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Affiliate Marketing for Small Businesses

Robert Moskowitz
Affiliate Marketing for Small Businesses Robert Moskowitz

The largest organizations dominate the world of affiliate marketing in much the same way that giant firms dominate the overall economy. But in neither case are small businesses locked out. In fact, small office and small home businesses are thriving in both worlds, often setting the pace and earning larger margins than their Goliath counterparts.

But that doesn’t mean putting in an affiliate marketing program is an automatic winner for your small business. To have a good chance of success as a merchant working through marketing affiliates, your business should meet certain basic criteria:

  • Offer a variety of products and services to meet a broad range of needs

  • Be capable of collecting information about online customers, and have a vision of what to do with this information

  • Have plenty of gross margin available in your price structure so you can offer your affiliates very attractive commissions

  • Enjoy a good reputation and some brand recognition that can translate into easier, faster, larger online sales.

It’s even better if your product or service involves recurring sales -- like soap or razor blades -- so your customers provide a continuing stream of revenue for you to share with your affiliates.

If you feel your company has the potential to do well with an affiliate marketing program, here are some guidelines on how to make it happen:

Sign up with an affiliate network

These companies make life much easier for merchants because they handle all the tedious and time-consuming chores required to maintain a network of affiliates. In addition, their credibility gives top affiliates extra confidence that they will receive the commissions they earn. You can find a suitable network with low or no up-front charges, which allows a large part of your affiliate marketing expenses to be paid from affiliate-generated sales.

Develop an attractive commission structure

It’s tempting to start off paying five or even 10 percent commission to your affiliates, just to see how well the program flies. But such low commission rates are not going to attract the hardest working, most successful affiliates. These top earners will generate 80 to 90 percent of all your affiliate marketing business, so it’s penny-wise and pound-foolish to be stingy with commissions.

Instead, consider the revenue from your affiliate marketing program to be found money. Recognize that it’s more profitable to receive 60 to 70 percent of a substantial cash flow than 80 to 90 percent of a trickle.

You should also consider paying a second tier of commissions, paid on the sales of affiliates that other affiliates sign up. In other words, if I am your affiliate, and I get my brother-in-law to be your affiliate as well, then I should receive a small percentage of all the sales my brother-in-law brings to you. Top affiliates know they cannot generate a significant income just by signing up other affiliates. But a second tier of commissions is an important sweetener that motivates them to help you build your affiliate network.

Be selective

Most newcomers to affiliate marketing are willing to sign up almost anyone. But this creates an unwieldy organization of low-grade affiliates. It’s more productive to be selective. To build your program, make an effort to find people who have strong, natural relationships with your top prospects. Generally, these will be people who have developed popular Web sites in particular niches. But they may also be subject-matter experts and consultants who have become opinion leaders in their particular field. Among these, select only the few who are motivated to succeed as affiliates and capable of following your lead within your program.

Teach your affiliates to market

Most affiliate programs offer off-the-shelf Web sites, banners, buttons, links and other sales technology. Sadly, these “me too” approaches rarely produce maximum results. That’s why small business affiliate programs do a lot better when they coach their affiliates to develop more personalized methods of referring prospects.

One important technique is to replace standard advertising with individualized testimonials. When your affiliates tell their visitors about the benefits of your product or service, clickthroughs and sales climb significantly higher.

It’s also important for your affiliates to build their own audiences. Such loyal groups are more easily convinced to give your product or service a try than visitors seeing your affiliate’s Web site for the very first time.

Take care of your affiliates

Success as an affiliate is a marathon, not a sprint. So it’s important that you provide your marketing affiliates the resources and support they need to make a sustained effort on your behalf.

Instead of treating your affiliates like cattle or a commodity, develop programs to make them part of your business family. Communicate regularly and individually with them. Welcome each one with a personal message, and keep a file on each one so you know their history within your program. It’s helpful to produce a regular newsletter and offer an easy feedback channel so your affiliates feel they are in the loop and can get their questions answered quickly. It’s also useful to provide an affiliates-only Web site offering information, suggestions, marketing resources, useful links and two-way communications capabilities so your affiliates can steadily improve the job they are doing for you.

In addition, it’s helpful to have a dedicated affiliate marketing program manager. This should be someone with a gift for building an online community and a strong sense of how to motivate and manage affiliates.

In general, think in terms of finding out what your affiliates want and need, and seeing how much of this you can provide. Remember that affiliate marketing is a two-way street, and the more you give back to your affiliates, the more sales they will deliver to you.

Robert Moskowitz is a consultant and author who speaks and writes frequently in the U.S. and abroad on such topics as white collar productivity, knowledge management, practical use of the Internet, telecommuting, caring for aging parents, and business applications of information technologies. He has authored several books, including "How To Organize Your Work and Your Life," and "Parenting Your Aging Parents," and teaches several online courses.

