Thursday, 17 September 2009

Key considerations: Affiliate Marketing

Recent Affiliate Marketing Statistics

The UK market for affiliate marketing grew by an estimated 45% in 2007, taking the total value of online sales generated through this channel to more than £3.13 billion. [Econsultancy, January 2008]

Commissions and fees paid out to affiliate networks (covering payments for both networks and affiliates) amounted to £186 million in 2007, up 40% from £133 million in 2006 (and compared to £83 million in 2005).

The UK affiliate market was worth £3.82bn in 2008, a 22% increase from £3.13bn in 2007. An estimated £227m was paid last year in commissions and fees to affiliates and networks. [Econsultancy Affiliate Marketing Buyer’s Guide 2009].

What is Affiliate Marketing

Affiliate Marketing is a practice where other sites advertise your products or brand. These are called “affiliates” and in effect can be classed as an ‘online sales force’, a secret army to increase your conversions. Should a user then click through to your site from an affiliate site and make a purchase you pay the affiliate a commission on that purchase. Commissions vary from sector to sector, but I would expect to start at 2% to 5%.

Management, tracking and payment to affiliates can be handled direct with the affiliates but it is best practice for management to take place through an independent 3rd party; an affiliate network.

Affiliate networks handle all of the day to day tasks involved with operating an affiliate program. Along with you they make sure the ‘online sales force’ are happy.

They usually operate on a tiered management system, where you decide the level of involvement you require, from “basic” where they host your product information feed, pay the affiliates, provide an online management control centre, and then leave you more or less to it, to a managed account where they also provide an account manager who will dedicate time each month to optimising your program, acquiring high quality affiliates for you, Basically, actively promote your program.

There are a number of Affiliates networks out there each with a varying number of Affiliate clients. They all perform a similar function to a greater or lesser degree. They are generally judged or measured by the number of affiliates they have, the commission level they charge, and the service they provide to you.

Set up Costs:

Networks usually require a one off setup fee – usually £1,000 to £2,000.

Operating Costs:

Commission - Starts at around 5% - this is what is paid to the affiliate site and is percentage of the sale value.

Override fee - This is paid to the affiliate network – usually 30% of the commission paid to the affiliates.

Management – Depends on level of service required and network, but for a reasonable network £220 per month for basic package and £500 for managed.

Affiliate programs take time to become established but in the long term can be a highly cost effective method of customer acquisition.

Affiliate Marketing campaign goals

Consider the purpose/aim of your affiliate campaign:

• Bring new customers to the site• Deliver incremental business• Compliment existing advertising for brand recognition.• Build relations with your secret sales force

Choose approach

• Incremental sales and brand awareness – campaign structureUse Affiliate marketing to fit in with current campaigns, offers, top sellers. Maximise HALO effect of other marketing media

• Steady sales – flat structureProvides consistent volume of traffic from the affiliates based on small number of ads. Disadvantage of this is that Affiliates can become complacent and tiered commission level remains the same even if products become uncompetitive.

Compliment existing advertising

When using Affiliate marketing to integrate with other online activity and when looking for incremental sales, consideration needs to be given to the below:

• % AD spend: Fixed budget versus unlimited
• Channel conflict: Agency PPC vs Affiliate PPC
• Brand Management: Volume v Control
• Measuring effectiveness: Cost per acquisition and Return on Investment

Monthly reporting can include

• Success of creative and changes required, creative held on central hub
• Sales funnel analysis
• Review quality of customers by each affiliate
• Long term profitability by individual affiliates
• Maintain creative consistency across all affiliate sites
• 30 – 90 day review of affiliate sites.
• All the above working to a 90 day plan from launch – and into the future, be ready to surprise your Affiliates with some great offers.