Affiliate marketing: Your virtual salesforce
Last year, sales of £3bn were produced by affiliate marketing. Here's how to get in on the action
Last year, £3bn worth of sales was produced by affiliate marketing. But who are these virtual salespeople, and how can you get in on the action?
When you spend money on advertising, it’s often a bit of a gamble. Even if you know your audience inside and out and your messages are highly targeted, you still can’t be sure that your investment will boost sales. With affiliate marketing, the risk is mitigated. This form of performance-based promotion means you only pay out when you make a sale, offering a transparent return on investment. We spoke to some industry insiders to get the lowdown on how to get the most from affiliate marketing.
How does it work?
“We see the affiliates as your extended salesforce,” says Jen Brain, senior affiliate manager at marketing agency, Bigmouthmedia. Essentially, this is a form of online marketing where website publishers (affiliates) drive traffic to merchants (usually online retailers), earning a commission if this leads to a sale or specified action taking place, such as filling in an application form.
Unlike most other forms of web marketing, it works on a cost per action (CPA) model. “They’re not getting paid for every click they drive to a merchant, or every impression of a banner. They only get paid when they generate a confirmed sale,” says Samantha Leigh, head of communications at Affiliate Window, an affiliate network.
Affiliates range from content sites dedicated to specific types of products, to price comparison sites, voucher code sites, and blogs. They use many promotional methods to drive traffic to merchants, including text links, banners, emails or even video content – each with a piece of tracking integrated to monitor whether a click-through results in a sale.
As a marketing method, it’s typically undertaken by business-to-consumer companies, often online retailers, although financial services firms are increasingly using it for lead generation.
“The only real area that currently struggles with affiliate marketing is B2B,” says Leigh.
“That’s because affiliates tend to be in contact with consumers, and there isn’t really anywhere that businesspeople meet online. LinkedIn could potentially become an affiliate, driving traffic to sites that offer B2B services.”
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In the UK, the affiliate landscape is quite unique. According to Brain, there are 10-12 good sized affiliate networks, more than most other countries. The US has around three major players. Different networks have their own niches. Some are multinational, for example Tradedoubler has a strong European presence. But they all run programmes for every type of merchant, and all have their own tracking technology.
“If you don’t have a trusted technology platform, affiliates aren’t going to trust your model,” says Brain, who adds that when choosing a network it’s important to look at how many affiliates are active. “The networks will often say ‘we’ve got 250,000 affiliates signed up,’ but only 20,000 of them are actually driving traffic.”
Affiliate programmes can be set up in a number of ways. “One of the concerns merchants sometimes have is, ‘I don’t know where my brand is going to be appearing’,” continues Brain. However, if managed effectively you will have control over this.
The amount of control you have depends on how you run your programme. Brain says there are three main models: open, where anyone can sign up to promote your brand; approval-based, where you can approve them first, or a closed group, where you don’t put it out to market, but invite individual affiliates to join.
At Affiliate Window, the network has a consultation with new merchants to determine who their audience is and the type of people they want using their website. They then recommend affiliates with a strong history of driving traffic in that sector.
They will advertise new merchants on their blog, the industry forum (Affiliates4u.com), their weekly newsletters and even on Twitter. “But you can’t force an affiliate to work with a merchant,” stresses Leigh. “Affiliates make a decision as to whether they are going to sign up to that programme.”
Online gadget retailer Firebox works with a number of affiliates. “They range from gadget blogs, to reward schemes, to affiliates who only promote us through Google pay per click. Lots of them are experts in their particular area, so it’s great to have them promoting Firebox,” says online marketing manager, Naomi Brown.
As well as using two networks, Affiliate Window and Affiliate Future, they also recruit themselves. “We’re active on affiliate forums and attend events to encourage new affiliates to talk to us and start working with Firebox,” Brown adds.
One of the biggest benefits at the moment is the lower risk. “With the nature of the market at the moment, people are moving to more of a CPA model, because they know they’re only paying when they get the acquisition,” says Brain. “But it’s a twofold thing – you’re also getting branding out of it, but essentially, you get the branding free of charge unless you’re making the sale.”
Managed effectively, it can also be extremely successful. The industry consensus is that well run affiliate campaigns boost online sales by an average of 15%. However, 20-25% of sales at Buyagift, an online gift retailer, come through affiliates.
To put that into context, turnover was more than £15m last year. The business has around 4,500 affiliates, although not all are active and it’s often a case of a small number driving most of the sales. They range from content sites, where people write about the gift experiences, which is “great for the search engines”, to loyalty sites, pay per click and bloggers.
