Affiliate marketing is an agreement program whereby you compensate individuals or companies for performing certain actions such as making a sale or providing a qualified lead. For example, a blogger can recommend a product on their blog and receive a commission when a sale of that product is made through their referral.
Leading companies such as Amazon, Zappos, eBay, Orbitz, and Netflix use affiliate marketing to generate certain portions of their revenue.
In fact, these affiliate programs are the main traction channel for several e-commerce companies, information products, and membership programs.
For this channel, we interviewed Kris Jones, founder of the Pepperjam affiliate platform, which was acquired by eBay in 2009. Kris developed Pepperjam into the fourth largest affiliate platform in the world: at one point, he had a single advertiser generating fifty million dollars in revenue per year through his network.
Affiliate marketing is commonly used in retail, information products, and lead generation.
In retail, affiliate programs make it easy to purchase physical products and generate over two billion dollars a year. Amazon, Target, and Walmart have the largest programs and pay affiliates a percentage on each sale. For example, Amazon's affiliate program pays between 4% and 8.5% on each sale depending on the number of sales the affiliate makes each month.
While some large retailers like Amazon and eBay have their own affiliate program, it's rare. These programs require recruiting, management, and payment of thousands of affiliates, which is too complex and costly for most companies. It's much more convenient for online retailers to work with existing affiliate platforms. Sites like Commission Junction (CJ), Pepperjam, and LinkShare have all developed large affiliate platforms that promote the products of others. The list of companies that work with these platforms includes the most well-known names in retail: Walmart, Apple, Starbucks, The North Face, The Home Depot, Verizon, Best Buy, and many others.
Test the use of an existing affiliate platform. It already has affiliates, so you can start using this channel immediately. Choose a simple payment method. Calculate the amount you can spend to recruit a customer and set the amount (of remuneration) below. As you progress in this channel, you can test more complex payment programs. Then look to affiliate your customers. They already appreciate you, and many may want to sell for you. Types of affiliate programs
The profiles of affiliates who join these programs are very diverse but generally fall into one of the following main categories:
Sites like RetailMeNot, CouponCabin, Brad's Deals, and Slickdeals offer discounts to their visitors and take a commission on all sales. For example, when you search for "Zappos discount" on the internet, RetailMeNot is likely to appear among the first search results for this word.
When you go to RetailMeNot's page, you see discount codes for Zappos. If you click on one of them and buy something by entering this discount code, RetailMeNot gets a percentage of that sale.
Companies like Upromise and Ebates have reward programs that offer a discount to be deducted from a future purchase made on one of their partners' sites. They make money based on the amounts their members spend through retail sales affiliate programs. If a thousand members buy Olive Garden gift cards, Upromise will get a percentage on every dollar spent. Then it will give back a portion of what it has earned to its members in the form of cashback.
Sites like Nextag and PriceGrabber aggregate different products from retailers. They add information like customer ratings or price comparisons.
Several affiliates have large mailing lists to which they recommend products. And they take a commission when their subscribers make purchases.
Hundreds of thousands of sites (including individual blogs) have gathered significant audiences focused on vertical (sectoral) targets such as parenting, sports, or electronics.
Information products include electronic products such as e-books, software, music, and (increasingly) educational materials.
Since it costs nothing to send a digital file, the sale of information products through affiliate programs is becoming more common. Publishers or authors give high percentages to affiliates to promote their products.
The largest affiliate platform for information products is undoubtedly ClickBank, where affiliate commissions often reach up to 75%. ClickBank has over a hundred thousand affiliates and millions of products.
Lead generation is a twenty-six billion dollar industry. Insurance companies, law firms, and mortgage brokers pay big commissions to get client leads. Depending on the industry, a lead may include a professional email address, a postal address, or a phone number. It may also include more qualifying information like a credit score.
Affiliate programs are widespread in financial services and insurance companies because the value of each customer is high. Think about how much you spend on car or health insurance per year: that will tell you why a lead is so valuable. In fact, insurance companies are the biggest spenders in paid Google AdWords, often paying fifty to a hundred dollars for a single click!
These companies often create their own affiliate programs or turn to popular lead generation platforms like Affiliate.com, Clickbooth, Neverblue, and Adknowledge.
Tactics for affiliate marketing Your ability to profit from an affiliate program depends on the price you are willing to pay to acquire a customer. After all, with this channel, you pay out of pocket for the lead or sale.
Using an existing affiliate platform We recommend using an existing affiliate platform such as Commission Junction, Pepperjam, ShareASale, or more targeted platforms based on the specificity of your product.
Using a platform makes it easier to recruit affiliates because there are already many affiliates on these sites. This allows you to start using this traction channel immediately. Otherwise, you will need to recruit affiliates yourself, which is costly in time and money.
