Let’s say that you’re running a company that specializes in shoes. Your customer base knows that you’re a shoe expert but also values your input on other high quality products — like handbags. Maybe your customers have asked you about handbags, and you find yourself recommending the same options over and over again. As a shoe vendor, you’re acting as a marketer for the handbag company.

Wouldn’t it be great if you could finalize the deal?

With affiliate marketing, you can.

Company A directs Customer to Company B where the transaction occurs.

Company A then earns a commission from the transaction on Company B.

Affiliate Marketing Quick Facts

The earliest days of affiliate marketing stem back to the 1990s, around the time that Amazon launched its Associates Program (which still exists).

Affiliate marketing as grown quickly since its inception. One report points out that the worldwide affiliate marketing industry is worth $6.5 billion across sectors including retail, personal finance, gaming, gambling, travel, telecom, education, publishing, and forms of lead generation.

Affiliate programs are both consumer-based and business-to-business oriented.

Most affiliate programs follow a revenue sharing or pay per sale model. A small proportion follow cost-per-action. CPC and CPM payment methods are much more rare. Typically, commissions are fixed up-front, as part of a standard program.

Participants in the affiliate marketing ecosystem are typically known as “publishers” or “advertisers/merchants.” An advertiser/merchant is the provider of the offer. A publisher promotes the offer. A publisher can also be an advertiser — they are not mutually exclusive roles.

Here is an example of affiliate offers on a mom blog. Here, Amazon is the advertiser/merchant, and 3boysandadog.com is the publisher:

Some advertisers offer programs in tiers. Once publishers reach certain thresholds, they can begin to earn higher commission rates.

Affiliate programs are appealing to advertisers because there is no loss involved. It’s entirely based on “pay per performance.” In other words, advertisers pay for incremental sales, only.

What businesses cannot do is rely on its affiliate program to replace its sales stream. Advertisers need to actively build their own sales and marketing arms. Publishers are typically third parties and are independent entities.

Advertisers have limited ability to control publishers. If they don’t sell? Tough. Publishers might be open to hearing an advertiser’s suggestions, but ultimately, the two entities are independent from one another.

The Most Popular Affiliate Programs

Merchants can host their own affiliate programs or distribute offers through one or more established networks. An affiliate network is, essentially, a matchmaking service between merchants and publishers. Affiliate networks monetize by taking a portion of the commission.

The most popular programs are:

• Amazon Associates: Bloggers, large content sites, or large networks can choose products to market directly to their customers.
• Commission Junction: This affiliate network works primarily with large consumer brands to distribute their offers.Publishers who wish to join the network can choose from pay-per-call, lead generation, and even international solutions.
• ShareASale: This affiliate network features opportunities for B2B.

Does Affiliate Marketing Work for B2B?

ffiliate marketing can be a challenge for the B2B landscape, but success is entirely possible. For a publisher to succeed in driving sales, web traffic is key — typically, a publisher will need to generate significant traffic to generate any significant return.

If you’re a high-traffic publisher, it can be worthwhile to feature B2B offers, and revenue potential tends to be much higher, even though there are fewer sales (there are higher dollar-value transactions).

B2B advertisers may find success in working with publishers who run B2B blogs. Conversely, merchants may find success in promoting complementary products and services that are of interest to its customer base.

Check out some of Heidi Cohen’s offers, for instance. She runs a blog about marketing, so she’s promoting offers that her audience would care about — links to free guide and whitepaper downloads as well as the opportunity to sign up for a conference.

If you run a B2B blog, and you want to promote affiliate deals (but you don’t want to sell), check out RevResponse. This affiliate network will pay you to promote free resources to your readers. You’ll be paid between $1.50 and $20 per download. The value to the advertiser is that they will be able to connect with your audience. If you run a content marketing program, you can use this platform to reach audiences outside of your existing visitors.

Is Affiliate Marketing Right for You as an Advertiser?

The first step is not to go out and research potential affiliate networks.

To answer this question, you need to think about the following questions:

1. What products or services would you advertise on an affiliate network?
2. Who would be potential publishers?
3. What would you expect the yield from these services + publishers to be?

