Search engines become less important if affiliates are sending your website the majority of its traffic. The main advantage of affiliate marketing is high sales volume with extremely low fixed overheads. The main disadvantage is much lower margins, (as affiliates need paying a commission to stay motivated). An affiliate program is a contractual arrangement between the owner of a product or service (the Merchant) and a separate ‘Affiliate’ organisation, to pay a commission, in exchange for promotion of its products and services. Typically, this entails an affiliate website adding advertisements (in the form of banners, buttons links and other textual material) promoting the Merchants offering. There are literally thousands of different affiliate programs in existence on the Internet today. It is usually the responsibility of the affiliate to redirect visitors to their website to the merchant’s website. At that point, any customer service issues (such as ordering a product, dealing with customers on telephone delivering issues) are undertaken by the Merchant.
Affiliate schemes are typically automated and structured. Affiliates must agree to abide by the merchant’s terms and conditions when signing up before entitled to promote anything. For instance, Merchants make it a requirement that affiliates do not alter the Merchant sales copy to avoid any potential accidental or intentional misrepresentation (and ultimately customer dissatisfaction). Affiliates usually have a unique tracking ID associated to their registration or website. By adding this HTML code to their site, Merchants can track the source of each sale. The tracking HTML is usually combined with a cookie or CGI script. This allows the Merchant Affiliate Tracking System to organize a database of visitors and sales. It is common that affiliates get paid one month in arrears and have an access to a monthly report outlining leads, sales and conversions. Affiliates are primarily motivated by money and are particularly interested in knowing the sales conversion rate of the Merchant.
Merchants benefit from an affiliate marketing model because there is a virtual unlimited supply of ambitious entrepreneurs seeking out business opportunities to make money. Most affiliate schemes operate a commission scheme based on monthly payments in arrears, payable from the merchant to the affiliate. This is achieved either via a payment escrow service, or a cheque in the post. Some merchants eliminate or reject applications from prospective affiliates. The main reasons for this are that they do not meet their guidelines for type of website, physical location or regulatory approvals (particularly in Financial Services). The main benefit of an electronic affiliate business model is that it is fully scalable – it is possible to recruit an unlimited number of affiliates to promote your product and the cost of doing so can be negligible…
Types of Affiliate Commission Schemes
Textual adverts are the main form of affiliate marketing. These are highly customised to the users needs using
contextual advertising (based on the user’s individual search profile and IP geographic location) are the preferred method of advertisers to reach their target markets. The main types are as follows:-
1. With a pay per sale model, the merchant pays the affiliate an agreed sum of money each time a user visits the affiliate’s website, clicking through’s to the merchant website, and buys something. Most merchants affiliate programs tend to have a fixed commission schemes on a pay per sale basis. This could mean a commission based on the value for sale or a commission based on a percentage of the sale. These tend to have certain restrictions or caveats such as a minimum order a transaction value, whether the client is a new business customer or existing customer. In addition, there may be bonuses based on volume of sales over a given period. All these types of factors are used as ‘carrots and sticks’ to encourage affiliates to behave in a certain way.
2. A pay per click affiliate commission scheme is based on the number of unique visitor clicks from an affiliate website through to the merchant’s website. The user clicks on a text link with an embedded affiliate code or perhaps clicks on a search result or advert. The commission per click is a lot lower than on a pay per sale basis. The affiliate benefits from of an instant and reliable source of commission. If the number of click thorough’s from an affiliate’s site is high and conversion rates of the merchant low, a pay per click model is ideal to maximise commission.
3. A pay per lead of commission based model is typically used by merchants in situations where the product or service cannot be easily downloaded or purchased using your credit card. In addition, a pay per lead model is more appropriate in scenarios where each sale requires a telephone call-back and has a long sales cycle. For instance, where the merchant is a mortgage broker and requires the user to fill in a call back form with their contact details. Each completed contact form would count as a ‘lead’ and will be paid to the affiliates on a qualified ‘per lead’ basis.
Two Tier Affiliate Schemes
A two tier affiliate scheme is a multi tiered program where affiliates in the first level can also earn commission from a sale, generated from affiliates that they recruited to sit in the second level or ‘tier’. Typically the first tier would receive 10% commission on sales it indirectly generates from Merchant sales. In addition, the affiliate may earn a much smaller percentage e.g. 2% from sales from 2nd tier affiliates they recruited to the Merchant. A two tier affiliate program is aimed to motivate affiliates to recruit other entrepreneurs who share the same values and motivations. It requires additional sales copy marketing material and an affiliate manager software tool. This tool links affiliates together and details of any sales. Key to success is a higher margin product, where margin can be allocated two distinct levels to the point where affiliate’s remain motivated and enthusiastic.
An affiliate network website is an independently run collection of affiliate schemes. It allow its members of the network to join either one, some or all of the affiliate schemes registered with the affiliate network. Its sign up process makes the recruitment of affiliates a straight forward process. This is ideal for portal websites where a variety of different topics and schemes that can be advertised across a large number of different pages. Affiliate networks charge the Merchant to be part of the network and may even take a large proportion of affiliates commission. In exchange, the affiliate network provides the merchant with an instant access to hundreds or even thousands of potential affiliates who have already joined the network in the past. In addition, it provides a central management console for affiliate’s to track sales and leads. It is quite simply a intermediary for a large number of affiliate schemes all promoting themselves alongside their competitors. An example of an affiliate network is Commission Junction.
Success Factors in Getting Affiliate Marketing to Work
There are usually a range of factors that are critical to the success of your affiliate Marketing strategy. Firstly, high commission means motivated affiliates. A successful affiliate business model relies on selling an product with enough margin to divide up between the website owner and its affiliates. Secondly, you will need to offer a differentiated product or service. Prospective affiliates will be attracted to have something a bit different with professional online marketing literature. You must certainly try and sell to the prospective affiliate in order to engage them as an affiliate. This is primarily achieved on your ‘sign up webpage’, which should outline the key reasons why becoming an affiliate will make them money. Summarise your unique selling points, so they can clearly see there is an opportunity to make money together. Thirdly, offer quality feedback and real-time reporting. This provides continuous reassurance to motivate affiliates. Fourthly, offer excellent customer service to your prospects. This will in turn, help increases your sales conversion ratio. Fifthly, you must have a thorough understanding of online affiliate tracking software and services. This will help to ensure affiliates are paid on time, sales are allocated fairly, and new affiliate recruitment can be automated.
We hope this has provided a clear overview of the issues surrounding affiliate marketing.