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Strategies for Starting an Affiliate Program

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What’s an Affiliate Program?

If you have a product or service, starting an affiliate program can be a good way to increase your sales.  In simple terms, an affiliate program allows other individuals to sell your products and/or services by placing links on their own web site(s) and other web entities.  For every sale the affiliate sends your way, you pay the affiliate a commission on their sales.  Depending on how you set up your affiliate program, an affiliate program can help you expand your sales and marketing efforts by allowing people to sell your products and services with minimal investment, you only pay affiliates when they sell something.  

Benefits

If managed properly, the main benefits of an affiliate program is increasing sales of your products/services and building your brand awareness.  Having an affiliate program allows for people to sell your products/services, many in which may have the ability to break into niche areas where your products/services may sell well that you may not have thought of on your own.  Your affiliate base essentially is an extension of your sales and marketing team with the advantage that you only pay your affiliates when they sell something.  In the same sense, your affiliates will be posting banners and links to your products/services, increasing your advertising exposure without much (if any) monetary investment.

Planning
But before you launch a full blown affiliate program, there are a number of things that you need to plan and strategize about:

1)  Commissions/Affiliate Payout


Looking at your products/services, determine how much you are willing and can afford to pay your affiliate per sale.  Keep in mind to look at how much a customer is worth to you for a lifetime and not just the individual sale.  For example, if you are selling a subscription to a service (customer pays for the subscription on a periodic basis), you can pay affiliates a higher amount for the sale because, in most cases, the affiliate only gets credit for the initial sale (not recurring subscription renewals).  

As well, a regularly used strategy in enticing your affiliates is to provide them with an incentive to sell more.  Some companies like using the tiered model, where the more sales you have, the higher the payout per product.  Using the subscription example above, you can start all affiliates at $10/subscription sold.  If the affiliate sell over 50 subscriptions in a given month, their commission per subscription would increase to $12/subscription.  You can tier the incentives for certain thresholds with a specific maximum.  This strategy puts the ball in the court of the affiliate to do well, the more they sell, the more money they make.

2)  Third Party Affiliate Network VS. Building In-House Program

Using a Third Party Affiliate Network
There are many trusted third party affiliate networks out there such as Commission Junction, LinkShare, PepperJam, Google even has their own affiliate network.  Using a third party affiliate network is a great way to get your affiliate marketing efforts off the ground in minimal amount of time and monetary investment.  

Advantages:  
Immediately have access to hundreds of affiliate marketers ready to sell your product.
Robust tools for ease of managing your affiliate program.
All metric reporting (sales, commissions, click through rates, conversion rates, etc). is tracked through the affiliate network interface.
Reliable and regular commission payouts are handled by the affiliate network.
Disadvantages:
Affiliate networks can charge a hefty fee for using the network (around 2-3% of total sales or 20-30% of total commissions with a monthly minimum).
You are at the mercy of the affiliate network should a glitch in the program occurs.
Reporting and commission customization based on your affiliate needs are restricted to ability of the interface.
Does not help link building in SEO (search engine optimization) efforts.
Building Affiliate Program In-House
Some companies do not like the idea of using a third party and want to build their own affiliate platform in-house.  Building your own affiliate platform allows you to have complete control, making changes and customizations based on your affiliate needs.

Advantages:
No need to pay large monthly fee that cuts into your bottom line.
Better flexibility, you can change and customize over time based on your affiliate needs and wants.
Consistency in trust and branding (affiliates don’t have to wonder which site they are on).
Can use your affiliate program as a strategy for your company’s SEO (search engine optimization) efforts.
Disadvantages:
Can be costly and time intensive.
First few months of launching program may be filled with glitches and can discourage affiliates from selling your products and/or services.
Must actively promote and market in order to gain and maintain an affiliate base.
Regular management of the program can be time consuming (sales tracking, reporting, commission payouts, check cutting, etc).

3)  Reporting and Tracking


Whether you are looking to use a third party affiliate network or building your own in-house affiliate program, reporting and tracking are crucial entities needed to be successful.  If affiliates are aggressively pushing your products/services, they want to know if their efforts are paying off.  In the same sense, affiliates also want to track which links and banners are converting the best, so offering tools that allow affiliates to track those metrics are vital.  Some affiliates will push for live reporting, but most will be happy with a day lag (metrics are posted the morning after the actual transaction date), waiting a week is far too long.

From a merchant standpoint, you want to be able to track all sales coming through your affiliate channel, as well as having the proper reporting in place as a “checks and balances.”  You always want to be proactive to ensure that metrics, and more importantly, commissions are being reported correctly.

4)  Affiliate Management


A designated person or team (if your affiliate base is enormous) needs to actively manage the affiliate program, it’s not something you can have sit there with the hopes that sales will magically appear.  The 80/20 rule absolutely applies to an affiliate program, roughly, 80% of your revenue generated from your affiliates will be generated by 20% of your affiliate base.  Those 20% need to be managed, encouraged and nurtured.  It’s sad but true, the affiliate world is fickle and if affiliates feel like they are not making the money they should be or are being neglected, jumping ship to the competition is never a problem.  Regular correspondences with these 20% can go a long way, making sure they have what the need in regards to reporting, marketing material even commissions.  The more loyal you are to your affiliates, the more loyal they are to you.

5)  Marketing and Promotional Plan


Planning out a marketing strategy to entice your affiliates to sell more can be beneficial to your program.  Whether it’s refreshing your marketing collateral on a regular basis, offering promotions, email campaigns, giving bonuses, these are all strategies that will help prevent your affiliates from getting bored and grow stagnant in their performance.  Some ideas are:

Update all marketing collateral on a regular basis (quarterly recommended).
Offer threshold bonuses (example:  if you sell 20% more than you did last month, get a $500 bonus).
Offer opportunity to sell products/services at a discounted rate for a limited amount of time.
Showcase affiliate of the month.
As well, developing a strategy to recruit new affiliates will be vital to your program.  Blogging, social media networks, even contacting affiliates selling your competitor’s products/services, all these will help you grow your affiliate base, and hopefully drive more sales.  Note that quality is normally better than quality, and focusing on the quality will make your life a lot easier.  As noted above, roughly 20% of your affiliates will bring in 80% of the revenue, so the affiliate recruitment strategy is to find affiliates that fit into 20% range.  Managing 20 affiliates that bring in 80% of your revenue is a lot easier than managing 80 affiliates that bring in 20 percent of your revenue.

Starting an affiliate program can be a great way to get a boost in your sales and get more exposure.  With a bit of planning, proper management and aligning the program with your business goals, there is not a reason why you can't launch a successful affiliate program for your business.
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Expert Comment

by:Jim Horn
Voted Yes.  

Couple of observations
The link to (search engine optimization) is bad.
The bulleted lists changed in the last couple of years, and should be edited.
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