In a cost-per-action (CPA) model, the publisher takes most of the advertising risk since its commissions are dependent on the conversions coming from the advertiser's units. With this heavy reliance on the CPA network, however, comes various risks that can affect the quality of leads from a campaign.

One of the most widespread uses of performance-based campaigns in ad networks is based on an affiliate structure. The problem that can occur here is that lead lists can be distributed among so many affiliates that the advertiser no longer knows if the network is buying, sharing or manually entering its lists. Here you are relying heavily on your CPA network to establish quality leads, but they could be selling out to affiliates that sell out to their affiliates, and so on. The problem is that the network could potentially submit to thousands of affiliates, and the more the lists are distributed the lower the quality of leads that are acquired.

Another risk with working with a CPA network involves incentivized leads, as networks often will turn down these leads because they are low quality. The downfall is that there is nothing in place to punish this generation or obtain proof that these are the types of leads that were acquired, so this ultimately results in wasted effort on unusable leads.

How to avoid this
There are a number of solutions to this problem. One method is to instill a statement within the contract or insertion order that explicitly identifies your position on using incentivized leads. This could be an agreement that states no payment or reduced payment will be made for all incentivized leads acquired.

You can also cut off that particular publisher or affiliate from delivering leads, but this all depends on how open the network is to disclosing sources.

Lastly, tracking methods allow you to assign codes to particular publishers so you can know exactly where the leads came from, and you can shut them off if they are sending you incentivized leads.

With the competitive nature of the internet as an advertising space, online marketers are constantly fighting for premium placements. Competing advertisers, publishers and networks all working against each other makes it inevitable that impression levels will vary significantly if another advertiser comes in with a better offer or is willing to pay a higher premium for placements. In this case, ad networks come back to you and recommend that you can get your requested levels if you increase your rates.

How to avoid this
To maintain a high level of transparency and security between you and your network, check on these potential risks upfront and ask if impression availability is based on a bidding process. Also, have a lock on impression amounts that cannot be reduced or requested.

Another problem that can occur when working with ad networks is the existence of unreliable inventory levels, which is another casualty of the ad network's practice of improper transparency. Usually inventory levels of the network or campaign are over-inflated as a product of sharing the counts of multiple networks. The result is the under-delivery of the campaign or simply having to rely on a single network.

How to avoid this
There are a couple of ways to avoid this misstep. Only deal with ad networks that have exclusive site representation or have multiple ad network contracts in place so that once inventory dries up with one, you can still allocate to another. Remember always to ask for audited inventory numbers so that you are never misled.

The most important feature of an ad network is the level of transparency that they practice. This is crucial to a successful campaign, as ads may appear on questionable sites or next to questionable content, hurting the credibility of the advertiser. When working with an ad network, there is often the inability to drill down on a site-specific level, and it is important to remember that long-tail inventory often includes blogs, sites with strong perspectives, user-generated content and social networking sites.

We have all been caught in a situation where our ad messages show up next to political comments, foul language or adult-oriented messages. You try to avoid this placement by excluding it in the insertion orders, but with user-generated content or interactive tools such as user comments, it is becoming more and more common.

How to avoid this
Placements such as these can be avoided if you establish a high level of transparency with the network upfront, making it clear which sites your ads will be placed on.

Rates race to the bottom
Could it be that, as video moves to broadband, broadcasters are afraid they won't be able to justify their online rates any better than they could in the upfronts?

Lopez insists he's not advocating a return to the days of advertising-by-gut-instinct, even as he admits that the television industry may have been complacent about the performance of TV ads. "Just as it's hard to know exactly which campaigns work in television, it's also equally hard to find out online, except for products where sales are actually happening online," he says. For example, it's not much easier for a CPG manufacturer to track the effectiveness of an interactive branding campaign than for a flight of TV spots.

Lopez puts his finger on the hot button for the latest industry anxiety about creative versus clicks: With the search sector fairly saturated -- and dominated by Google -- growth in digital spending has to come from the deep-pocket brand advertisers that keep TV afloat. But their free-spending ways may not carry over to the digital realm, which has seen severe price pressure and the commoditization of display ads.

Says Dean Donaldson, digital experience strategist for Eyeblaster, "The emphasis on bottom-line performance has pushed people to reduce CPMs online. It hit the breaking point this year. If you reduce CPMs that low, a lot of ad networks might close down this year."

The pressure is only going to get worse, as more ads get the remnant treatment. As a Razorfish report points out, the Big Four have all jumped on the ad exchange bandwagon, with Google's DoubleClick Ad Exchange extending the search giant's inventory clout to its entire content network. 

Exchanges are appealing for their promise of finding the right price -- the lowest for the advertiser, the highest for the publisher. But, as they expand to include more inventory, will their greater transparency put further demand for accountability on display ads?

"In a zero-sum game with a finite pool of dollars, I think advertisers will gravitate to performance-driven channels," says Matt Greitzer, vice president and global discipline lead of search marketing at Razorfish.

