Affiliate marketing programs that enlist third-party partners to promote offers and drive traffic boost the performance of digital advertising through the ability to definitively track ROI for those offers. Recognizing the benefit of these programs, marketers are increasing their affiliate spend.
In fact, Forrester Research forecasts U.S. affiliate marketing spending will increase by a compounded annual growth rate of nearly 17 percent between 2011 and 2016, growing to $4.5 billion.
Marketers who are just starting out may find it difficult to find affiliates, set commissions, combat fraud, and refine a program over time. These four tips can help start up your affiliate marketing program.
Finding affiliates (in-house vs. outsource)
When it comes to getting started with affiliate marketing, marketers can choose a third-party service to work with, or create and manage their own program in-house.
There are pros and cons to both, but a combination may be the best option.
For beginners, finding or managing affiliates can at first be a daunting task. An outsourced affiliate service is attractive because it requires minimal effort to get up and running -- simply sign up and the service finds affiliates (or "publishers" as they are commonly referred to in the affiliate industry) and matches them to offers with participating advertisers. The drawback of outsourcing is that commissions are paid to the third-party service, in addition to the affiliate, for every conversion. Marketers also have limited control over the selection of affiliates or where offers ultimately appear.
In-house programs offer greater transparency, provide real-time insight into campaign performance, and allow marketers to develop tighter relationships with affiliates, though marketers must find those affiliates themselves. This approach also opens the door to custom campaigns and commission structures that wouldn't be available when working with a middleman.
The bottom line is that outsourcing is easier, but an in-house program gives more flexibility, control, and a potentially higher payoff. It also enables the marketer to build long-term relationships directly with their publishing sources that are built on a foundation of trust and historical performance. The savviest of marketers often leverage the best of both, using a third-party service for reach and managing lower-performing affiliates, while leveraging an in-house program to cultivate top-performing affiliates.
Determining the best commission structure for campaigns is key to affiliate marketing success, but getting this right takes time. It also requires a great understanding of the market rate for commissions to balance cost against competitive pricing.
The most popular method is to pay a flat rate per action. If a prospective customer fills out a form, downloads an app, purchases a product, or registers for a service, the affiliate who referred that customer gets a fee. Use caution with affiliates that ask for commissions based on CPMs (cost per 1,000 impressions) or CPCs (cost per click) because if affiliates aren't providing high-quality traffic, marketers end up paying for clicks or ad views that never convert. Another method shares revenue with affiliates based on a percentage of the total shopping cart purchased by a customer. Last, cost per lead (CPL) enables publishers to be paid on a per-lead basis, regardless of the quality of that lead.
What's the best approach? This is where measurement and ongoing monitoring is critical. By carefully tracking results and routinely testing different pay structures, marketers can analyze which types of campaigns are yielding good results and which are underperforming. Over time, marketers can determine the most successful commission structure for their business.
When it comes to fraud, the importance of tracking is paramount. Marketers can use very granular data about the clicks and conversions themselves to identify potential fraud. When each step along the customer journey is captured and analyzed, it is easier to identify potential red flags. For example, are conversion rates for a handful of affiliates surprisingly high? It may be worth investigating their traffic further to make sure it's legitimate. High click counts paired with low conversions could indicate poor traffic. It is also important to monitor referring URLs. Are they all coming from the same address? If so, a marketer has either landed a fabulous affiliate partner, or could be dealing with a bot.
Being diligent about program management and putting safeguards in place (such as only paying for verified leads) will help marketers avoid poor quality and shady players.
Refining over time
Setting and forgetting is the most common rookie mistake in affiliate marketing.
Whether outsourcing or managing an in-house program, it's important to continually test, measure, and refine. This means learning as much as possible about how the affiliate industry works and dedicating resources to campaign execution and tracking. For example, there are a number of web resources available that provide marketing advice and even review affiliates. Trade shows such as PMI, LeadsCon, and ad:tech evenets are also good places to get an education on the affiliate community while meeting potential partners and technology providers.
Most importantly, after uncovering something significant, marketers must take action -- whether that means blocking a bad affiliate or incentivizing a good one with bonuses or higher payouts.
In the world of affiliate marketing, a little homework goes a long way. Marketers that take the time to research and learn will be the ones best positioned to build a strong affiliate program that ultimately leads to a greater return on their digital spend.
Jeff Deisner is vice president of operations at CAKE.
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