Affiliate marketing

Affiliate marketing  typically refers to an electronic commerce version of the traditional agent/referral fee sales channel concept.

An e-commerce affiliate is a website which links back to an e-commerce site such as amazon.com.

However, as the e-commerce continues to evolve, e-commerce affiliates are no longer restricted to website owners. Bloggers  and members of different online community forums can be affiliates as well. Many emerging affiliate programs are now accepting bloggers and individuals, not necessarily webmasters, to be affiliates.

Sometimes such marketers can actually be the e-commerce web site that actually sells the products and services. The advantage of this method of marketing is that it cuts out the middleman but it does require the affiliates to have a high degree of trust in the software and people behind the e-commerce web site in question.

What is affiliate?

An affiliate is a commercial entity with a relationship with a peer or a larger entity.

Affiliate marketing

Definition

Revenue sharing between online advertisers/merchants and online publishers/salespeople, whereby compensation is based on performance measures, typically in the form of sales, clicks, registrations, or a hybrid model.

Information

The advertisers/merchants are typically referred to as affiliate merchants and the publishers/salespeople are referred to as affiliates.

Benefits of affiliate marketing include the potential for automating much of the advertising process (accepting & approving applications, generating unique sales links, tracking & reporting of results) and payment only for desired results (sales, registrations, clicks).

Paying only for performance shifts much of the advertising risk from the merchants to the affiliates, although merchants still assume some risk of fraud from partner sites.

Four truths of Affiliate Marketing

Visualizing your perfect customer, whether it's of small businesses or consumers, is still a game of measuring risk. You have risk as the advertiser. The affiliate has risk as the publisher. The new affiliate game is to weigh these risks to find the perfect formula of price, margin, and performance.

If you open an affiliate program, you will automatically get new customers without having to pay much.

A new trend is emerging, however. Good traffic is costing more, because it is worth more. Cheap deals will only get you onto the small sites. You get what you pay for.

Among sites with an audience of small businesses, the best have huge CPM prices and fight cost-per-action (CPA) deals. They have pieces of the small business audience, but no one site has been able to be the resource for small businesses.

It comes down to the basic principles of direct marketing:

• The right offer. The offer must be relevant and interesting to the users.
• The right list. The list must be composed of interested recipients. Sound easy? You should try what I'm doing -- targeting small businesses.
• The right time. Emails in August die because it's a dead time for direct marketing. Knowing when your customers buy is an essential but overlooked piece of the puzzle. What will your affiliates do during the dead seasons for your product or service?

Performance-based marketing

You have less control with performance-based marketing than with straight media buys.

Affiliates may be grabbing your links and promoting your products, but even can have some risk factors:

• The quality they generate can’t be so great.
• The volume can be generated higher than what you have budgeted for.
• Your product may be misrepresented.

If you play an active role in the program, you can minimize all of these risks. Paying on results is nice, but affiliates need to generate some revenue, too. Recently we've seen better affiliate results selling higher-priced products with higher margins.

The best way to minimize risk is to handpick your affiliates, building a reseller channel. Performance works when the risk of both the advertiser and the publisher are evenly weighted.

You can get that balance it by taking control of your affiliates as a serious reseller channel.

Buying media based on CPM is bad because it's risky. By opening an affiliate program, we won't have to pay on CPM, only CPA.

Affiliate programs often can generate 33 percent of overall revenue if merchants focus on them. Obviously, the other 66 percent comes from somewhere else.
Smart affiliate program managers also buy CPM and use their affiliate programs to benchmark deals. That way, when they strike those CPM deals, they know what results should be expected. This is one of the most powerful tools affiliate programs give, but folks like to live in a black-and-white world in which it's either CPA or CPM.

Smart companies know you have to live in both worlds, blending the risk on both sides to find the best solution for you, the affiliate, and ultimately your customer.
CPM can be risky, if you don't know the metrics behind your media buys. However, if you know that an ad drives X number of new customers and it cost you Y dollars to run that ad, you can determine if this meets your acquisition cost goals.

Your affiliate technology will allow you to track these metrics in a turnkey way to determine whether buying on CPM makes sense for you. In fact, once you look at your metrics, you may find buying on CPM is cheaper than paying CPA.
Plus, more top publishers are now looking for hybrid deals, in which you pay both a CPM and CPA component.

Success in affiliate marketing is driven by having thousands of small Web sites promoting our products/services.

There are a lot of small Web sites that will begin promoting your products, but the key to success is finding a small number of partners who will drive results.
For example, one financial services company has over 20,000 affiliates in its program, but 80 percent of the resulting revenue is generated by only about 50 affiliates. Your results will be dependent on finding the right partners, big or small, that drive results.

What's the formula for a successful affiliate program aimed at small businesses?

• You need to create a system that generates performance for both the advertiser and the affiliate.
• To do that, you need to identify sites that will perform, and make sure you pay them enough to make it worth their while.