It is relatively easy to set up an affiliate program on one of these existing affiliate platforms, but it requires an initial investment. In the case of Commission Junction, the cost is over $2,000. However, if you recruit high-level affiliates through this platform, sales will quickly offset the initial cost.
The other option is to create your own independent affiliate program without relying on any existing platform. With such a program, you recruit partners from your customer base or individuals who have access to customer groups that you want to target.
One of the benefits of this approach is that you don't have to pay your affiliates in cash. You can use the features of your product as currency. For example, if your startup has a free business model, you can offer your affiliates access to certain features or extend their subscriptions.
We previously explained how Dropbox's referral program offers individuals free storage space.
QuiBids, a penny auction site, is another example. It has created a referral program for its existing customers that offers free bids to people who refer other customers.
The first place to look for prospective affiliates is your own customer base. It is easy to recruit and work with them because they are already familiar with your brand and have a certain affinity for it.
Once you have recruited customers for your affiliate program, you will need to reach out to content creators, including bloggers, publishers, social media influencers, and email list curators. Monetizing blogs can be challenging. So, these content creators often look for other ways to make money.
Established affiliate programs like those managed by Amazon or Netflix have set exact terms of compensation for their affiliates for each lead.
As a startup, you should start with a simple approach. And the simplest approaches are to pay a flat fee for each conversion (e.g., $5 for a customer who has made a purchase) or to pay a percentage of the conversion (e.g., 5% of the price paid by the customer).
Established affiliate programs have become more complex by segmenting their products and rewarding top affiliates. eBay offers vouchers to its affiliates for the product categories it wants to promote.
In these programs, you are paid as an affiliate a percentage (or flat fee) on each transaction. The percentage is based on the number of sales you make. If you conclude more transactions, your percentage increases, and you earn more money.
Below is a list and features of the largest affiliate platforms, as well as a list of software that will allow you to create your own referral program without a substantial investment in engineering.
Commission Junction
CJ hosts several of the largest retailers on the internet. It is also relatively expensive: it costs $2,000 and more to sell your product through its platform. This high cost, combined with the fact that CJ manages the performance of both affiliates and publishers, gives its platform a high level of quality.
ClickBank
The leading platform for anyone selling digital products online (courses, e-books, digital media).
ClickBank is relatively cheap to start with as you only need to pay $50 to index your links on its platform.
Affiliate.com
Affiliate.com is committed to strict recruitment of its affiliates, as well as guaranteeing better quality traffic for its advertisers.
Pepperjam
Created by Kris Jones (whom we interviewed in this chapter), the Pepperjam platform includes several sales channels (mobile, social, offline, paper, etc.). Pepperjam aims to be the champion of customer support and transparency, which it has made its selling points. It will cost you $1,000 to be present on the platform.
ShareASale
This affiliate platform has more than 2,500 merchants and allows advertisers to be flexible in setting commission structures. It costs nearly $500 to start.
Adknowledge
Adknowledge offers a traditional advertising space sales service, as well as selling affiliate campaigns.
The company does mobile advertising, search advertising, graphic advertising, and social media advertising, giving advertisers access to affiliates and cost-per-clicks (CPC) on the same platform.
LinkShare
LinkShare helps businesses find affiliates and creates lead generation programs for them. Companies like Macy's, Avon, and Champion use this service to manage their affiliate programs.
MobAff
MobAff is a mobile affiliate platform that uses SMS, push notifications, click-to-call, mobile display, and mobile search advertising to increase conversion rates for its advertisers.
Neverblue Neverblue targets advertisers who spend more than $20,000 per month. The company works with its partners on their advertising and campaigns. Groupon, eHarmony, and Vistaprint are among its clients.
Clickbooth
Clickbooth uses search and multiple websites to promote brands like DirecTV, Dish Network, and QuiBids.
RetailMeNot, Inc. (formerly WhaleShark Media) This company owns some of the world's most popular coupon sites, including RetailMeNot and Deals2Buy.com.
Companies can partner with RetailMeNot to drive their affiliate transactions using discount coupons. This site often appears in top Google rankings for any search that associates "a term + coupon."
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CONCLUSION
We believe that startups should take advantage of this affiliate marketing channel more often. As he says:
"For startups that don't have a lot of money and can't open a PPC [pay-per-click] account and start making assumptions, affiliate marketing seems like a good start. There's really no guarantee that if you pay $10,000 in Google Adwords, you'll generate more than that.
With affiliate marketing, you have to define what a transaction or conversion means to you, and you have tools available to mitigate the effects of non-compliant transactions.
