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Make Money While You Sleep

By Yatin Patel
Monday, November 15, 2004; 1:00pm EST

Affiliate marketing is a good tool.

IF YOU ARE LIKE MOST BUSINESSES, IT IS A REAL challenge to attract paying customers to your site and still meet your ROI needs. Many companies who are successful in this area have reverted to a very traditional, real-world selling technique. They have taken this technique that has been successfully used for centuries and have finessed it into the cyber world. It is called Commission-based selling. Its embodiment in the online world takes the form of affiliate programs.

The easy definition of an affiliate program is �Gain more customers through smaller sites run by others, which usually have a strong, loyal following. The small guys get a commission on sales that they send the bigger guys� way.� In a sign that the affiliate approach is working, a 2002 Forrester report said spending toward affiliate marketing increased by 50% while budgets for portal deals, e-mail, and banners all decreased significantly. Forrester also says that affiliate marketing is now driving $10.5 billion, or 15%, of online sales. By 2005, this figure will jump to $54 billion (Forrester, �eCommerce Brokers Arrive,�). Today, 97% of online marketing deals have a performance component. Growth rates for pay-for-performance spending will be seven times the growth rates for CPM- based spending through 2006.

�Pre-sell / Warm-up� Phenomena
The most popular model is where Affiliates do not �sell� the merchant�s product, they �Pre-sell /Warm up� their visitor and send them to the merchant�s Web site in an open-to-buy frame of mind.

Some affiliates even have syndicated content from the merchant on their site and they take the visitor as far as possible before switching transparently (one hopes) to the merchant when the visitor is ready to put a credit card to use.

In the best situation, the visitor doesn�t even realize that a switch from the smaller affiliate site to the larger merchant site has even taken place.

Affiliate Revenue Models Sales Commission:

Affiliate receives fixed % of sales as a commission.
Traffic exchange: One qualified clicks from my site is exchanged for one qualified click from yours.
Pay per contextual visitor Or Qualified Lead: Merchant pays a fixed amount to the affiliate per qualified click or lead.
Hybrid Model: A custom solution with two or more components of above revenue model.

What do affiliates look for when considering your affiliate program?
Product Profile: The Product plays a very important part in the success of this program. The basic criteria of product qualification are:

� Products / services should be a purchasable item online.
� Your catalog and offering should have sufficient content about the product or market segment
� Miscellaneous, complementary accessories and services that will boost sales
�A perfect sales pitch with pictures.
� Mass appeal is an added plus.
� Competitive Price.

High commission

Depending on the profit margin, the merchant should offer a good commission to their affiliates. The simple way to determine the commission is to calculate the current cost (Cost per acquisition) to make one sale by means of existing online marketing efforts using banners, paid placement, and other traditional Internet media.

Let�s then assume that cost is 15 % of the existing revenue. It is safe to offer 10% commission to the affiliates with the other 5% assigned to the administration of the program. One can calculate the same formula Based on Cost per acquisition too.

Lifetime commission

Many affiliate programs just set the identifying cookie to last for a short period of time (perhaps 24 hours, some only for the duration of the visit to merchant�s site). If the visitor doesn�t buy within the short time the cookie is set, the visitor is no longer identified with the referring Webmaster and there is no commission paid to that Webmaster.

Good affiliate programs not only set the cookie for longer, up to a maximum of 10 years, they also use database tracking on the merchant�s system. So, whenever a visitor that has been �tagged� and referred comes back to the merchant and buys, the merchant credits the referring Webmaster and pays the commission. This long-term cookie and database backup enables the merchant to provide the affiliate with a �lifetime customer�. Now that really is looking after affiliates!

Customer Service and Call Center
Effective customer service and call center support can make or break your affiliate program. Many online buyers would like to call when they make an online purchase. Well-managed CRM activity adds creditability in your offerings. A separate toll free number for each affiliate can add affiliate value by personalizing the experience for the customer and making certain proper credit is given to the affiliate for call center reservations.

