and expand your affiliate program is crucial. This series of guides will equip you with the necessary knowledge to accomplish these objectives effectively.
Over the past two decades, I’ve assisted companies worldwide, both large and small, in launching, managing, and winding down affiliate programs. I am honored to have received the Affiliate Summit Pinnacle Award twice, an accolade bestowed through nominations from the global affiliate community and voting by their board of directors.
Currently, my work involves overseeing affiliate programs, coaching companies and their in-house managers, drawing from my previous experience managing an affiliate CPA network for a year. This multifaceted background allows me to understand the dynamics from every angle.
This guide draws from my extensive experience and aims to support you in launching, scaling, or revitalizing your affiliate program. It’s filled with insider tips to aid in attribution, and to address any uncertainties you may have when explanations like “It’s part of the customer journey or lifecycle” don’t quite satisfy.
Let’s begin by clarifying what constitutes an affiliate program, as there’s often confusion between programs and networks. Part 1 will lay this foundation, and subsequent parts will delve into more advanced strategies. If this seems basic, rest assured—there’s more to come.
What Is An Affiliate Program?
An affiliate program functions as a marketing arrangement where a company compensates a third party based on shared revenue for promoting its products, services, or offers.
Tracking of the affiliate program typically relies on a software solution such as an affiliate or CPA network, or through an analytics platform.
Now that we have a clear understanding of what constitutes an affiliate program, let’s proceed with the discussion in this post.
The content is organized into three parts. You can use the jump links below to navigate through this post, and be sure to look out for part 2!
- Definitions and Terminology – It’s essential to review the Value Add bullets before continuing, as this section is crucial to understanding the post.
- Setting Goals and Expectations
- Formula for Forecasting Affiliate Revenue
Definitions
Understanding affiliate program terminology can be confusing. Here’s how we define each term in this guide, noting that the language may vary by country and region.
For instance, while it’s referred to as an “affiliate program” in the USA, in the UK, you might hear it called an “affiliate scheme.” However, both terminologies refer to the same concept.
- Affiliate (also known as a publisher) – An individual, company, or entity that promotes a brand, service, or product based on performance metrics.
- Affiliate network – A tracking platform typically used by ecommerce stores offering multiple products, single or multiple lead forms for SAAS, service providers, aggregators, or services. These networks earn revenue through transaction override fees and annual software usage fees.
- Affiliate program (also known as scheme) – Refers to a store, service provider, company, or aggregator that compensates other individuals, companies, or groups for promoting their offerings based on a revenue-sharing or hybrid payment model.
- CPA network – Similar to an affiliate network, but focuses on single offers or multiple private offers such as long-form leads, lead forms, or landing pages. Unlike affiliate networks that cater to ecommerce stores, CPA networks often feature subscriptions, bundles, and various types of offers rather than individual products or shopping experiences.
- Offer – Typically found on CPA networks rather than affiliate networks, an offer refers to a commissionable service, bundle, or lead generation opportunity that pays a fee for specific actions like downloads, form fills, or completed purchases.
- OPM (Outsourced Program Management) – Also known as affiliate management companies, consultants, or affiliate marketing agencies. These entities specialize in managing affiliate programs on behalf of businesses.
- Intent to purchase or convert – This term describes a person’s stage in the customer journey where they are likely to make a purchase or complete a desired action. It’s important to note that “high-intent to purchase” or “relevant traffic” are sometimes used to obscure behaviors that could potentially harm a company financially if allowed within an affiliate program.
- FTC disclosures – These are mandatory disclosures required by the FTC (Federal Trade Commission) for advertising, endorsements, and relationships when promoting a product, service, brand, or app in exchange for compensation.
Value add – Refers to the degree of impact an affiliate click or interaction has on the purchasing decision:
- High value – Partners who bring new users to the brand and generate their own traffic. Without these partners, the brand would miss out on exposure to this audience and potential sales.
- Mid value – Touch points like reviews that help persuade customers to convert or remind them of the brand’s offerings. These interactions may bring back customers who were unaware of the product or service or had forgotten about the brand.
- Low value – Interactions that likely would have occurred independently of the affiliate’s involvement, but still exert some influence. Examples include reviews, certain end-of-sale interactions, or mid-shopping interventions.
- No value – Occurs when an affiliate’s touch point has no influence on the decision-making process but still earns a commission. This category includes coupon codes distributed by influencers or partnerships, end-of-sale and mid-sale interactions through browser extensions, and websites (including mass media) appearing for searches like “your brand + coupons” on Google.
Now that you’re familiar with the terminology, let’s dive into the guide.
Setting Goals And Expectations
The first step in launching or revitalizing an affiliate program is establishing clear goals and expectations. Some companies prioritize simply demonstrating program activity and generating sales without focusing on the value added by their partners.
This approach is often seen among major brands, inexperienced affiliate managers, and agencies that employ a “set it and forget it” or automated strategy.
In contrast, other brands aim for customer acquisition, increased brand exposure, and accessing new traffic sources to boost revenue and win back former customers. It’s crucial to define these specific goals for your company and affiliate program.
