Bo Bennett once said, “Affiliate marketing has made businesses millions and ordinary people millionaires.”
At the same time, affiliate marketing has a mysterious aura. Many of the top search results for the term focus on what it is and whether you can make money from it.
The truth is that it’s not all that mysterious. It’s nothing more than another marketing channel for you to experiment with, analyze, optimize, and grow.
What is affiliate marketing?
Affiliate marketing is “a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.”
Think of affiliates as an extension of your in-house marketing team. Instead of a salary, you pay them for each new lead or sale acquired as a result of their marketing efforts.
Some people confuse affiliate marketing with referral marketing. Referral marketing is “a method of promoting products or services to new customers through referrals, usually word of mouth.” So, instead of working with marketers, you’re working with existing customers.
Here’s how ReferralCandy explains the difference between the two…
Now, I’d argue that “altruistic” isn’t the correct word for modern referral marketing, as many programs are incentivized with gift cards, additional features, swag, etc. But you do see a clear distinction between the two.
How does affiliate marketing work, exactly?
Let’s say you’re the VP of marketing at a travel company. You might decide to start an affiliate marketing program to help you reach new audiences. You start with two affiliates: Kim and Jim.
Kim and Jim are now spending their days driving targeted traffic to your beach vacation landing page.
There are different ways to structure your affiliate payouts. For example, one affiliate program might pay Kim a commission whenever a visitor she referred leaves their name and number. Another affiliate program might not pay Kim a commission until that visitor makes a purchase.
What is an affiliate network?
If you’ve read about affiliate marketing before, chances are you’ve heard of affiliate networks. An affiliate network is where affiliates can go to find reputable offers to promote, and where advertisers can go to find lots of affiliates.
MonetizePros explains the benefits of affiliate networks well:
To over-simplify, the network exists to:
- Match up merchants and affiliates;
- Handle the administrative aspects of an affiliate-merchant relationship;
- Protect affiliates.
The “matchmaking” service–offering access to a pool of merchants–is the role of a network that likely comes to mind first. But the administrative workload handled by networks can’t be overlooked; they handle all the tracking, reporting, and payment processing that arises.
Affiliate networks take a lot of the administrative and logistics work out of managing an affiliate program. They also give you access to a bigger pool of affiliates. However, affiliate networks expect a commission from you as well, which cuts into your profit margin.
What does an affiliate marketer look like?
So, who are these affiliates? Well, according to the last Affiliate Marketing Benchmark Report, which was published a few years ago:
- 57.4% of affiliates live in the United States; another 9.7% are in Canada.
- Most are from either California (13.5%), Florida (12.7%), New York (11.1%), Texas (10.2%), or Nevada (8.9%).
- 54.2% identify as male and 43.0% identify as female. (Some 2.8% preferred not to answer.)
- 35–44 is the most common age bracket (31.9%), followed by 25–34 (27.6%).
- Most affiliates are married (55.3%) with kids (62.4%) and work from home (54.3%).
How to optimize your affiliate marketing program
When optimizing an affiliate marketing program, you should focus on two things:
- The quality of the traffic your affiliates send you.
- The conversion rate of your landing page or offer.
As Robert Glazer of Acceleration Partners explains, most affiliate marketing programs aren’t even properly managed, let alone optimized regularly:
In the best-case scenario, their programs don’t reach their full potential. But in the worst-case scenario, they become a branding liability and an actual cost center if margins and fraud aren’t properly managed.
Here are the basic principles you can use to grow your affiliate marketing program and generate more profit.
1. Carefully analyze your customer and revenue data.
Before you can run a successful affiliate marketing program, you have to analyze your data carefully. Here are some questions to ask yourself:
- Do you know the value of a new customer?
- Do you know the value of a repeat customer?
- Are you aware of lifetime value?
- Are you aware of your profit margin on every type of sale?
- Are you aware of your cost per acquisition on other channels?
To structure your affiliate payouts properly, set affiliate guidelines, and measure the success of your program or optimization efforts, you need a clear understanding of all of the above.
B2B affiliate programs look a little different.
According to that same benchmark report, most affiliates work in the B2C space (81.4%). Still, they’re active in the B2B space as well (19.6%).
As Steve Root of Xero explains, B2B affiliate marketing programs must structure their affiliate payouts differently:
Unlike B2C programs, where commissions are typically paid on low-dollar individual purchases, many B2B programs pay on a much higher individual sale amount or recurring subscription model.
