What is an affiliate program?
To make it simple, affiliate
marketing generally means that a merchant (someone with a product to
sell) creates a business model whereby others who have web sites can
refer their readers to the merchant's site for a small commission if
the reader buys. The theory is that if you display my banner
on your site and your reader clicks through to my site and buys
something, then I pay you a commission.
It sounds simple; more or less like
hiring commission only salespeople under an automatic management
program. Under that theory, you can hire millions of
salespeople with no cash outlay unless they sell something and the
poor performers manage to get rid of themselves. The other
theory is that you as a web site owner can literally sign yourself
onto dozens if not hundreds of affiliate programs and make a nice
living by putting all the pieces together.
It also sounds pretty
reasonable. You only get commission if you sell
something. There are however, many factors that are not taken
into account, some of which will be explained later.
Selling affiliate software
Affiliate software companies lead
merchants to believe that picking up affiliates will be easy because
it's basically free money, and there is little time spent going after
affiliates who will then make tons of money while making even more
for the merchant. The software companies further explain that
the merchant can get all this exposure and pick up long-term clients
while only paying a token commission once, or at least for a short
period of time.
Merchants sell the program to the
affiliate based on the idea that there is nothing to lose and there
is of course a high likelihood of incredible cash flow. There
are however, no promises.
Affiliate marketing -
waning but still strong
A few companies are still getting
into affiliate programs. We are contacted by them daily with
promises of how much revenue is to be gained by participating in
their affiliate program.
Big companies such as Amazon,
Barnes and Noble, Tupperware, Avon, and Disney are some of the big
names that are associated with affiliate programming.
Smaller ones include many online
pharmacies, nutritional products, herbal remedies, and retail distribution companies
that are so many that it is impossible to keep track of. It is
generally these that will make contact to try and initiate an
We have noticed however, that there
are fewer companies that are offering or at least actively marketing
their affiliate programs. We suspect that either the number of
potential prospects is drying up or that they have given up on
trying to effectively pass along what basically amounts to a poor
business model at best.
Real life success??
Ask any merchant with an affiliate
program what their click-through rate is. Better yet, ask what
their conversion factor rate is per banner impression, and you are
almost never going to get a straight answer. You will probably
get something like "It all depends... some of our
advertisers do very well while others don't do as well. It
depends on the website."
Frankly, that's a crock. If
some are doing well and others are not, then it would behoove them
to remove those that are not and claim victory on those that are
doing well. Who wouldn't cut a few losers who weren't making
money anyway but were spoiling the numbers for the rest? The
fact is that for many affiliate programs, cutting the losers would
mean starting all over again.
There is no doubt that some of them
have a few clients that do well, but again that is a matter of
opinion as to what the term "doing well" means. The fact
is that when most of them come up with their answers, an extremely
high percentage of their affiliates do poorly, if they do anything
at all. Others define the term "doing well" as doing
better than nothing.
Does affiliate marketing work
It all depends on who you are talking
about and what the goal is. High click-through rates and
conversions are not the only factor that defines marketing success
for many merchants. In many cases, branding is the
primary marketing goal (getting or keeping the name in the public
eye). In that case, having 10 million people see your logo
would be considered successful if you didn't have to pay for it, even
if the conversion rate was zero.
All companies depend on some level
of brand recognition. Nothing is a stronger yet a less worthy
factor in any sale. People will buy on brand name alone, and
that brand name doesn't necessarily have to be known as a "good"
one. In many cases, it just needs to be a name
that is recognized.
Affiliate merchants are often
looking for name recognition and any sale that happens is secondary
and just a side
benefit. If they stick that name out in front of you time
after time, it will eventually look familiar enough for you to
consider making a purchase or recommending it to a friend.
That eventuality hardly has any positive effect on the affiliate
websites that gave the name brand its familiarity.
If you can get a few thousand sites
to broadcast your name and logo at no cost to you unless the reader
clicks and purchases, you automatically have a branding
winner. Normal, highly-targeted advertising can cost you up to $40 CPM (cost per
thousand impressions and depending on the site). At a 1%
click-through rate and a 20% conversion rate, those thousand banners
would yield you just two clients. For many merchants, that
means that only means break-even unless one or the other comes back
a second time around.
Affiliates however, may be bought
off with just a few dollars. The click-through rates on
average are not nearly as high, but you still get your name in front
of the potential customer and start that name recognition
process. And you can get that for about 5-10% and only when
purchases are made.
