The Four Myths of Affiliate Marketing

Visualize your perfect customer. Right now, the people you’re trying to reach are on the Internet… or are they?

I was asked this question recently by a client targeting small businesses through affiliate programs. This is one of the hardest audiences to reach, because these folks are short on time and generally not interested in receiving commercial messages in a business context.

At the same time, I know most of my customers surf the Net at work, listening to radio and looking at sites — visiting the virtual water cooler, if you will.

How can I find these customers, real small businesses, with an affiliate program? Figuring out the answer to this question requires dispelling some of the myths about affiliate marketing. After all, there’s no reason for companies starting new affiliate programs to repeat the mistakes of those who’ve gone before.

Finding an audience, whether it’s of small businesses or consumers, is still a game of measuring risk. You have risk as the advertiser. The affiliate has risk as the publisher. The new affiliate game is to weigh these risks to find the perfect formula of price, margin, and performance.

Myth No. 1: If I open an affiliate program, I will automatically get new customers without having to pay much.

Yes, you will get more new customers than if you didn’t have a program. This myth probably got started by complacent Internet companies that figure the Net enables them to avoid contact with their customers and pay very little to affiliates that generate sales. Offline, these same businesses know you get what you pay for, but because it’s online everyone thinks it has to be cheaper.

A new trend is emerging, however. Good traffic is costing more, because it is worth more. Cheap deals will only get you onto the small sites. You get what you pay for.

Among sites with an audience of small businesses, the best have huge CPM prices and fight cost-per-action (CPA) deals. They have pieces of the small business audience, but no one site has been able to be the resource for small businesses. (Sorry, AllBusiness, Business.com, and smallbusiness.com. Although your sites are good, I still believe there’s no single site for small business.)

It comes down to the basic principles of direct marketing:

• The right offer. The offer must be relevant and interesting to the users.
• The right list. The list must be composed of interested recipients. Sound easy? You should try what I’m doing — targeting small businesses.
• The right time. Emails in August die because it’s a dead time for direct marketing. Knowing when your customers buy is an essential but overlooked piece of the puzzle. What will your affiliates do during the dead seasons for your product or service?

Myth No. 2: Performance-based marketing is risk free since I only pay on results.

Remember, you have less control with performance-based marketing than with straight media buys.

Affiliates may be grabbing your links and promoting your products, but:

• What if the quality they generate isn’t so great?
• What if the volume generated is higher than what you have budgeted for?
• What if your product is misrepresented?

If you play an active role in the program, you can minimize all of these risks. Paying on results is nice, but affiliates need to generate some revenue, too. Recently we’ve seen better affiliate results selling higher-priced products with higher margins.

Surprised? It’s harder to get 1,000 people to register at $1 a registration than it is to sell a $297 product that garners you $100 per sale. For this small-business campaign, we don’t have a $297 product. But we can set up a tiered reseller program, paying based on volume of customers delivered within a month.

The best way to minimize risk is to handpick your affiliates, building a reseller channel. Performance works when the risk of both the advertiser and the publisher are evenly weighted.

You don’t get that balance by posting a link on the Net and hoping for the best. You get it by taking control of your affiliates as a serious reseller channel.

Myth No. 3: Buying media based on CPM is bad because it’s risky. By opening an affiliate program, I won’t have to pay on CPM, only CPA.

Affiliate programs often can generate 33 percent of overall revenue if merchants focus on them. Obviously, the other 66 percent comes from somewhere else.

Smart affiliate program managers also buy CPM and use their affiliate programs to benchmark deals. That way, when they strike those CPM deals, they know what results should be expected. This is one of the most powerful tools affiliate programs give, but folks like to live in a black-and-white world in which it’s either CPA or CPM.

Smart companies know you have to live in both worlds, blending the risk on both sides to find the best solution for you, the affiliate, and ultimately your customer.

CPM can be risky, if you don’t know the metrics behind your media buys. However, if you know that an ad drives X number of new customers and it cost you Y dollars to run that ad, you can determine if this meets your acquisition cost goals.

Your affiliate technology will allow you to track these metrics in a turnkey way to determine whether buying on CPM makes sense for you. In fact, once you look at your metrics, you may find buying on CPM is cheaper than paying CPA.

Plus, more top publishers are now looking for hybrid deals, in which you pay both a CPM and CPA component.

Myth No. 4: Success in affiliate marketing is driven by having thousands of mom-and-pop Web sites promoting my products/services.

There are a lot of small Web sites that will begin promoting your products, but the key to success is finding a small number of partners who will drive results.

For example, one financial services company has over 30,000 affiliates in its program, but 80 percent of the resulting revenue is generated by only about 40 affiliates. Your results will be dependent on finding the right partners, big or small, that drive results.

What’s the formula for a successful affiliate program aimed at small businesses? You need to create a system that generates performance for both the advertiser and the affiliate. To do that, you need to identify sites that will perform, and make sure you pay them enough to make it worth their while. It’s not as easy as the mythology might suggest, but if you do it right it will certainly be worth your while.