When an affiliate is referring a new customer, make sure to align your compensation appropriately—in a manner that’s commensurate across the lifetime value of the customer.
Not aligning commissions with LTV will create distrust among your affiliates.
2. Choose the right affiliates for your company.
Choosing the right affiliates is perhaps the single best indicator of affiliate marketing program success.
Since the benchmark report indicates that 42.2% of affiliates promote no more than 10 programs at one time, good affiliates are in high demand.
Recruiting affiliates is a time-consuming process if you’re dedicated to doing it right. Of course, it’s also a task that never ends. You should always be on the look out for qualified affiliates to join your program.
Glazer explains it well:
The recruiting and activation phase is the lifeblood of your program, but it takes time and specialized talent, relationships, and tools.
A program can’t grow if you’re not reaching out to new, high-quality people and dedicating time and resources on a regular basis to help them gain traction.
Here are some factors to consider:
- Has this affiliate worked in this industry before?
- What other offers are they promoting?
- Have they worked with this demographic before?
- What type of sites do they run?
- What methods do they use?
How to onboard your affiliates
Activating affiliates and helping them achieve their first sales can be hard, but the results will show in time and you will notice an increase in volumes as well.
The sooner they understand more about your products and how to promote them, the sooner the results will come.
- Assign every affiliate an affiliate manager right away so that they have a dedicated in-house contact.
- Make sure all affiliates really understand your product or service offering.
- Make sure all affiliates really understand your value proposition.
- Make sure all affiliates really understand your brand and brand voice.
- Share user demographics and customer research.
- Share top-performing traffic sources.
- Share top-performing channels.
The more information your affiliates have—and the more they’re able to perform like an in-house member of your marketing team—the better. It means they’ll waste less time on methods that just don’t work and get right to the good (or untested) stuff.
Beware of affiliate networks
Aside from the fees or commission, there are other downsides to working with an affiliate network.
One is that you have less control over the quality of affiliates running your offer. The other is that turning all of your affiliate marketing program management over to a network blindly, even if you’ve vetted the network carefully, can be dangerous.
Many firms have turned over their entire programs to a network for “management,” which presents a serious potential conflict of interest.
The network is in charge of making key decisions on the company’s behalf, but part of your strategy includes choosing which networks you should work with in the first place, tracking how they’re doing and determining what you should be paying them.
Additionally, since the networks earn a fee from affiliate sales, they have financial interests that can drive self-serving decisions.
3. Communicate with your affiliates often.
For affiliates, their relationship with an affiliate manager is crucial. They typically join, promote, and terminate programs because of affiliate managers.
Not only will communicating with your affiliates often benefit them, it will benefit you as well. Here’s how:
- Affiliates will be better equipped to promote your products or services to the right people.
- Affiliates will be more likely to join and less likely to leave if assigned a useful affiliate manager.
- Affiliates can share their learnings with you, which can help you guide other affiliates and in-house operations.
Try asking your affiliates:
- “How is the campaign performing compared to similar campaigns?”
- “What is your volume potential? How can we scale up?”
An affiliate manager and a regular newsletter should do the trick.
How to activate latent affiliates
Dobjanschi suggests reaching out to latent affiliates, in particular, to reactivate them:
On average, only 7–10% of the affiliates registered to a program are actually driving traffic and conversions.
This means that there’s another ~90% of affiliates that could become productive, and you already have their details.
She breaks down latent affiliates into three categories:
- New affiliates who didn’t start promoting or selling after three months. Try giving them an increased commission for a limited time or a bonus when they reach their first milestone.
- Old affiliates who registered to your program but have no activity so far. Keep them updated about new offers, products, and seasonal campaigns. Or, try simply asking them what they’ve been up to and why they stopped promoting your offer.
- Affiliates that used to sell but are now inactive. Look at what they used to do for you in terms of promotion and rebuild the relationship based on that. If you haven’t already, introduce them to an affiliate manager.
Rewards and bonus schedules
Rewards and bonus schedules are not just for latent affiliates, though. If your profit margins allow, limited-time-only rewards and bonuses can push affiliates to dedicate more time to your offer. For example, if Jim generates $5,000 in revenue this month, you offer him a $500 spot bonus.
Again, this is where tracking everything and being very aware of your data and profit margin comes in handy. Otherwise, you won’t be able to offer these types of rewards and bonuses without compromising profit.