If the dollar value of your product
is high, you can even get by with a flat fee. In the case of
an online pharmacy, the average per order proceeds amounts to
slightly over $200 and many offer their affiliates a $5 flat fee on
the first order.
Does affiliate marketing work
for the affiliate site owner?
A site owner who makes real money
from any affiliate program should probably play the lottery and the
slots but stay
inside during lightening storms.
If the goal is revenue,
don't expect much of it. Few sites have ever made any
significant money on affiliate ventures and most have failed
When does affiliate marketing
If your definition of
"working" is whether affiliate programs make any money for
the merchant, then the answer would depend on how many links are out
there. Amazon probably does quite well in measuring gross
dollars that are generated by affiliate marketing. With an
estimated 8 million or so affiliates to the US site alone, they
If each affiliate site sold 5 books
a year, Amazon would obviously sell about 40 million additional
books. The site selling the 5 books however, would end up with
between $2.50 and $15.00 if the 5 books added up to $100.00.
Split the difference and you are more likely to end up with about
$10.00 for the year. Disclaimer:
We have been unable to obtain specific information regarding
Amazon's affiliates average number of books or dollar value but
welcome their input. It may be more or it may be less.
Amazon is however, an anomaly with
more affiliates than anyone else in the world. Most merchants
consider themselves lucky with a couple hundred affiliates and most
of those aren't exactly highly trafficked sites.
In addition, we speculate that most
merchants never have to pay many of their affiliates what they owe
them. Any program that we have seen requires a minimum dollar
value in the affiliate account in order to make a payout. That
makes sense from a bookkeeping standpoint, but also saves quite a
If your average merchant makes $10
per year in commission and the minimum payout is $30, then it is
quite likely that the affiliate will have either given up or gone
away completely before the payout must be made. Additionally,
there are virtually no controls on merchants to make sure that their
figures are honest. Since purchases are made on the merchants'
sites, the affiliate will never know how much has really been sold.
There are also very few
incentives for the merchants to pay the affiliate what is due.
They can drag it out for several months after fees are
due. Considering the very low click-rate, the fact that they
control the reporting software, or that it requires their human
intervention, an affiliate can get a tremendous amount of public
exposure before they have to either cough up a few dollars or lose
the affiliate. Many affiliate site owners complain bitterly
about many months of affiliate association without getting paid.
Click-through rates of 0.1% are not
uncommon and conversion rates of 5% or less are relatively common
with many affiliate programs. If the commission rate is an
average of $2 per sale, this means that the affiliate would supply
the merchant with 20,000 impressions before the first sale would
happen and a total of 300,000 people would see the ad before there
would be a $30 minimum payout. The average affiliate probably
isn't going to stick around long enough to give 300,000 impressions
to the merchant.
Affiliate programs and dinosaurs
have much in common
Major brands are abandoning their affiliate programs
in droves and when that happens, one has to take a closer look at the
concept. If they are abandoning them, it's reasonable to assume that
they are no longer profitable, if they ever were. It is also reasonable to assume that brand new companies that don't yet have a name are not going to see much better
returns than the companies whose names are well-known.
Affiliates and merchants alike have tried the affiliate model and most find that the small amount of revenue
that is earned and the management requirements are hardly worth the trouble, much less the cost.
When dotcoms were popping up by the thousands each day, there was a
flood of potential new blood for merchants to tap into with their
affiliate programs and nearly an unlimited number of sites that
would eagerly promote someone else's brand name for virtually no
return. This is no longer the case.
Far fewer dotcoms are arriving on
the web each day and many of those that are new are run by people that have been
down the affiliate pathway before. Say the word
"affiliate" to most experienced online business owners, and you are
very likely to see a shudder.
New affiliate selling techniques
Nobody really wants to become an
affiliate save the new dotcom owner who is inexperienced and
thrilled that someone found him and thought him worthwhile to
contact. The thrill is generally short-lived.
In order to even talk with dotcom
owners, many small site affiliate marketers are having to resort to
back door tactics like asking for advertising information and then
turning the subject around to affiliate marketing once contact is
made. Most know that if they approached it on the affiliate
basis, their email would be eliminated. Many back
door salesmen will keep the door open to advertising but want
the site owner to "consider" the affiliate program,
holding the advertising as possible carrot.