These questions will help you forecast your revenue potential. Is the market big enough for you to pursue? If not, you should invest your limited time and resources into higher yield marketing opportunities.

An important step is to get out and talk to prospective publishers and business partners. Do they participate in affiliate programs already? What has the yield been in terms of performance? What are the typical revshares that ad networks are taking? What are typical conversion rates? What would be the incentive for publishers and business partners to promote your products and services?

Real data and partner insights can help you better understand the role of affiliate marketing in helping you meet your market demand.

After completing the exercises above, you will have determined whether affiliate marketing is right for you. Once you’ve come to an answer of “yes,” you need to make the following decision:

Should you join an existing affiliate network or create your own?

The answer to that question will stem from a simple cost/benefit analysis.

1. Is there an existing affiliate network that aligns with your company’s products and services?
2. What is this affiliate marketing company’s track record? Do you feel confident in the company’s ability to deliver results?
3. How much time would it realistically take for you to build an affiliate network from scratch? Do you have someone on your team to oversee this initiative by forming relationships with publishers, handling disputes, troubleshooting technical problems, and making sure that payments are sent on time? Do the anticipated returns justify the invested time?

If an affiliate network doesn’t exist for what you need and you think that the ROI is worth it, you should definitely go and launch your own. But keep in mind that you’ll need to devote resources to get this up, running, and profitable.

Is Affiliate Marketing Right for You as a Publisher?

If your organization is looking to promote affiliate deals, you need to ask yourself these key questions:

1. Is this a viable revenue opportunity?
2. Does promoting affiliate offers align with user experience goals?

If the benefits outweigh the costs, the first step is to run a small test on a (random and representative) cross-section of your web traffic. Do your users convert? Are affiliate deals complementing or creating a distraction from your core business lines?

If you see a tangible return on your affiliate deals, you can gradually scale up your test by increasing the percent of your web traffic that sees it.

You have a range of options for hosting affiliate deals on your website. You might want to run these on the sidebar of your blog (like Heidi Cohen) or at the bottom of a piece of content (if you’re a mom blogger like 3 Boys and a Dog. If you’re running a B2B organization, you could have a portion of your site devoted to partner offers).Test different placements of your affiliate offers rather than confining them to one area of your website.

Be Generous

Treat your affiliates are your most valuable partners, and they’ll jump to do business with you.

Around 2007, entrepreneur Mike Geary from The Truth about Abs joined Clickbank’s affiliate program. He noticed that most merchants in the network were paying between 35% and 50% to their affiliates. Because he was selling a digital product, he had leeway to be more flexible with payouts — he didn’t have much overhead.

This sounds crazy and over-the-top generous. It was. But here’s what happened.

Hundreds of affiliates noticed Geary’s payout and switched their traffic to point to his website. Out of more than 10,000 products being sold on Clickbank, Mike’s product shot up to being the top sold, which drove even more attention to his company.

According to Mike, his revenue is around $1M per month.

Case Study: CrazyForBargains.com

Here is a great case study from Practical Ecommerce and CrazyForBargains, a family-owned retailer of high-quality sleepwear. The company has been around for more than 10 years — Melissa Canepa Murphy launched their e-business in 2002.

In 2004, Murphy launched an affiliate marketing program on the ShareASale platform with the goal of developing a diversified revenue stream for her business. At the time, the majority of her web traffic was coming in through search engines. As of 2012, the company still relies on search engines, but they have developed additional (healthy) revenue streams.

Murphy has grown the affiliate channel to represent 11 percent of her overall revenue. She hopes that she will be able to grow that number to 20 percent. What she likes most about the affiliate channel is that it is performance based — instead of paying for ad placements and hoping that they work, she pays a 12 percent commission on actual sales generated. The program tracks sales based on a 365-day cookie, which means that affiliates earn commissions on repeat purchases that occur within one year of the initial referral.

At the beginning, Murphy created her own affiliate program in house. She found that this process was a major time sink — she had to take the time to constantly monitor her program and remember to pay affiliates regularly. She made the jump on an affiliate network, where she could immediately access tracking, reporting, and payment systems (as well as instant access to affiliates who were more-than-ready to help sell her products).

