Affiliate marketing presents a win-win-win-win scenario — when done correctly. Brands win by selling more products. Publishers win by adding a new revenue stream. Affiliates win by earning commissions on sales. And consumers win by finding products or services they want to purchase.
Done incorrectly, affiliate marketing can hurt a brand’s bottom line, threaten a publisher’s credibility, fail to provide significant returns to affiliates and in some cases frustrate consumers with shoddy products or unethical advertising methods. So how do you ensure that your affiliate marketing program is set up correctly?
What is affiliate marketing?
Affiliate marketing is the practice of rewarding third parties for providing leads, customers or sales. The retailer or brand can choose to offer incentives to affiliates that help bring in customers, providing them with a small percentage of the sales that result.
This could include organic or paid search engine marketing, email marketing, content marketing, social media influencer marketing, display advertising or other marketing tactics. Upon signing up for an affiliate program, the advocate or marketer is typically provided with a unique referral link. They are subsequently rewarded for any sales that result from leads generated using that link.
Affiliate marketing is big business. In fact, a 2016 study by Business Insider found that approximately 15 per cent of the digital media industry’s revenue comes from affiliate marketing. Another 2016 study by eMarketer found that affiliate marketing accounts for 7.5 per cent of all digital advertising expenditures among retailers. That study also predicts that affiliate marketing spending will increase from $4.21 billion in 2015 to $6.82 billion by 2020.
The grey zone
Affiliate marketing was once associated with less than ethical tactics for reaching as many prospective customers as possible. Furthermore, since anyone can conceivably sell a product online and compensate others for helping them market it, there are often few quality controls on products and marketing tactics.
More recently, mainstream media publishers have helped legitimize affiliate marketing, according to an article in Business Insider. In fact, The New York Times recently acquired The Wirecutter, after the affiliate marketing company generated $150 million in online sales in 2015 alone. Today, few major publishers can afford to be without an affiliate marketing revenue strategy.
Is it the right approach?
Affiliate marketing is often only effective for brands and products with high margins, explained Shopify’s Tucker Schreiber in a recent blog post. He suggests that if a company has razor-thin margins, giving away a portion of those profits to affiliate marketers might not be the best idea.
“One of the best ways to find out if an affiliate program is a good fit for your business is checking to see if other companies in your industry have created them,” he suggested. “A simple Google search targeting competitors can dig up sites that have affiliate programs of their own.”
The key to a successful affiliate marketing program is finding affiliates that speak to your customers or operate within your niche. While some brands have very stringent requirements for their affiliates, others are happy to share their profits with anyone that can help grow their business. However, many seasoned marketers — including Steve Olenski, contributor for the CMO Network at Forbes — also recommend prioritizing quality over quantity.
“There are a lot of small websites that will promote your product, but the key is finding a small number of partners that will deliver conversions,” he wrote in a recent Forbes article. “For example, an equity management services firm has over 20,000 affiliates in its system, but only about 25 affiliates generate 85 per cent of revenue.”
Gaining insights and data on consumers who interact with affiliate marketing programs is therefore crucial. By studying the most common traffic sources into your affiliate program, brands will better understand and anticipate their needs, while maximizing the channels that are most effective.
Should affiliate marketing efforts stagnate, brands should also consider changing their compensation structure or providing bonuses to affiliates that reach certain sales targets. The idea with any healthy program should be to continually monitor, analyze and optimize to keep the needle moving in the right direction.