A Different Approach to Affiliate Program Management

Since the origin of the affiliate marketing industry over a decade ago, the channel has helped companies grow by tapping the power of the long tail to find new customers and generate incremental revenue. Or has it? Many affiliate marketers seemingly drive great results for their programs, but rarely are these results reflected in the bottom line.

A traditional, high-volume approach to affiliate marketing doesn’t work when it is viewed within the larger performance marketing portfolio (SEO, SEM, display, etc). Customer acquisition costs are often much higher then companies realize, and revenue is often double counted across different marketing channels.

With this in mind, it’s clear we need a new approach to affiliate marketing – one that goes against conventional wisdom and traditional tactics.  Here are three that have proven successful:

  • Quality vs. Quantity of Affiliates: Since affiliates have figured out how they can make commissions without doing a lot of heavy lifting, the channel has been flooded with low-quality affiliates that don’t actually provide much value. Focus on recruiting affiliates that deliver mostly new customers instead of targeting existing ones, and don’t be afraid to either pay less to (or outright deny) an affiliate that does not meet the criteria. Fewer high-quality affiliates create far more value than a lot of low-value affiliates.
  • Focus on the Top and Bottom Lines: Most outsourced program managers (OPMs) focus on one number: program revenue. As a result, they are typically willing to set commissions as high as they can in order to drive revenue, and are also willing to pay low-value affiliates much more than they are worth. This means that the revenue coming is often both unnecessarily expensive and non-incremental, as affiliates simply poach customers who would otherwise come through other, less costly channels. In a large program these unnecessary costs can be hundreds of thousands or even millions of dollars. Driving revenue is important, but it is not the only metric. Pay close attention to both affiliate channel profitability and its effect on the entire marketing portfolio to understand the true value of your affiliate program.
  • New Customer Acquisition: The purpose of the affiliate channel is new customer acquisition. The problem with many affiliates, however, is that they target existing customers who are already customers of a company, often targeting them when they are already in the shopping cart. This can prove extremely costly. Affiliates can take customers from other channels, such as organic search and pay-per-click, and claim them as their own. When multiple channels are taking credit for the same customer, the cost of that customer goes up unless there is a sophisticated method of attribution.

Additionally, if a returning customer is using affiliate offers geared toward new customers, the company ends up both giving a discount and paying an unnecessary affiliate commission, driving up costs. The affiliate mix of a program, and the incentives given, need to promote the desired behavior—driving new customers. This may mean that program revenue appears lower than it was, but in the end it is a much healthier program and additive to your overall marketing mix.

The affiliate marketing industry is at a critical juncture right now. If it continues to build on its reputation as a low-quality channel that is difficult to manage, it runs the risk of ultimately collapsing on itself. The basic set of principles outlined above combined with innovative strategies and technologies will help you drive real value with your affiliate marketing program.

About Robert Glazer

Robert Glazer, founder of Acceleration Partners, is a customer acquisition specialist with an exceptional track record in growing revenue and profits for leading consumer product and services companies. A recognized leader in creating high-quality affiliate marketing programs for fast-growing online retailers, Bob and his team have launched and managed several of the industry’s most recognized affiliate programs. Clients include adidas, Blurb, Layla Grace, ModCloth, One King’s Lane, Reebok, Shutterfly (Tiny Prints), Stella & Dot, and Tea Collection. Over the past five years, Acceleration Partners has driven more than $100m in online revenue for its clients and was awarded the 2012 Affiliate Summit Pinnacle Award for Exceptional Merchant for Tiny Prints as the industry’s top program.

One Response to A Different Approach to Affiliate Program Management

  1. Gail Gardner says:

    Good to see some OPMs are focusing on the ‘real’ bottom line. Many merchants don’t believe affiliate marketing works because all they see are affiliates who want to take commissions on sales they already have instead of creating new customers and sales.

    If a merchant does not do ppc themselves, then affiliates that do it for them are great. But if they already have comprehensive ppc ads they are usually not too thrilled at bidding against their own affiliates.

    What they really dislike are the affiliates who offer coupons they send to their lists. Think of that from the merchant’s point-of-view. Instead of a full retail sale, they end up paying the affiliate a commission plus discounting the sale. If they don’t price wisely, they could actually end up losing money on the sale.

    OPMs and affiliates need to understand what the merchants have to deal with such as pressure to lower prices to sell on places like Amazon and shopping comparison sites. This may prevent them from making any profit when prices are further discounted and/or commissions are paid. If they don’t make money they go out of business and you lose your commissions, too.