Syndication Capabilities: You can affiliate with web sites in two ways�first, by placing offers on your affiliates� sites that link back to your company servers, where the sale is made; second, via hybrid models. The program models come in six basic types, and your company can offer any or all of them to potential affiliate partners: Banner or text links, Storefronts, Pop-ups, Embedded commerce, Email, Hybrid

Some merchants that go all out to support their affiliates and help them succeed offer newsletters, promotional ideas, up-to-date information, even whole web sites devoted just to affiliate support.

Contextual Relevancy
The Affiliates that are successful are those who are becoming ever more context-centric and offer contextual relevancy That is, what�s being offered to site visitors closely matches the content of the site itself. Place the product or service in context and more people will buy. An affiliate site would be more effective selling video games than lawn mowers on a site targeted to teenagers. It�s about presenting the right message to visitors in the right place at the right time.

After sale reporting and transaction
Affiliates like to see their transactions in detail on a daily basis to measure the performance of their investments. A detailed reporting mechanism for everyday sales, product names, and product categories are a very important part of successful program. Affiliates use these statistics to optimize their offering and marketing methods.

Also paying your affiliates on time and offering alternate payment methods is a must.

Wrong Assumptions about affiliate marketing

Wrong Assumption 1: Having many many small sites promoting my product in mass will bring success to my affiliate program. It is not about how many affiliates you have, what really counts is how many affiliates producing significant results. Identify which affiliates are producing results and work with them closely to bring their revenue up.

The 80-20 rules applies: 80% of revenue is probably coming from 20% of your affiliates. Your results will be dependent on finding the right partners, big or small, that drive results.

Wrong Assumption 2: Affiliate programs will get new customers automatically with a low acquisition cost. Affiliates are becoming smart business entities day by day and they have a wide variety of offerings to choose from. They also understand the value of the traffic their sites are getting. They know that in their focus market segment good traffic is costing more, because it is worth more.

You get what you pay for. As a merchant, create a process that generates performance for both the merchant and the affiliate. To do that, you need to identify sites that will perform, based on their contextual relevancy and amount of traffic, 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.

Wrong Assumption 3: Action or Performance-based marketing has no risk. Straight media buys offer more control than performance-based marketing. Affiliates may be offering content and promoting your products, but there is a chance that the quality of consumer is not what you expected. There is a chance that they will produce more then you have budgeted for. There is a chance that your product will be misrepresented by the affiliate.

By playing an active role with the program and handpicking your affiliates, you can minimize all of these risks. Paying on results sound lucrative to the merchant, but affiliates need to make their fair share of revenue, too. Commissions work when the risk on both sides is evenly weighted.

You don�t get that performance by putting a link on the World Wide Web and hoping for the best. You get it by taking control of your affiliates as a serious reseller channel.

Wrong Assumption 4: Since I have an affiliate program running I will not have to buy advertising on a CPM basis. Affiliate programs often can generate 30 percent of overall revenue if merchants focus on them. Obviously, the other 70 percent comes from somewhere else.

So companies must know how to live in both worlds (Pay per performance and pay per impression). CPM can be countered productive if you don�t know the performance metrics behind the campaign.

However, if you know the number of new customers acquired and the amount spent on the media buy, 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. You may find buying on CPM is cheaper than paying CPA.

One of the reasons affiliate programs are so popular is that that offer a win-win situation for both merchant and affiliate.

Merchant�s Win: The merchant�s cost for advertising a particular product is mostly limited to the commission paid to an affiliate, and the merchant only has to pay when a purchase is complete.

This is superior to banner advertising, where the merchant pays�purchase or no purchase. Impressively, the amount paid to an affiliate for a purchase through an affiliate link is probably only 10% to 20% of the cost of that sale through banner advertising.

Affiliate�s Win: The site owner should make money if enough visitors click on the affiliate links and make purchases. The affiliate doesn�t have to go through the setting up e-commerce functions, taking credit cards, or shipping products. They just join affiliate programs and let someone else do the �hard stuff.�

About the Author
By Yatin Patel
Published in http://www.siliconindia.com
August 2003

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