Graham Keen, affiliate marketing manager at Buyagift, puts the success down to the performance-based model. “The affiliate knows they’ve got to try and get that good traffic through to you, to make it convert, or else they’re not going to earn anything. It means everyone puts the effort in.”
Brain believes one of the main benefits is the access to niche retailers and the long tail of the market. “It’s about tapping into those incremental sales you wouldn’t get through any other channel,” she says. “You’re getting your brand on sites it wouldn’t normally have appeared on.”
Commission can be a percentage of basket value or a flat rate, depending on whether you’re using it for sales or lead generation. How much you pay will depend on a number of factors. Conduct a competitor analysis, identifying affiliate programmes in your marketplace. Look at how much your rivals are paying, and what incentives they’re offering.
You also need to consider how much margin you’re making. At Affiliate Window, merchants can set up commission groups within their account. “If I was a gardening website, I might have a really small profit margin on seeds, and could only afford to pay 2% of the basket value. On my sheds I make a big profit margin, so I’d incentivise affiliates to push sheds by offering them a greater commission, say 10%, because I could afford to,” says Leigh.
Buyagift was losing money selling attraction tickets, and had to put a new commission level in place. But Keen advises against making a campaign too complex: “I think you can be overzealous about it and put in so many different levels that it can become a bit confusing,” he says, adding that you need to be sure about exactly how much you can afford to give away.
“Often people launch into their programmes, throw a load of money at it, and then a month later say, ‘we’ve got to cut back’. It sets a bad tone from the outset.”
Making it work
Before you start, you need to make sure your website is already working well. “When affiliates are looking at taking up a programme, they aren’t just going to consider the commission rate, they are going to look at the conversion rate of the website,” says Brain.
“The quality of the site they’re driving traffic to is important, because they could be offered £100 per sale in commission, but if they’re only going to convert one in 10,000 clicks, then it’s not going to earn them any money.”
According to Brain, one of the biggest, and most common, mistakes that business owners make is to set up an affiliate programme and then just let it run. “You need to tweak it on a regular basis. That instils confidence in your affiliates as well because they know that you’re embracing the channel, you’re willing to invest in it and to assist them in driving traffic.”
Successful affiliate programmes thrive on communication. Keep your affiliates up to date with news of new products, key successes, price cuts or any incentives you’re running. At Firebox, commission rates are tiered, so those who make more sales can earn a higher rate as a reward.
“We don’t have set criteria for affiliates, but I find the ones who bring in the most new customers are those that can find new ways to talk about our products,” says Brown.
That said, it helps to provide affiliates with a range of different tools, be it banners, copy for emails or their website and a product feed – a spreadsheet with details of all your products.
“It’s important to give them plenty of information about products so they can create relevant links quickly,” says Brown. “This can be automated – we have a feed that affiliates can download. They can even plug it into their own site to use for functionality, such as price comparison. It gets updated on a daily basis, so the information stays accurate.
“We give affiliates access to banner ads, product videos and text links. Of these, text links bring in the most sales – an affiliate will write an article or paragraph about Firebox and link some of the words within it to relevant pages on our site. PPC adverts also count within the text link category.”
Is it for you?
Before you start, think about all the costs that affiliate marketing might entail. When looking at your profit margins, don’t just think about the commission you’ll be paying out, but also the network fee, and whether you’ll be paying an agency or someone to run the programme in-house.
Brown recommends reading the IAB (Internet Advertising Bureau) handbook on affiliate marketing before you start (www.iabuk.net).
“The most common pitfall is not getting the basics right before launch,” she says. “Don’t expect affiliates to come to you. If you want to stand out from the crowd you’ll need to really shout about your company and programme. Think about your unique selling points and why affiliates should promote you.”
Keen concurs: “You get out of it what you put in. Merchants that put a lot of time and effort into their affiliates and understand it seem to get the rewards and the loyalty, more than the ones who see it as a cheap and easy way to get traffic.”
A rundown of affiliate marketing buzzwords and what they mean
CPA – cost per action. Commission model where you only pay out when a pre-defined action takes place. This differs from the CPM (cost per mille, ie per thousand impressions) model typically used for display ads
Network override – the way the networks make their money. A percentage of the commission is paid to the network on top. The industry standard is 30%
Content widget – A dynamic promotional tool that links back to different areas on your site (whereas a banner will link back to just one page). Affiliates can hand-pick products to promote in the space, with each one linking back to the page where that product sits on your site