Affiliate Marketing 101: Understanding the Basics

  • AUTHOR: Joseph Anthony
  • DATE: 06/1/2006

Imagine a marketing program that can increases sales 10% to 25%–and you don’t pay a dime unless you get results. Sound too good to be true?”

That’s pretty much how affiliate marketing works.  Through these online programs, you sign on with a partner that markets your product or service, often through a link or banner ad you place on their website. The affiliate then gets a commission based on sales, visits, or customers that result from those efforts.  It’s the ultimate in pay for performance. “An affiliate partner will do a lot of the marketing for you. And you only owe money if they provide the outcome you want,” says Marty Fahncke, president of FawnKey & Associates, a consulting firm with expertise in affiliate marketing.

At the same time, successful affiliate marketing requires understanding some basics. Here’s what you should know:

Evaluate your affiliate marketing channels

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Your affiliate can be anything from a website or enewsletter to a shopping portal, to name a few. Fahncke points to one client, a small business selling sunglasses, as a case in point. Perhaps their most successful affiliate is a website devoted to bicycling, which recently included an article about the product and a link to their site. The company pays the affiliate a 20% commission on sales. At the same time, however, the firm uses a variety of other affiliates. The bottom line: “You want a good mix of different types of channels,” says Fahncke. 

How many? There’s no magic number. You can make money with perhaps twenty, or in some cases, thousands. It all depends on the quality of the partner. For example, three or four effective affiliates that specialize in search engine optimization can provide you with as much business as hundreds of mediocre websites, especially if they’re not quite the right fit for your product and demographic.

Scrutinize the affiliate marketing commission

Commissions run the gamut, from 3% to as much as 90%, although the average is around 15% to 20%, according to Fahncke. The amount depends on a variety of factors. High volume products, for example, tend to command lower rates. At the same time, you get what you pay for. Take Steven Rothberg, president of CollegeRecruiter.com, a career site for college students and recent graduates. He pays about 50% more than many other companies in order to attract the best affiliates possible. About 10% of his revenues come from his affiliate marketing program.

Focus on recruitment and retention

Recruiting high-quality affiliates is one of the toughest parts. While there are lots of choices out there, finding the right partners, getting their attention and negotiating the final details take time – as long as a year in many cases. How to find them? One possibility is to sign on with an affiliate marketing network like Commission Junction. Almost all of CollegeRecruiter.com’s affiliates, for example, have resulted from its relationship with the network, through a program in which interested affiliates that are a good fit automatically become partners. Another tack: Shawn Collins, co-author of Successful Affiliate Marketing for Merchants (Que, 2001) uses software to determine which affiliates his clients’ competition is using. Then he targets them with phone calls and direct mail.

That’s only the first step. Just because you’ve signed a deal with an affiliate doesn’t mean it will let you go live. To make sure you are “activated”, as Collins puts it, you also need to work constantly at staying top of mind. For example, he will send the top twenty affiliates for each client gifts, and call them at least once a month.

Decide if you’d prefer two tier affiliations

Somewhat like the classic Mary Kay-style Multi-Level Marketing arrangements, these affiliates use a referral network to generate more sales for the company and commissions for themselves. An affiliate that is working with a particular company’s program will attract other partners to join up. It, then, receives commissions from any activity those newer affiliates generate. The system ensures more income for partners throughout the chain and greater visibility for the small business. Plus, “It saves time if you can’t do your own recruiting,” says Collins.

Find the right affiliate solution provider

You need a method for tracking traffic, sales and payments. There are two ways to go about it. One is to install software in-house and do it yourself. That can be a big job, however, especially if you’re short-handed. The other is to hire a third party to provide the technology and customer support needed to facilitate the transaction. You’ll pay a percentage of your affiliate’s commission to the firm.

Watch out for fraud and spam

There are a variety of scams out there, so be careful. One common type works this way: An affiliate earns a commission on an order that they actually place themselves, after which they return the product. Says Fahncke: “The merchant ends up paying a commission on a product they didn’t really sell.”   As for spam, you can be held legally responsible for the actions of your affiliates that send out junk mail on your behalf, thanks to the CAN-SPAM Act of 2003.

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