At the same time, he says, exchange technology lets advertisers use the same kinds of creative executions that they'd place in premium deals. "I don't see a polarization between immediate response advertising and doing something more creative and engaging."

The new ROI discipline might seem to make things tougher for the poor creative, but we couldn't actually find one willing to complain.

Are clicks all that?
Or maybe they're on about clicks because the concept of impressions is so mushy. However, many marketers have already moved beyond the click-through.

"Our clients who focus on click-through rates the most seem to do so to make quick conclusions and near-instant updates," says Laura Safechuk, creative director for AvatarLabs. "We have seen this influence messaging and copy changes, and it has brought up talks about including RSS feeds, XML copy, or smart versioning to make these fast updates occur very easily."

Adds Kiera Hynninen, executive vice president of marketing for the National Geographic Channel, "Clicks are a very important piece of our marketing campaigns, but we never look at them in isolation. One size does not fit all shows."

In addition to clicks, her team looks at traffic to the website, impressions, reach, frequency, engagement, length of video views, and social engagement. With a robust in-house research team, National Geographic Channel chooses a few key metrics for each campaign.

Hynninen's mrketers pride themselves on being highly creative, thank you very much. "For us, metrics is only a piece of the story," she says. "We look at things you can't necessarily measure." For example, the launch campaign for "On Board Air Force One" included a Twitter promotion in the "voice" of the plane itself. The plane went from zero to 3,000 followers in two weeks. While that may not seem like a huge number of impressions, she says, "If those are the right people to watch us, it doesn't always have to be a huge number."


ROI rocks
Of course, a move away from clicks doesn't mean that marketers aren't still obsessed by ROI. Answering the ROI question is more complex than ever. But it can be done. For example, Macy's digital advertising often includes beyond-the-banner campaigns, such as integration with third-party sites, so that consumers can engage with the brand on the sites they normally visit.

Moreover, says Katie McCormick, media director of online and magazine at Macy's, "We know that 90 to 95 percent of consumers are browsing online with the intent of buying in-store. It's a pre-shopping vehicle." Even when someone buys from Macys.com, the retailer recognizes that there are numerous marketing tactics that may have resulted in the shopper landing there. "They may not have clicked until the third time."

Macy's uses the Hudson River Group for media mix analysis. The company, whose motto is "measuring which half," provides customized marketing ROI simulators to help its clients understand which activities are driving sales and ROI. Macy's feeds both search and display spending into the model to understand their relative contributions to the bottom line.

Jugular measures the impact of print advertising on AdWords clicks. Along with its Google keyword campaign, a pharmaceutical client advertised a skin patch in three magazines targeted to people with diabetes. "The Google click-throughs spiked big-time the minute we got the circulation of multi-page spreads in these three publications," says Scott Lackey, strategic director of Jugular Advertising.

Recognizing that impressions can be as important as clicks, Eyeblaster is promoting the concept of "dwell time" as an alternative to CTR. Dwell time takes into account the amount of time the mouse is over an ad, the duration of user-initiated video or expansion, plus the duration of custom interactions.

Creative obsession
So, is an obsession with clicks -- or even ROI -- stifling digital creativity? Nah. Jugular's launch campaign for the game "Age of Conan" featured blood-red rectangular with the tagline, "You never forget your first decapitation" -- and a prominent, "Click here to buy now." The campaign garnered a 2.85 percent CTR on YouTube.

"This is the world of analytics," Lackey says. "It's great to say, 'Let's just do work that intuitively feels right.' I don't believe in 2009 that that's going to be a welcome proposition for too many clients."

It's true, however, that often an agency's most creative work is hidden post-click. As Eyeblaster's Donaldson points out, instead of making the user click to expand or go to a landing page to see the good stuff, why not make the display itself great?

Advances in behavioral targeting allow for new kinds of creativity, for example, evolving the creative message over time, says Chris Hulse, CEO of Inflection Point Media. "Customize the creative to make sure you're speaking to the person at the stage of the lifecycle they're in."

Attention to ROI can actually free creativity, according to Leslie Moeller, a partner in Booz & Company and co-author of the book "Profit-Driven Marketing: A Proven System for Maximizing Creativity, Accountability, and ROI."

"If you don't measure impact some way, the creative decision is based on someone's judgment. That will force you to normality and group consensus," he says. Testing creative ideas, on the other hand, can justify an execution that the CMO isn't so crazy about. Moeller also believes that even brand advertising should show immediate results. "There is a belief that, 'I can do things to build my brand today for sales tomorrow. When they do go shop, I'll see that impact.' I think that while there's some truth to that, our experience is that there's always somebody shopping."

As Macy's McCormick says, "My biggest lesson learned is that the media and creative have to work hand in hand. You can't point fingers at either one independently."

Susan Kuchinskas is a freelance writer who has written for Adweek, Business 2.0, M-Business, and internetnews.com.

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