One recently spent over an hour
with me, talking about advertising, our demographics, and such until
he felt it was time to mention a "partnership
This of course is new lingo for affiliate
merchant. This kind of "partnership" means that
the site owners supply the ad space inventory and believe in the
product more than the merchants themselves. The site owners
supply everything right up until there is a sale made. Then
the "partner" merchant pays a few dollars for the one sale
and walks away with the client. Nice partnership!
Sites that use these techniques are
not worth considering any business relationship. If they can't
be upfront about the way they want to do business, they probably
aren't any better once in business with them.
So who are the winners in
Companies that write the affiliate software are the only real winners at this time and they of course trot out the very few companies that are actually successful in the affiliate market. However, the actual successes are about as prolific as the guy who makes millions because he bought someone else's 'how to make money in real estate' book. You never see the affiliate software companies trot out affiliates that have actually made money, only a few select
merchants who run their own affiliate programs.
Bottom line says:
If these programs were successful
at all, sites like Yahoo, Excite, MSN, CNN, and others would chew up
all the inventory and small sites wouldn't stand a chance at getting
any. If you were running your own affiliate program, wouldn't
you rather work with 3-4 large sites with 3-4 relationships and who
hired people that know how to market your product?
If you ran Yahoo and these programs
were successful, wouldn't you rather hire just a few affiliate
managers than a ton of salespeople. At best, you see companies
like Alexa working with Amazon, but very few other big
relationships. If the money isn't there for the big guys, it's not
there for anyone else.
The worst affiliates
There is certainly room for debate
on who the worst is but certainly, those that either reflect badly
on the advertiser with their poor customer service and those that
don't pay owed fees to the affiliate are among the worst possible
The single type of merchant that
can be the worst are those whose services cannot be tracked online
and automatically. They require human input in order for you
to collect your commissions.
A perfect example of this is the
online pharmacy who runs an affiliate program where you link
their banner to their site for a payoff, if and when the reader
clicks through and eventually orders a prescription. The key
here is the word "eventually".
People cannot order a pharmacy
prescription from an online pharmacy until their doctor has
rewritten their prescriptions and they are faxed in, usually along
with several other documents.
That means that even a
click-through that turns into a sale cannot be registered as a sale
until the patient downloads the proper forms and completes all the
documentation. Unless the patient goes back to the affiliate
site and clicks through after all the paperwork has cleared, it is
quite unlikely that any sale from this client will ever be reported
as a sale, even if it could be.
Making an affiliate relationship
Becoming a successful affiliate
isn't impossible but it does have several major requirements:
You have to be working with an
honest merchant. Since they control the entire backend, it can
be difficult to ensure that such honesty exists. Sure, they
could lose your referrals if they don't pay you what you are
owed. But most web site owners forget about their site, many
more never even check in to see how they are doing, and others are
disappointed but keep holding on because they don't have anything
better. Even if you do all that but you opt out because they
don't pay you, how much business and exposure can that merchant get
in the meantime? Besides, would you know if you were only
getting half the income that was due to you?
A recognized name brand - If your
affiliate isn't being run by a name that is already recognized, it's
going nowhere. When given the choice between multiple vendors,
most people will go with who they already know. If you are
representing an unknown merchant, you are only helping establish the
brand. Don't look for any income from this merchant for a very
Watch your affiliate merchants very
closely. If you are in doubt, question them. If they
don't answer you or you cannot get resolution, don't wait
around. Take your business elsewhere until you find an
affiliate that works. Personally, I think that there are very
few of them and that most site owners are better off biding their
time, making their site grow, and looking for companies who believe
enough in their product to advertise them.
What does work?
There are no alternatives to just
plain old good common sense advertising to as targeted a market as
you can find. Unpaid labor doesn't work out well and neither
does free advertising. It never has and never
When an advertiser has money
invested in an ad program, they are going to put their best foot
forward on developing and testing graphics for consumer
acceptance. They are also going to be more diligent about
customer service because there is an inherent out-of-pocket cost to
When a publisher has an advertising
client, they are also held to certain requirements. Certain
positions are often guaranteed and in many cases, the number of
impressions are also guaranteed. Failure to meet those
obligations is called breach and at the very least will result in a
non-renewed contract. In essence, both sides have something to
lose. In affiliate relationships, there is not only nothing to
lose, there is very little to gain.
Advertising relationships have been
proven to work for many years. Affiliate relationships are
seldom known to work.