Affiliate marketing is a performance-based marketing channel. The direct selling cost occurs only when a transaction, lead, or other pre-defined activity happens. Affiliate marketing therefore has one of the lowest cost-per-transaction ratios among all digital channels.
Perhaps it is because of this low cost that retailers are less likely to manage their affiliate ad spend as closely as they would otherwise. This thinking results in four common affiliate-marketing misconceptions, which I’ll clarify in this article.
1. ‘The More Affiliates I Have, the More Money I’ll Make’
One of the first questions I am asked by retailers is “How many affiliates should I have in my program?” I tell them, always, that the focus should not be on the number of affiliates, but on how many are actively driving traffic.
You could have 5,000 affiliates in your program. But that number is meaningless unless you know what percentage is active. A good benchmark for a mature affiliate program is 20 percent of affiliates producing at least one click in a week. This is called the activation rate: the percentage of affiliates that produce a single click.
Retailers often ask affiliate networks a similar question: “How many affiliates are in your network?” Here too, the number of affiliates is irrelevant without context. A retailer of women’s clothing should reframe the question so that is relevant: “How many affiliates in your network are fashion bloggers?” The resulting number is not indicative of success, but it does provide a better measurement of the network’s potential.
2. ‘Using Multiple Affiliate Networks Generates More Money’
There is no fast and easy way to grow an affiliate marketing channel. Many retailers believe that joining additional affiliate networks will result in much more revenue. In my experience, this is not true.
For one, there’s typically an overlap across affiliate networks. Large affiliates are likely to use all major networks. Merchants that work with those large affiliates gain nothing from using multiple networks.
Second, using multiple affiliate networks opens the door to duplicate payouts. For example, say that a consumer clicks a link to your site from Blogger A, who is a member of Affiliate Network A. Blogger A’s affiliate tracking cookie is properly set on the consumer’s computer.
However, assume that the consumer is not ready to purchase quite yet. She leaves your site for more research. She then clicks to your site from Blogger B, who is a member of Affiliate Network B. Now, the consumer has two affiliate cookies on her machine. The cookies from one affiliate network will not overwrite cookies from another.
If the consumer were to complete her purchase at this point, this single transaction would be recorded in both Affiliate Network A and Affiliate Network B, and the merchant would pay a double commission on a single transaction. There are ways to correct this type of duplicate payout, but it takes time and effort.
Using multiple networks, in other words, is more complex to manage.
To be sure, there are benefits to using multiple networks. For one, different networks have different tools. One network might offer the capacity to serve video ads. Another might offer the ability to bid on specific placements on an affiliate’s site. Similarly, some networks focus on specific niches. One might specialize in fashion, while another might focus on outdoor and fitness.
So, there are valid reasons for operating on multiple affiliate platforms. But those reasons do not include an immediate growth in revenue from having more affiliates.
3. ‘Once I Launch an Affiliate Program, Sales Will Start Rolling In’
It takes effort to launch an affiliate program. A retailer needs to integrate and test tracking technology onto its site. The retailer should set commission structures and payout processes. Creative needs to be developed and uploaded. I’ve seen retailers get through the entire setup process, and then generate no revenue after month, which surprises them.
Affiliate marketing is different than other online marketing channels. There’s more to it than the aforementioned setup steps. With affiliate marketing, you are working with actual partners with diverse and constant needs. You may have bloggers who need information to write a post. You may have deal sites that need up-to-date promotion data and collateral. You could have search affiliates who need an updated list of bestselling products and brands.
There should be constant communication between you and your affiliates. They should be an integrated part of your sales team. In short, while launching an affiliate program takes considerable effort, it’s the ongoing management that will determine its success.
4. ‘Coupon Sites Don’t Add Value’
It’s debatable how much value coupon sites provide. Detractors say that coupon sites cannibalize existing site traffic, entering the clickstream almost immediately before checkout. Proponents say that coupon sites help with conversion.
In my experience, the value of coupon-site traffic varies among retailers. For some, coupon sites produce very few new customers — a key metric. In those cases, there is not a lot of value.
With other retailers, I’ve seen coupon sites that produce many new customers. The difference may have to do with brand strength. With strong brands, shopping sessions originate on the brands’ sites. Less established brands, on the other hand, might benefit from the exposure of a well-known coupon site.
The best approach is to examine your own data. Look at the time lapse between when the coupon affiliate referred the customer, and when the final sale took place. If that time span is less than a minute, then the coupon site is not likely the original referrer on that transaction. Also look at the percentage of coupon-site transactions that produced new customers — the more new customers the better.
These metrics will vary by retailer. They will help you decide the value of coupon sites to your specific affiliate program. From there, you can set your commission structure appropriately.