Last updated on September 24, 2020
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Affiliate marketing is a performance-based advertising model. An affiliate (publisher) promotes a product or service online and receives compensation for achieving a specific objective or action. A merchant (advertiser) specifies the goal, which is usually a valid sale. For example, the merchant will pay an affiliate a 30 percent sales commission. The merchant may use one or multiple cost per action (CPA) and compensation arrangements, such as cost per sale (CPS) and cost per lead (CPL). These are also known as pay per sale and pay per lead.
Although thousands of merchants globally use affiliate marketing programs to grow their businesses, you might be wondering about the benefits/drawbacks and advantages/disadvantages. Let’s review the pros and cons of affiliate marketing for merchants.
Merchants pay for performance only. Employees can be costly from training to salaries to other employment benefits. By contrast, affiliate marketers only receive compensation (commissions) when they convert sales or leads. Furthermore, total payouts will be diluted because not all visitors that affiliates send will convert in the designated cookie timeframe, for instance, 60 days. In those cases, merchants will keep 100 percent of profits from sales, which lowers total program costs.
Operating an affiliate program can be inexpensive. PPC advertising and search engine marketing (SEM) can get costly. Creating content to appear in search results isn’t expensive, but time-consuming, which results in lost opportunities. By contrast, running an affiliate program can be economical.
There are many affiliate tracking software solutions that charge low monthly fees. For example, ShareASale starts at $25, iDevAffiliate $39, and Tapfiliate $69. The second cost consideration is the staff. Merchants with mid to high volume affiliate programs usually appoint full-time affiliate managers. Low volume and new programs might warrant a part-time person, or the merchant may hire an affiliate marketing agency to manage its program. For successful affiliate programs, staffing costs are a drop in the bucket.
Affiliate marketing is a quick and efficient way to get traffic. Suppose a company has recently launched. The business can do many things to grow its brand and product awareness, including blogging, uploading videos to YouTube, posting on social media, etc. However, a shortcut is to engage and recruit publishers, who are already doing those things, to your affiliate program. For example, you could contact well-known YouTubers about your company and program. As they signup and promote your product to their millions of subscribers, sales will start to occur. That could be a much better strategy than creating a YouTube channel from scratch (and having to learn about video production, SEO, analytics, monetization, and more).
As publishers, particularly bloggers, link to your site, their backlinks can boost your website’s search engine rankings. Google likes to see that a site has many backlinks because it suggests the website is trustworthy and offers value. As Moz states, “Backlinks are especially valuable for SEO because they represent a “vote of confidence” from one site to another.”
Some affiliates will become customers. Part of the process of joining an affiliate program calls for a marketer to research the advertiser. While learning about the advertiser, the affiliate might purchase an item from it. For example, after discovering SiteGround’s affiliate program, I bought its WordPress hosting services.
Merchants can get ideas from affiliates. Many publishers know that to help themselves, they must support advertisers. For example, when TubeBuddy announced an online webinar event, it only had a link to the webinar site. I emailed the affiliate manager and recommended creating a short blog with details about the event so that affiliates could deep-link to the post. TubeBuddy went forward with my advice, which benefited other marketers and me.
Affiliates may also provide feedback when they write product reviews and comparison posts. Although some reviews might be biased, others will contain insights that merchants can use to improve their goods. Case in point, in my comparison between Curve and Revolut, I recommended that Curve partner with TransferWise to offer money transfer services.
Affiliate marketing produces many win-win outcomes. As you can see from the benefits above, affiliate marketing is a no-brainer in most cases. Many enterprises realize that which explains the thousands of merchants (8,000+) on ShareASale, Impact, and CJ Affiliate combined.
Many affiliate programs perform miserably. I’ve seen programs shutdown for presumably not meeting internal targets, for example, Hootsuite’s program. It also doesn’t take much to screw up or mismanage a program. For instance, by assigning the wrong person or team to manage activities, staffing costs can exceed affiliate sales. If you have an ill-conceived affiliate landing page and non-competitive commission rate, you might not attract enough affiliates to justify expenses. If the affiliate manager or merchant is a terrible communicator, affiliates might disengage and focus on other programs. If you don’t review reports and monitor transactions, bad actors might profit unfairly from your lapses.
Tip: Boost the chances of meeting your performance targets by seeking guidance on how to set up and manage a program correctly. Also, review and monitor your competitors’ programs for insights.
Affiliates can put a company’s brand in jeopardy. Many marketers understand the importance of being transparent, honest, and disclosing affiliate activities. Regarding disclosures, the FTC recommends best practices for marketers and influencers. However, individuals who don’t comply can become a brand and financial liability to the advertiser. Case in point, DJ Khaled and boxer Floyd Mayweather were found guilty of illegally promoting an initial coin offering (ICO). The failure to disclose their relationship to the advertiser, Centra Tech, costs them almost a million dollars in fines. Their behavior increased the negative spotlight on Centra Tech and its founders, who were charged with defrauding investors.
Tip: Send semi-annual compliance email reminders to affiliates about your program’s guidelines and policies. Furthermore, conduct ongoing reviews of affiliates to ensure they’re complying with your terms.
Performance marketing is under attack. The foundation of affiliate marketing relies on tracking a user’s online activity. However, user privacy and data concerns continue to increase. Apple, Mozilla, and DuckDuckGo have updated their browsers with enhanced privacy controls to combat tracking mechanisms like cookies. For example, Apple introduced its Intelligent Tracking Protocol (ITP) to thwart first and third-party cookies.
Most affiliate tracking applications rely on cookies for sales attribution. As cookies face more and more pushback, it will make it harder to measure a program’s performance and return on investment accurately. Secondly, affiliates will make less money because they’ll get less credit from specific browsers, such as Safari. Browser privacy enhancements, inaccurate performance data, and decreasing earnings for publishers will make affiliate marketing less viable for merchants.
Tip: Ask affiliate tracking software providers how they’re handling ITP and other browser/user privacy challenges. Consider using a self-hosted first-party cookie or server-to-server (S2S) affiliate tracking app for better results.
Affiliate marketing can be a robust and profitable activity. Advertisers get traffic and sales, affiliates earn commissions, app developers generate revenue, and customers learn about products and services. Secondly, it’s easy and cost-efficient to create, launch, manage, and grow an affiliate program. It’s only a matter of understanding the nuances involved to achieve success. On the other hand, the affiliate marketing industry is facing challenges. Therefore, it’s critical to know how different tracking mechanisms will impact sales attribution and return on investment.