Should I Start an Affiliate Program?

When your business is at the right stage for affiliate marketing, it can be a powerful tool for reaching a broader audience and for conversion.
When your business is at the right stage for affiliate marketing, it can be a powerful tool for reaching a broader audience and for conversion.

In theory, affiliate marketing is an awesome pursuit for merchants. If you aren’t familiar with affiliate programs, they’re pretty simple to understand: when people and websites generate sales, you pay them commissions. If they don’t generate any sales, you pay nothing and get some free marketing and traffic. This helps to amplify your brand and may contribute to your multi-channel sales as consumers hit additional touch-points during their journeys towards making a purchase. Up-front costs are low compared to other options; you’ll need to invest in setting up a campaign, hiring a competent affiliate manager to promote it, and paying the monthly minimum to whichever affiliate network you join, until commissions reach a respectable level. Affiliate marketing is a $4-5B industry, and it would be foolish to ignore it entirely.

We love affiliate marketing, and when it’s successful, it can be very lucrative for merchants and publishers. But it’s not something that works for every business model at every stage. As an affiliate marketing agency, we turn away business every day from potential clients who want to launch affiliate programs but aren’t at a point where they’re likely to enjoy great results. If you’re considering launching an affiliate program, take some time to read through this checklist. It’s important to evaluate whether you’re in the right stage of ecommerce business development to make the investment of time and money worthwhile.

Is your website profitable?

Is your website profitable?

First Off: Is Your Website Making Money Right Now?

If your site is not currently generating revenue, we would most likely urge you not to engage in affiliate marketing for a few reasons. First, there is no proof of concept yet that your website converts and that your product is in demand. The greatest disservice you can possibly do for your affiliate program is to launch it too early. I call this premature affiliation. Think about it like this: we do the work to get the some of the top publishers in the world to promote your product. They invest in this process, while you pay us or another firm to manage the relationship. Your links go up and… nothing happens. No one buys the product, the affiliate doesn’t make any commissions, and you’ve paid us to promote something that doesn’t work. Don’t do that. After blasting out your product prematurely, all you’ll do is upset a lot of people who can’t make any money with it. Then, a few months or years later, when you’ve worked out all of the kinks, your website converts, and people are familiar with your product, it will be that much harder to onboard those same affiliates due to the first failed launch. Their expectations for success will be low, and you won’t be at the top of their priority list.

Is your website profitable? Is it getting traffic? Is it converting traffic to sales?

Is Your Website Getting Traffic Right Now?

If you are a brand new start-up and have no traffic, we would typically advise you to steer clear of affiliate marketing for now. Devote your valuable resources to setting up a Google Adwords campaign while you work on amazing content development to score points towards organic search. Besides showing proof of concept that your program would be a success by testing conversion through PPC, getting your search marketing up to snuff has another benefit in that affiliate marketing tends to work better when coupled with other traffic streams. When customers see your website in organic search results, paid search results and on publisher websites and other places, they’ll begin to develop a familiarity with your band, and the likelihood of a future conversion increases. Ultimately, you want to create many touch points where the consumer has an opportunity to learn about your product and make a purchase.

Do You Have the Budget to Hire a Competent Program Manager?

We get calls every day from start-ups who are bootstrapping their way through their early stages, and the conversations we have are pretty similar. We pitch our services, and they love what we have to offer and want to pay us, but they can’t, so they offer us a percentage of the sales we generate instead. While we are open to (and often prefer) a hybrid deal, where the incentive is there for us to get great results, we, along with most other reputable affiliate management firms, would never ink a commission-only deal for our services. It’s not our business model: as an agency, we charge for our time.

Think about it this way: if someone with 10-15 years of experience in online marketing were to assume the risk of investing time into work that was 100% performance-based, why would they want to assume that risk for someone else? An Outsourced Program Manager (OPM) with the right skill set would either create his own affiliate website and list thousands of merchants, all while investing in growing the traffic to that site, or he would launch his own ecommerce business and leverage his affiliate contacts and skills to promote it.

And here’s an insider look: most program managers do have something going on the side, and they’re investing their spare time in growing that business, while paying the bills with the less risky endeavor of managing others’ programs. We do it—although our main business is in client services, we manage a few niche ecommerce websites that produce a respectable amount of revenue between client projects. It keeps us sharp, allows us to try new and untested marketing techniques before pitching them to our clients, and helps us maintain our revenue during periods when client-based work slows down.

At the very low end, you might be lucky enough to find an affiliate manager who knows what he or she is doing—someone who not only talks a good game, but who also delivers results—at around $1500-$2000 per month part-time. Someone with the right level of experience, working from home in a state like Oregon where the economy is not great, or Ohio where the cost of living is very lowmight take you on for this rate as a client, and they’ll be happy with earning $50-75 per hour and delivering 20-30 hours of work each month (an hour or two per day). A talented program manager with a few clients can work more efficiently by combining a few client offers when communicating with their network of affiliates, but there’s still a minimum amount of overhead that’s necessary, and anything below this threshold wouldn’t buy you enough hours of labor to do a program any sort of justice. At best, you’ll get a monthly newsletter and  coupons uploaded to a network once a week. At the high end, you could pay $10,000-20,000 per month or more for program management, plus incentives. Some of the companies on that level do amazing work in-house, while others outsource the work to others. We’re generally in the $3000-5000 per month range and find that this is the right budget for most programs to be successful with a smaller agency like ours.

