Affiliate marketing is an area of eCommerce that is still a mystery to most people, but if you’re an eCommerce merchant, it is definitely worth your time to at least investigate whether or not an affiliate marketing program is right for your store. Making that determination is easy, and you might be surprised to discover how much revenue you may be leaving on the table. But what exactly is affiliate marketing? As an ecommerce manager, it’s the online equivalent of hiring a sales team that works strictly on a commission basis. When an affiliate brings visitors to your store that a purchase, the affiliate is rewarded with a percentage commission for that sale.
Benefits of Affiliate Marketing
Because of the pay-for-performance model of affiliate marketing, a properly implemented program will have many benefits, including a predictable cost. Unlike pay-per-click (PPC), where marketing costs are incurred before a sale happens, marketing costs in affiliate marketing happen after a sale. This alleviates the risk of not seeing a positive ROI with your marketing expenses. In addition, affiliate marketing is good for eCommerce businesses lacking in resources. It can put your store into a number of channels, as your affiliates – depending on your terms and conditions – will have the ability to market your store using PPC, email, comparison shopping, blogs, social media, and countless other channels. As a store owner, if you don’t have the resources to target all of the appropriate channels, affiliate marketing is a great way to take care of the missing pieces.
So how do you determine if your store can benefit from an affiliate program?
Check to see if your competitors have affiliate programs. If your competitors are running affiliate programs, it’s a good sign that it’s providing an additional source of revenue for them. To find out exactly how their affiliate program works, you’ll need to find their affiliate information page. A link to this page will likely be provided in the footer of their site. Let’s take LensDirect.com as an example. When visiting their website, we see a link for their affiliate program in the footer.
Make note of any information that such affiliate program pages provide you. More specifically, you’ll want to look for the following:
- – percentage commission they offer their affiliates
- – payment terms (Net 15, Net 30, etc.)
- – cookie length
- – conversion rate
- – average order values
Not all affiliate program information pages will have these statistics listed, but these are the main factors affiliates take into consideration when deciding which stores to promote.
Analyze Your Numbers. Because affiliate marketing works on the premise that you’ll pay your affiliates once they make a sale, your margins have to be large enough so that you can afford to do this and still make a profit. This is where gathering information about your competitors’ affiliate programs can come into play. To attract affiliates, you’ll want to create a program that is more enticing than your competitors’ programs. We’ll now come up with some optimal numbers for an affiliate marketing plan using the contact lens example from LensDirect.com:
- Commissions – We can see that LensDirect is offering a 15% starting commission on all sales. Is this something you can afford to do and still make a profit? Can you offer 16%, 17%, or more in order for your affiliate program looks more enticing?
- Cookie Length – LensDirect has a 60-day cookie. This means that any sales made after the initial visit within 60 days will produce a commission for an affiliate. After that term, there is no commission. Can you offer a 60-day cookie? How about a longer term? If you keep the cookie length shorter you may wind up paying out less commissions, but if you keep it longer, you may attract more affiliates to your program. If you’re a bigger brand, you could get away with a shorter cookie because the likelihood of a visitor coming back is greater because the brand awareness is greater. For example, Amazon’s cookies can be as short as 24 hours! However, if you are a smaller brand, you may need offer a longer cookie term.
- Payment Terms – LensDirect only mentions a monthly payment, which is industry standard. There is nothing out of the ordinary here, but as you gather trustworthy affiliates, you may want to consider offering them a biweekly payment term.
- Conversion Rate – LensDirect claims that their site achieves a conversion rate of 4.92%-6.69%. How does your conversion rate compare? If it’s higher, it’ll help your affiliate program look more enticing.
- Average Order Value – Average order value for LensDirect is $118.46. Does your store have a comparable average order value? Using this number and the commission rate provided, we can calculate that an affiliate would make an average commission of $17.77 per sale (15% of $118.46). The higher the AOV, the higher the commission. The higher the commission, the more affiliates you’ll attract.
After coming up with some rough numbers that would create an appealing affiliate program in comparison to your competitors, you’ll have to decide if your margins will work with the numbers. However, if it happens that your competitors don’t have affiliate programs, this can be good news for you. Being the first in your niche to offer an affiliate program can give you a competitive edge. It also means that you won’t have to get competitive with higher commissions right away.
Obstacles to Be Aware of in Your Evaluation
When starting an affiliate program, 90+% of online retailers use hosted solutions with 3rd party affiliate networks like Commission Junction, PepperJam, ShareASale, and of course, the Google Affiliate Network. When evaluating an affiliate program for your store, chances are you’ll find this route to be the most viable option as well. It’s easier to start an affiliate program on a 3rd party network because the infrastructure is already in place, and there are millions of affiliates that are already a part of 3rd party affiliate networks.
For every transaction, you have to pay a fee to the affiliate network. These 3rd party networks will be responsible for issuing payments to the affiliates for their sales. Because of this, the 3rd party affiliate networks require an initial deposit to guarantee that your affiliates will be paid commissions in the first month. This initial deposit may be as high as $2-3K and is the biggest financial obstacle to starting an affiliate program.
In contrast, self-hosted solutions are great for SEO and will save you more money in the long run, but they won’t already have a pool of affiliates and will be more difficult to set up.
Whether you go with 3rd party solution or build a self-hosted solution, a tracking code for the affiliate network you join will have to be installed on your order confirmation page. This may not sound like much, but this part of the process deserves 50% of your total time and effort. If you aren’t comfortable working on your own site, you should get a developer to properly integrate the code. This code tells the affiliate network which affiliate was responsible for the sale so that commissions can be calculated. Making sure your affiliates get the credit they deserve is vital to building a successful affiliate program.
Simply starting an affiliate program doesn’t guarantee its success. Regular maintenance of an affiliate program is necessary and includes making sure affiliates play by the rules, attracting new affiliates, and rewarding your best affiliates.
At the Very Least
Affiliate marketing is a channel you can’t completely overlook. At the very least, you should evaluate its potential for your business. Using the steps above, that evaluation should be a relatively simple one and may end up being your first step into accessing a significant amount of additional revenue.