The Buzz On Affiliate Programs

A year ago, TheLobsterNet.com wanted to sell more lobsters online. So it started an affiliate program, and business picked up. Today, the company receives about 15 percent of its sales from affiliate sites. The affiliates, about 500 in all, earn a 5 percent base commission on every sale.

Affiliate programs are clearly everywhere these days, from lobsters to books (Amazon.com) to perfume (FragranceNet). But can they truly help you build your business? Here’s the buzz for online marketers.

What Is An Affiliate Program?

First things first. Undoubtedly, you are probably familiar with the concept. Jupiter Communications defines an affiliate program as a relationship between an online merchant (the parent) and another web site (the affiliate) in which the parent pays the affiliate a bounty for each sale generated.

The most popular affiliate program is the Amazon.com Associates Program, with 140,000 members. That program started just two years ago, when a woman approached CEO Jeff Bezos at a party and asked whether she could sell certain Amazon books directly from her own web site. Her site helped people cope with the pain of divorce, and the books in question offered comfort and guidance for her audience.

What’s The Big Deal?

As the story above illustrates, affiliate programs let you reach the right person, at the right time, in the right context. It’s called syndicated selling. Here’s another example: A music listener visits a Spice Girls fan page, gets the scoop on her favorite band member, then buys the Spice World soundtrack on the spot, because the site belongs to CDnow’s Cosmic Credit affiliate program.

Now, say the CD costs $10. The affiliate gets a 7 percent commission (CDnow’s base rate), which means that CDnow’s cost per sale is only 70 cents. There’s no cost per impression, since CDnow only pays for each sale. That’s an appealing alternative to CPM-based banner advertising, where you pay up front for impressions, regardless of whether the banner generates 1 sale or 1,000 sales.

Of course, simply having an affiliate program doesn’t guarantee sales. Successful programs take time, pay competitive commissions, and reward the best affiliates to keep them happy.

Resources, Resources…

TheLobsterNet.com took five months to implement its affiliate program. Keeping it running is enough work for two full-time people in a company of seven. “It’s quite labor intensive,” says marketing director Phillip Rose. Rose and Lance Cleveland, who runs the program, use a service called ClickTrade (owned by the LinkExchange) to track referrals and recruit affiliates.

CDnow has a staff of seven dedicated to its affiliate program, which has 117,000 members. Much time is spent “filtering and sifting” through the flood of applications from would-be affiliates, says Nyles Lannon, CDnow’s affiliate program manager. An automated search system is in the works that will monitor affiliate sites for offensive content that might harm CDnow’s image. Until the system is in place, all 117,000 sites must be monitored manually. Besides that, there’s database management, research, marketing and more.

To Increase Appeal, Sweeten The Deal

Good affiliates are hard to find. “It’s the 80/20 rule: 80 percent of your sales come from 20 percent of your affiliates,” says Craig Palli of Be Free, Inc., which provides technology for managing affiliate programs. Be Free also just received $17.6 million in funding, a testament to the growing appeal of affiliate marketing.

Sites pay affiliates an average commission of 9.2 percent, according to a survey by Forrester Research. To recruit the best affiliates, some sites pay 20 percent or more. Many sites also have a tiered system that rewards top sellers. The online toy store eToys pays a 12.5 percent commission to “personal” web sites, and a whopping 25 percent to “commercial” sites. CDnow runs a host of incentive programs that offer autographed guitars and other memorabilia to select affiliates.

The Affiliate’s Point Of View

Joining an affiliate program is no windfall. “You’re not going to become a millionaire overnight,” says Palli. Around $200 or so a month in commissions is more realistic, he says.

The site WritersClub.com, an online community for writers, belongs to several affiliate programs that bring in a trickle of revenue. But money isn’t the only benefit, says president George Molaski.

“It’s more of a service to our members.” Molaski can appreciate the concept of syndicated selling. In fact, WritersClub.com will unveil its own affiliate program this month.

Ideas blossom rapidly on the internet, so it’s no surprise that affiliate marketing emerged just two years ago, from a conversation at a party. So there’s another lesson here: The next time you’re at a party and the topic turns to marketing strategies that go beyond the banner…listen up!