Pubcon 2009 Live Blogging: Four Reasons to Start an Affiliate Program

Moderator: Chuck Hamrick
Durk Price, President, eAccountableOPM
Karen Garcia, Partner & Co-Founder, GTO Management
Jamie Birch, Owner, JEBCommerce
Karen White, Vice President of Marketing, SquirtGun Media Group

This session was less about why to launch an affiliate program, and more about how to properly launch and manage one. So in a sense, the title was a bit misleading, but the content was still very helpful. The panelists took us through how to launch a program straight through to the day-to-day management.

As for the reasons why to launch an affiliate program, it pretty came down to how affiliate programs are highly cost effective and performance-based — meaning that you do not have to pay for advertising until it actually converts into a sale. In other words, it is like having a fleet of freelance admen and salesmen that work on a commission basis only.

The panelists also suggested using affiliates to fill in the gaps of your online acquisition strategy. Basically, affiliate marketing is not only cost-effective, but can complement and support your other online marketing activities.

That being said, the first thing that panelist covered was what to do prior to launching a program. First, merchants need to know (1) their margins, (2) their average cost of acquisition, and (3) the average lifetime value of their customers. This allows merchants to calculate the kind of commission that they can offer affiliates.

The next thing that merchants need to do, according to the panelists, is a competitive analysis. Specifically, they should look at competing programs and compare cookie duration, commissions, pay-out frequency, and terms of service. This will help them create a program that will actually appeal to affiliates.

Merchants should also make sure that their site converts before launching an affiliate program. According to the panelists, 3% is the minimum conversion rate merchants need to run a program successfully, so if their conversion is less than that, merchants should work on increasing it before launching an affiliate program.

On a related note, once the program is up and running, it should account for somewhere between 10-20% of their online sales. Any less, and you are not getting the most from your program, and any more means that you are too reliant on affiliates and not getting enough out of your other acquisition channels.

The panelists also covered PPC affiliates, and emphasized that merchant need to consider what terms they’re going to let their PPC affiliates bid on. They need to clearly outline what they expect from PPC affiliates in their program’s terms and conditions. One PPC element that merchants need to consider is what position they will let their affiliates bid on. For example, if PPC is a major component of your acquisition strategy, then you might want to restrict affiliates from bidding on the top positions. Alternatively, if PPC is not a top acquisition channel for you, then it makes more sense to let affiliates get into a bidding war with your competition.

Another thing that merchants need to set-out in their PPC policy is whether or not you will let affiliates use your brand name in their PPC ad copy. If you have a well known brand, on the one hand you will want to control you brand image, but on the ohter hand, that brand name might also be what attracted affiliates to your program in the first place. After all, what attracts affiliates to big brand affiliate programs is that trusted, well known brands help them increase conversions. So if you are going to let affiliates use branded terms in their ad copy, you will want to decide in advance how they can and cannot use your brand name, and make it very clear in your programs terms.

Alternatively, if you’re not yet a well known brand, you should consider how to leverage PPC affiliates in getting your brand name out there. By letting affiliates use your brand name in their PPC ads, you can simultaneously support any branding efforts you are pushing.

Finally, once you have a PPC policy in place for affiliates, you will have to monitor PPC ads. Several panelists use a tool called Brandverity, and one panelist used a tool called Search Monitor. These tools can tell you who’s bidding on your brand at what time of the day. This data allows you to avoid paying commissions on PPC referrals that violated your PPC policy.

Unrelated to PPC, the panelists also advised merchants that they diversify their base of affiliates. This will insulate them from sudden changes in the marketplace. For example, relying on PPC affiliates means that when Google changes their adwords TOS, your sales can take a hit until affiliates re-adjust their strategies. So in addition to PPC affiliates, you will also want to work with organic search affiliates, as well as loyalty-program affiliates.

Merchants should also respect that affiliate marketing is very relationship-based. In essense, when you treat your affiliates like business partners rather than just another number, they’ll reciprocate. This is particularly important for not losing your affiliates to you competitors. For example, when you have a good relationship with an affiliate, and your competitors try to poach that affiliate, they’ll be more likely to let you know what they’ve been offered, rather than just jumping ship without giving you a chance to counter-offer.

Also, top affiliates get hundreds of emails, so it’s better if they know who you are. Similarly, you should know their preferred method of being contacted. This will help you (1) protect your relationship with them, and (2) actually get a response when you need one.

All in all, affiliate marketing is part internet marketing and part relationship marketing. So it’s important to have someone dedicated to building and maintaining that relationship on behalf of your brand. That person can be either an in-house affiliate manager, or an outsourced program manager (an agency). What is important is that there is someone monitoring program performance and communicating with affiliates on a regular basis.

In a nutshell, this session was great for anyone looking to start an affiliate program. It covered all of the important basics and underscored what factors have a big effect on whether a program flops or prospers. The only thing I think they could have addressed more was tracking software. Basically, merchants need to choose an affiliate software or network with reliable tracking. After all, if affiliates do not receive their commissions, they will quickly abandon your program, and there was nothing said about how to evaluate whether a particular affiliate software or network has accurate and dependable tracking.

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