A few weeks have passed since the inaugural AffiliateForce, but one thing that stands out from the three-day event is the huge divide between merchants that get it and those that don’t.
One anecdote related by Declan Dunn went something like this: “About six months ago, I was at another affiliate marketing conference where I asked, ‘How many in this room want to write thousands of affiliate checks every month?'” Only two people raised their hands.
Hel-LO!?!? Think about that for a minute. With any kind of performance marketing, if you’re not writing checks your cash register isn’t ringing. To put it in simplest terms, success as an affiliate marketer is a function of how many checks your affiliates can cash.
Sure, setting your commission schedule and payout rates can be a real source of angst. Certainly the tendency across a wide spectrum of programs is to either pay too little or, even worse, to pay for the wrong things. While past columns have covered the basics of affiliate marketing, today we’ll look more in depth at structuring your pay-outs and rewarding affiliates. Readers may also want to think about what not to do.
First Things First
Pay only for the behavior you want even if it means more work to get your systems up to snuff. If you want traffic, paying per click is just the thing. If you want subscribers (like I do) or you want to sell merchandise (like most merchants do), paying for clicks is a bad idea, because guess what all you’ll get are clicks.
Of course you can do the math and figure out click-through rates and conversion rates and back into the “correct” per-click cost, but I’m here to tell you that with affiliate marketing it will fail. You’re not making a blind buy. This isn’t simply a matter of taking the ads that worked on DoubleClick and running them at ValueClick or Flycast.
There is a whole world of self-selection happening within affiliate networks. It’s a microcosm of capitalism. Somehow, sites with loads of traffic gravitate toward per-click programs, while sites with niche traffic end up promoting per-lead, per-sale or commission programs.
Setting Your Payout Rates
Having established how you want affiliates to promote your site per click, per lead, commission and so forth the real challenge begins. Typically, marketers go to extremes.
On one hand, there are a few big spenders. When payouts sound too high to be sustainable, usually the merchant has no brand awareness with consumers, so the conversion rate is so low that the “big” payout never amounts to much. Another scenario finds affiliates funneling traffic to well-meaning sites with poor systems that don’t quite track everything, leaving the affiliate without a paycheck.
What happens more often? Brand-name dot-coms pare affiliate commissions back to three or five or even ten percent, all the while running branding ads left and right. Meanwhile, The Industry Standard is full of nice charts about how customer acquisition costs are some staggering $75 or $120 or $150.
Seriously, don’t cheat your affiliates. If you’re out acquiring customers at $150 a clip, don’t expect your affiliates to be satisfied with $5. It’s OK to average down somewhat, but just remember: You want to write checks.
Consider the case of Art.com. Way back in the early days of affiliate marketing, Art.com’s affiliate commission rate was 15 percent. At this level Art.com reported customer acquisition costs of $15 for affiliate marketing versus $30 for banners and $100 for broadcast ads. It was able to average down nicely, but at the same time offer one of the leading payouts of any retailer. Both Art.com and its affiliates won.
Another critical element of your payout schedule is determining in advance how much and how often to give incremental rewards to your star affiliates. This is really part and parcel of a structured approach to communicating with your affiliates. If you think all affiliates are created equal, you’re in for a tough lesson. Leave some room in your commission schedule to reward your best affiliates. Even then, don’t be afraid to bend the rules and dig a little deeper for your most productive affiliates.
Once you start playing with payouts, you’ll quickly learn the sweet spots the inflection point around which you can really start to ramp up performance and the places where larger payouts are simply a diminishing return. Through it all, remember: You can never write too many checks.