In 2009, she also hired an outsourced program manager to run the affiliate program — she pays him between $2,500 and $5,000 per month. The variance depends on whether or not there are performance incentives in place and whether or not there is a need for additional services like design and development.

Maintain a Personal Touch

Interpersonal relationships have been crucial to the success of Murphy’s program. She frequently consults with top affiliates directly to keep communication open. She’ll also adjust her product mix and merchandising to increase conversion rates to drive mutual profitability and long-term value. CrazyForBargains takes these key steps to stay active in the affiliate community:

• Participate in forums
• Purchase PPC advertising
• Attend marketing conferences
• Actively recruit new affiliates

Remember that there’s a person on the other side of the computer screen. Form lasting, business-to-business relationships. Hop on the phone. Meet your top affiliates over the phone. Strategize together.

Case Study: Groupon

Until 2009, Groupon was considered to be a significant failure. But at the end of 2010, their traffic exploded. There was even speculation that Google would buy Groupon for $5 billion dollars.

Groupon eventually went on to float the largest IPO from a web company since Google.

What sparked this growth? Two words: affiliate marketing.

One important part of Groupon’s strategy was to cut out middlemen — affiliate networks that took huge cuts from the revenues generated. Instead, Groupon focused on creating direct relationships with affiliates.

Groupon would then sync up with influential publishers. Keep in mind that thanks to social media, you don’t need to be a publisher to have a following — you can promote affiliate deals to your social media network.

Groupon knew that they needed to make life easy for affiliates, so they pre-made banner ads for partners to use. Each day, affiliates would automatically receive new deals — all tied to a single affiliate ID. This strategy fueled Groupon’s growth.

Groupon went out and built affiliate relationships from the ground up. Here’s what you should learn about building your own.

Lessons learned from Groupon:

1. Reach out to bloggers: Approach individual bloggers who are aligned with your product and industry and ask if they would be interested in being an affiliate. Don’t just target big-name bloggers. Find influencers who support your brand and have a strong connection with your audience.
2. Connect with social media influencers: Hunt down mid-to-small range social media enthusiasts who may be interested in joining your program.
3. Partner with publishers: Ask key publishers and media outlets if they would be interested in reviewing your products and services. Keep in mind that most big sites won’t want to write about your affiliate program or deal. You’ll likely find better luck with smaller publishers.

How to Get Started with Affiliate Marketing

Here are the steps that you need to take to launch your own affiliate program:

1. Look at your current audience
The key to getting your affiliate program off the ground is to find the right affiliate for your company. Start by looking at your blog readers, email subscribers, and social media followers. Some of these folks are current, previous, or future customers.

2. Define how you will market your affiliate program
If you want a successful affiliate program, you will need to market it outside of your existing user base. Affiliates won’t just randomly find you.

• You need to actively recruit them by hunting down bloggers and website owners who could promote your product or service. Also look for publishers with email lists.
• Another option is to go through networks and have them recruit affiliates for you.
• There’s no reason why you can’t start your own affiliate network while participating in a third party’s. When you’re getting started, do a bit of both.

3. Focus on acquiring traffic
Traffic acquisition is critical to the success of your affiliate program. Help your affiliates drive more traffic, and most importantly diversify your traffic so that you’re not relying on a single affiliate for your business. Use paid traffic sources and build relationships with bloggers.

4. Announce the program
Take the time to make sure that your community knows about your affiliate program. Publicize your affiliate program on directories like OfferVault, PointClickTrack or 5 Star Affiliate Programs and relevant forums.

5. Measure results
If you want to grow something, you need to measure it. Use your analytics tools to figure out what is and isn’t working.

Key Takeaways on Affiliate Marketing

1. Unlike most marketing channels, you only pay per transaction with affiliate marketing. In other words, you only spend money when you make money. This strategy is important for small businesses that have limited resources to spend on advertising.
2. It’s easy for anyone to be an affiliate — even if you don’t have a website. You can rely on your social media channels, entirely.
3. If you make things hard for your affiliates, no one will want to work with you. Make the process as seamless as possible.
4. Treat your affiliates as trusted business partners and advisors. Work with them towards a common goal — to amplify sales for your product.

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