August 2001

The Merchant's guide to affiliate marketing

Affiliate marketing is the invisible sales force behind e-commerce. It is the wires that we do not always see, but that we know are carrying a current. Setting up and running a successful affiliate campaign is not as easy as connecting a few loose wires. An affiliate campaign requires experience and planning. Fortunately affiliate marketing has been around for about six years, so you can learn from the experience of others. As for planning, we have assembled some guidelines to facilitate the task.

Affiliate marketing is used by a long list of companies of all sizes. Some examples of popular companies with affiliate programs are Amazon, Gap, IBM and Xerox. These merchants, for example, pay commissions to anyone who generates sales by placing links to the merchant's products on their website.

Chris Diggins is a programmer who works from his cosy apartment in Montreal. Three years ago he created an online guide for Montreal students that consisted of useful resources and links to other websites that would be interesting to international students in Montreal. (See www.studentsguide.com). The idea was to generate traffic and then to find a way to make money with that traffic (Sound familiar?). However, rather than selling advertising space on his site, Diggins chose to become an affiliate. In other words, he found merchants who would give him commissions on goods that he sold from his site. Soon after, the student's guide had a poster gallery where visitors could browse through popular posters and order posters from a merchant's site. For each poster that Diggins sold from his Montreal student's guide he received 25% of the sale price. He has built other sites since and currently generates sales in excess of $25,000 per month (He receives about 25% of that amount in commissions).

How do you attract people like Diggins to sell your products? First you need to figure out how to set up a program to track your sales from affiliates. You can track your sales with a third party affiliate manager or you may decide to create and manage your own affiliate program in-house.

Third party

Third party affiliate managing companies take care of many of the tasks involved in running an affiliate program.
They provide:

• Quick exposure
• Experience dealing with affiliates
• Infrastructure for tracking and reporting
• Access to a large number of potential affiliates who would be interested in marketing your products on their website or creating websites to market your products.

The most popular third party affiliate managers are Commission Junction, Be Free, Linkshare and Reporting.net. Depending on which company you choose, you will be required to pay a start up fee, an additional percentage of the commissions that you are offering your affiliates or a hefty fixed annual fee.

Chris Diggins' advice about using a third party is that it is a good idea, especially if you are just starting your affiliate program, or if you do not have much experience in affiliate marketing. Even with a third party there is still a lot of in-house work, including managing, verifying, responding and recruiting affiliates. After several months, if you realize that your affiliate campaign is successful enough to support an in-house affiliate program and that doing so will save you money in the long run, then it may be time to switch to an in-house system.

In-house

To bypass the third party affiliate manager, you really have to know what you are doing! Technical knowledge and experience dealing with an affiliate program are necessary. You will probably need a team of developers and an experienced affiliate program manager in order to run your affiliate campaign. Your team will require the following skills:

1. Technical skills to update and improve the automated affiliate management system
2. Marketing skills for strategies to make your affiliate program successful
3. People-relation skills to keep all of your affiliates happy

Top affiliates

With either a third party or an in-house system, you will soon learn that a few of your affiliates are generating most of your affiliate sales. The 5/95 rule applies in which approximately 5% of your affiliates will be generating approximately 95% of your sales. Many merchants have wondered how to attract "top affiliates." Top affiliates are hard to find and hard to attract.

Once you have signed up affiliates and they have set up links to your site, it is important that they remain satisfied. Treat your best affiliates with special care to make sure that they continue to work for you.

• Remember that affiliates can quickly grab one of your competitors instead of you, so it is important that they remain satisfied with your affiliate program.
• Remember that affiliates talk amongst themselves. If you upset them, if you are not paying them on time or if you lower their commissions it will really hurt your affiliate program.
• Remember that you cannot take money away from affiliates once you have already paid them. So take returned items into account when choosing your commission structure and schedule.

Learn from your competitors

Affiliate marketing is more flexible than just paying commissions to your affiliates "per sale." There are various models of commissions. The most popular commission models are: "per sale", "per lead", and "per hit." In order to choose a commission structure, first consider what type of commission your competitors offer. Each industry has its own standard.
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To be set up you must 1) have the tracking program in place, 2) have determined your commission structure 3) have attracted a team of affiliates. Once you are set up the next task is to help your affiliates to do well. Encourage affiliates by offering extra incentives. Provide tools such as banners and searches for them to link to your site. Think of them as a sales team that requires your support. Diggins' says that an affiliate is:

"like a travelling sales man, like a franchiser, like many things but no exact parallel exists in traditional business. You have to treat it just as seriously as if you were franchising things out. You can't go in half-cocked. The biggest drawback is poor planning. If you have to go back and fix an error such as lowering commission rates for instance, it will cause a major setback to your affiliate program."

If you have been planning to launch your affiliate program I hope that I have provided new points for you consider. The best advice that I have heard so far is to become an affiliate for another merchant before launching your own program.

Good luck!
Jason Campbell

Jason interviewed Chris Diggins on July 30th 2001 on the subject of setting up an affiliate campaign.
If you have any comments on this article, please respond to news@redcarpetweb.com

Jason Campbell is the co-founder and President at Red Carpet Web Promotion, Inc.