Some agencies will undercut the competition at the $2000 and under level, and they’ll have an experienced pro who sells these programs to clients, only to offload the actual work onto a kid fresh out of college with zero experience, zero discipline and more clients than hours in a week … or they’ll offshore it to a company that doesn’t understand the cultural aspects of promoting most products in the U.S. It’s entirely possible to deliver a good product while keeping costs down by outsourcing low level work like email trolling or basic design, and tasking inexperienced staff with research projects and other basic functions, while expert staff does the heavy lifting. However, this doesn’t always happen, and clients can soon find themselves in the hands of a newbie. The result is broken communication and robotic program management. To be clear, I’m not suggesting that every company has inexperienced people running their clients’ programs, or that it’s impossible to find someone competent who will work for less than $50 per hour. There are plenty of great OPMs and marketing agencies to choose from. I’m simply sharing some of my personal experience having been on the client-end of such relationships in the past.

Average affiliate manager salary: $65,000 according to Indeed.com

Average affiliate manager salary: $65,000 according to Indeed.com

If you weigh the pros and cons of hiring an in-house affiliate manager vs. an outsourced program manager and decide to hire someone full time who doesn’t require much training and oversight, you should expect to pay on average $53-58,000 per year in salary or more, plus benefits and taxes. You’ll get more hours for your money with a fulltime employee, but consider this: if minimum wage goes up to $15 per hour for someone with a high school diploma (or not) working at McDonalds, you can expect that salaries will need to go up proportionately for people who have more experience, and those who have invested in education. Put simply, unless you’ve got, at absolute minimum, $1500 per month in budget for part-time freelance work and can afford to pay a fair commission to affiliates—with something left over for your OPM as an incentive—we wouldn’t recommend investing in hiring a program manager. If you’ve got a bit more to invest, then consider an agency with a full team of managers, designers and content writers to scale your program more effectively. Just make sure you ask the right questions in terms of how many hours are spent on which tasks, and by whom. If the numbers don’t work out, then you’re better off focusing on search engine marketing or other ways to drive traffic to your website until you reach a point where you can bring the right person or company on board.

What Kinds of Affiliates Do You Need?

There are many varieties of affiliates. A high percentage of affiliate websites are coupon sites. If you’re reading this article, you’ve no doubt read others that contend that coupon websites bring zero added value to a merchant who could have gotten the sale anyway. While there is some truth to this, coupon sites can add great value for certain products and companies, especially those with audiences that are deal-hunters. You’ll need to do your research and decide what they will bring to your organization.

Bloggers and content publishers are another great pool of affiliate marketers. Their traffic can be very well targeted and high quality. However, most high-traffic blogs will want you to pay for advertising up front and won’t accept affiliate deals. From what’s left, many blogs have relatively low traffic. In addition, bloggers want to bring value to their readers: if your product makes for good, engaging subject matter, you might do well. But if you’re selling something in low demand that isn’t very exciting, you might have a hard time finding bloggers who want to invest time into writing about it.

Dulce Candy is an example of a high traffic, high quality fashion blog that sells advertisng.

Dulce Candy is an example of a high traffic, high quality fashion blog that sells advertisng.

Social media can be a great source of affiliate marketing. For example, we have good success with YouTubers, when products have a high ticket size, are easy to demonstrate, and connect with a niche community, such as e-cigarette users and aficionados. Youtube, That said, Instagram, Facebook and other platforms probably won’t be good resources for a product that isn’t social in nature.

Many other types of affiliates can promote products besides coupon sites, bloggers and social media influencers: Comparison Shopping Engines (CSEs), pay-per-click marketing affiliates, and text-messaging (SMS) companies are just a few examples. You’ll need to ask yourself which affiliates are compatible with your program and which ones will be most excited about promoting your product. If you have a hard time answering these questions, affiliate marketing may not be for you. Pinterest used to be great for products that had great imagery assocated with them, until they pulled the plug on affiliate marketing.

What Are My Goals for Affiliate Marketing?

If you’ve made it this far and you’re still in, it’s time to decide on some goals. If you’re happy with the increased brand exposure and traffic associated with affiliate marketing and don’t need to see an incremental increase in revenues, then more power to you. You are one of a few companies with this luxury, and you should start your campaign today! However, if you need to make more money, you’ll have to figure out what it will take to cover your costs and eventually make a profit. You’ll also need to determine how much time you can wait for all of that to happen. In our experience, affiliate marketing, when it works, accounts for anywhere from a 10-30% lift in sales volume for most viable ecommerce businesses. Some programs don’t work at all, and others exceed this level. For example, some adult-related programs rely entirely on affiliate traffic from sources like emailers and video content websites that upsell higher-quality paid videos to eager users. Most businesses, however, don’t fall into this category. As a quick and dirty number, we’d recommend performing some conservative calculations based on a goal of a 20% lift in month-over-month sales within 6-12 months. Cross reference that with what you expect to pay in management fees and commissions, and what you have left is your profit. At this stage, you may want to consult with a trustworthy professional who can make these calculations for you and help you figure out what the numbers need to be for you to reach your goals.

Are You Ready For Performance Marketing?

There you have it. The reality is that we probably reject 9 out of 10 companies that approach us to manage their programs because we know their businesses are just not ready for them to be effective. However, for the small percentage of merchants we do engage, we have seen very positive results under a variety of circumstances. It’s possible that, even after passing this test, some companies just aren’t a fit for affiliate traffic, and it can be hard to make a decision whether to continue or terminate a program until at least six months have passed. This is the case for many online marketing endeavors, so if you go this route, be patient. Good things don’t generally happen overnight.

  • By Dennis Consorte
  • Published on October 19th, 2015