On a related note, I’ve heard from C-level and marketing executives who prioritize pleasing the board or C-suite over assessing the value affiliates bring. Sometimes, companies maintain affiliate programs to meet budgetary requirements, even if they operate at a loss. Network representatives have shared similar insights, explaining why low- and no-value partnerships can persist and thrive.
Based on the goals you establish, you can determine the essential features needed in a platform and how to identify and recruit partners who align with those goals, ensuring success in the affiliate channel. Selecting the right affiliate platform is crucial.
Not all platforms support video creatives or advanced HTML/JavaScript tools. While some platforms may have a strong reputation in your niche, they may only offer offers rather than support ecommerce sales, which can limit your ability to grow or scale with traditional affiliates.
For companies prioritizing compliance, not all networks provide direct partner access or may block referring URLs. This lack of transparency means you cannot verify whether partners are making false claims, including medical claims, failing to adhere to brand guidelines, or not properly disclosing advertisements.
When selecting a tracking platform for your affiliate program, consider the following questions:
- Am I targeting new customers?
- Am I willing to accept potential revenue losses if the average order value (AOV) increases, and can I conduct a controlled test before full implementation?
- Voucher/coupon and loyalty browser extensions often argue that interacting with customers already in the shopping process boosts conversions or AOV. It’s crucial to conduct unbiased testing without involvement from affiliate networks, managers, or agencies, all of whom have vested interests in these interactions.
- What types of creative assets will be necessary to achieve my program goals?
- Am I comfortable with the uncertainty of forecasting profitability, given the channel’s inherent unpredictability?
- Recognizing the labor-intensive nature of affiliate marketing, am I prepared to allocate resources and withstand potential financial losses during the initial phase to gauge its viability? Alternatively, should I allocate resources towards PPC, social media, SEO, customer win-backs, co-marketing, offline advertising, etc.? If time is a constraint, am I willing to invest in an agency for a year to manage this for me?
- Have I assessed the market potential and tested the conversion rates to determine how much unreachable traffic exists that could be tapped through a value-added affiliate program?
These considerations will guide your decision-making process when selecting a tracking platform tailored to your affiliate program’s needs.
Pro tip: Avoid launching multiple networks simultaneously to access all affiliates, as this is rarely a good idea (99.99% of the time). Implement custom logic code into your shopping cart to prevent dual payouts to multiple networks and to accurately track affiliate network clicks using an internal attribution system.
Without custom click attribution, sales could be improperly credited to the wrong network when multiple networks are involved, leading to potential confusion and incorrect decisions on which network to continue working with. Avoid this common mistake that many encounter.
Forecasting If An Affiliate Program Makes Sense Or Can Be Profitable
If your affiliates are primarily intercepting your traffic via browser extensions or appearing in search engines like Google or Bing when users search for your brand plus coupons, you can predict affiliate sales by correlating them with overall site conversions.
These partners’ performance mirrors the rise and fall of your own efforts and traffic. As your website traffic increases, so does their potential to intercept customers, thereby increasing their earnings. Conversely, when your traffic decreases, so does their opportunity to intercept customers and their earnings decrease accordingly.
That being said, you can forecast the impact of high-value affiliates who generate sales that wouldn’t have occurred organically. This process involves leveraging data from various channels. Let’s take non-review and non-coupon SEO affiliates as an example.
Begin by utilizing Google’s Keyword Planner or a keyword estimator tool from your preferred SEO platform to estimate search volumes. Then, integrate this volume data with your own conversion metrics. For instance, if your PPC campaign for “best blue t-shirts” converts at 5% and there are 10,000 monthly searches for this keyword, affiliates appearing in SEO searches for this phrase can potentially drive traffic and revenue.
To enhance your forecast, incorporate additional data points from social media influencers, YouTube, and co-marketing efforts for a comprehensive evaluation of the opportunity.
Here’s A Formula To Use For A Basic Affiliate Program Profitability Forecast
If you have 2,000 visitors with a 5% conversion rate and an Average Order Value (AOV) of $50, your total revenue is $5,000.
After deducting a 10% commission, a 20% network fee, and operating costs of $2 per order, your net profit is $4,200. This example shows a net cost of $800.
Finally, include any payments to your affiliate manager, including bonuses and expenses for banners and design work.
If you allocate $2,000 per month to your affiliate manager, your monthly revenue could reach $2,200, amounting to $26,400 annually. The customer acquisition cost (CAC) appears to be quite favorable!
Here’s a bonus tip: Track the rate of repeat purchases. If you’re not compensating for subsequent sales but maintain the touchpoints in your records, each additional sale from this initial acquisition contributes to revenue with a higher ROAS (return on ad spend).
In scenarios like these, affiliate-generated traffic might lead to high LTV (lifetime value) customers. Thus, despite potentially incurring a loss on the initial sale, partners with a higher predicted LTV (PLTV) could prove beneficial in the long run.
Even if you experience a loss on the first sale, you avoid multiple acquisition costs for the same customer. Fair compensation ensures affiliates continue to drive similar customers to your business.
Move On To Part Two: Types Of Affiliates & Onboarding
Now that you understand the terminology, how to forecast profitability, and can establish goals and expectations for your affiliate program, let’s delve into part two where we explore the various types of affiliates, the essential tools they require, methods to activate them, and effective communication strategies.
Original news from SearchEngineJournal