4. Be aware of affiliate methods and restrict them, if necessary.
Affiliates use a variety of methods to generate traffic. Here are the most popular methods, according to the benchmark report:
- SEO (69.2%);
- Social media (67.3%);
- Blogging (64.5%);
- Email marketing (41.5%);
- PPC (34.3%).
But, of course, the list of methods extends well beyond those five:
As a result, many affiliate programs have method restrictions. For example, the offer can’t be promoted via email or PPC.
Why? Consider your existing efforts. If you’re running PPC campaigns, for example, it might be counterproductive for your affiliates to run them as well—you risk competing with them in search results.
What you do want to do is share with your affiliates the channels that work and those that do not. Most affiliate networks, for example, allow you to search for affiliates by their primary promotion method. That might be:
- Email marketing;
- Mobile app;
- Price comparison;
- Social shopping;
At least, that’s how popular affiliate network CJ breaks it down:
Glazer gives a great example:
A retail client recently hired us to manage its pre-existing affiliate program. It had a strategy of never couponing, but after digging in, we found that coupon sites drove 100 percent of the program’s performance.
The checkout page didn’t even have a coupon code box.
The program was so contrary to the client’s strategy that it didn’t provide value, negatively represented the client’s brand, and drove up costs. The previous “management” firm had failed to notice this.
Watch for shady affiliate practices.
Even on affiliate networks, some affiliates are just plain shady. Looking into and monitoring the activity of your affiliates is the solutions, says Glazer:
To truly understand how an affiliate works, look at what the affiliate does and where its traffic comes from.
For example, if the affiliate just posts coupon codes that aren’t offers and relies on searches for a merchant’s trademark plus the word ‘coupon,’ it might not add much value to your program.
To fight such actions, review your affiliates’ tactics.
Check to see whether they’re using weighted URLs that contain trademarked terms, and whether they’re stuffing their URLs and descriptions with phrases that have little correlation with the products they’re advertising on your behalf. Are they relying on adware or plug-ins?
These behaviors underscore an incompatibility that calls for coaching or ending the relationship.
Being aware of these negative behaviors is half the battle. After all, you want to ensure you’re paying for quality traffic you wouldn’t otherwise be able to attract.
5. Test your landing pages and offers frequently.
If you own your own landing pages and have affiliates simply drive traffic, perfect. That means it’s exceptionally easy to A/B test elements of the page, including the offer itself.
If you allow affiliates to use their own landing pages, which is rarer, work with those affiliates. Share your own testing insights. After all, everyone is working toward a common goal.
Like any other marketing channel, affiliate marketing is something that can be optimized and something that should be growing steadily. For the best results, calculate individual affiliate conversion rates to determine the quality of traffic that each affiliate produces.
For example, Kim might be complaining about the landing page, saying that she has a conversion rate below 1%. Perhaps you’re inclined to believe her because your overall conversion rate is only 3%. But when you drill down, you see that Jim is getting a 5% conversion rate, and it’s Kim who’s bringing the overall number down.
Don’t be too quick to blame the landing page or the offer.
According to the benchmark report, nearly half of affiliates received custom creatives from less than 25% of their affiliate programs:
Have an affiliate manager ask about this during the onboarding flow:
- What affiliate method do they use?
- What type of creative would be most relevant for them?
- Is any customization required?
- Would any other types of collateral be helpful?
This doesn’t mean you need to indulge every request, especially from affiliates taking advantage of your time. But why not equip affiliates with the best possible creative and collateral? It’s in your best interest.
Affiliate marketing is more complex than a simple “Affiliates” page in your site footer. It’s a marketing channel of its own that deserves the same attention as any other.
Here’s what you can do to grow your affiliate program:
- Focus on optimizing the quality of traffic your affiliates send you and the conversion rate of your landing page/offer.
- Carefully analyze your customer and revenue data so you can properly structure payouts, set guidelines, and measure success.
- Spend the time to recruit the right affiliates and provide them with everything they need to succeed during the onboarding process.
- Communicate with your affiliates via affiliate managers and a regular newsletter to ensure insights are shared and everyone is performing as well as they possibly can.
- Be aware of the methods your affiliates use most often and restrict them based on your brand/existing efforts, if necessary.
- Always test your landing pages and offers. Also, calculate individual affiliate conversion rates.