Two types of companies exist online: those that test — and those that lose money.
Judging from the feedback to my first ClickZ article on X10, many companies still fail to test. They run out offers to entire email lists, or on Web sites, with no idea if they work or not. And they hate X10 because it works!
The big challenge with affiliate programs is to find out what works. Assuming that 80 percent of what you try fails, it’s essential that you quickly learn what works — and not go broke during your learning curve.
What I am about to share comes from my company’s experience as a super affiliate. We regularly try out over 200 affiliate offers to find the gold — the 20 percent that keep this business alive. This story is from 1999, but the techniques used have been around for over 100 years — it’s Direct Marketing 101.
When Internet marketing is a game of numbers, you win. But as you read this, notice how we took an affiliate program, tested it in our affiliate channel, and then used the same affiliate tracking to track ads that we bought at other sites.
When you know your conversion ratio, you know what you can afford to pay for an ad, your return on investment (ROI). Although ad tracking for your own company is rare in most affiliate programs, it should be a standard practice. After all, a good affiliate program is a good media buy, one that pays for itself.
Most important, you should always be your own super affiliate. It not only makes sense, it also helps you understand what affiliates go through with your offer.
It Was Beginning to Feel a Lot Like Christmas…
In December 1999, long domain names (up to 63 characters) were released to the public for the first time. Most Internet boards argued about their validity and value, but my partner Patrick Anderson saw an opportunity with the Registrars.com affiliate program.
Remember that this is just weeks before Christmas, and I’m thinking, “It’s crazy to try and offer domain names at this time of year, especially long ones.” That belief was totally wrong, and the reason we were able to generate $600,000 selling long domain names is that we don’t follow my beliefs, we follow the numbers. Here’s how:
- It’s December 1999, and we email our opt-in email list about the new, long domain names. Super affiliates on our list are invited to join the effort, with shared revenue on results.
- An opt-in email and entry page are created for this program, plus one e-zine and one research article. Total: three Web pages and two emails. Time spent: about three days.
- With a one-week email test to my opt-in email list and super affiliates, the offer generates $20,000 in revenue at a 20 percent sell-through rate. Given that this is the highest sell-through we’ve ever had, we decide to buy advertising at strategic sites, subject to the proven conversion. We price the ad based on what we can afford to pay (given the 20 percent conversion ratio).
It’s simple; when you know your conversion, you know your ROI. Ads in addition to affiliates are the best way to scale successful efforts.
For most companies, an affiliate program can generate up to 33 percent of revenue if it works. I’ve seen more and less, but this is standard in my experience. This means that 67 percent of your revenue has to come from elsewhere else.
Here’s How We Did It
The beauty of this effort is that once we knew the results, we could roll it out to our affiliate network and buy ads. In essence, we became our own super affiliate. Here’s how:
- Advertising was bought and put into action in January. Each ad had its own unique affiliate code, allowing us to track the revenue generated by the advertisement.
- We created a headline to elicit curiosity and interest, the domain name: http://www.how-to-register-a-long-domain-name.com (this is the old site).
- Most of my business friends thought that the idea of long domain names was crazy. But when we used the ad on E*Trade, the results were amazing. People clicked to see if it was a real link, then they started buying long domain names. They clicked on the headline!
- If you go to the Long Domain Name site, you will see an email form we used. Users opted in for the free report; we followed up in sequence over a period of time. This is a standard direct marketing technique, and it literally increased our sales by 33 percent. Remember, most people don’t buy on impulse or first contact; we increased the value of our ads by generating an opt-in list. And we included our affiliate’s code automatically in the email, to reward our partners.
- Six weeks after launch, the affiliate offer generated $600,000 gross through the affiliate network and $140,000 free and clear for my company.
Remember that the advertising cost was determined by the sell-through ratio; 20 percent is an amazing, and rare, case of sell-through. Most often the percentages are between 1 and 2 percent, so use these to measure how much you can pay for ads and for your affiliates.
Even with the success, several problems arose. The competition literally stole the exact copy we used. Others tried to rip off the style and the approach. What none of them did was advertise; most people who use affiliate programs think advertising is a waste of time.
Advertising is a waste of time only if you do not know your sell-through. Without knowing your conversion ratio, buying ads becomes a tricky game. Knowing this ratio makes all the difference. When it becomes a game of numbers, you win. That’s what affiliate programs are really about, smart media buying based on results.