Afiiliate Marketing - Why and How to Advertise Cost-Effectively?

by Martin Melisek

Published on this site: August 31st, 2005 - See more articles from this month

What is Affiliate Program?

I'll start this article with a question: Are you willing to share part of revenue from sales that you would not get otherwise? For most cases, the answer would be YES. There are many methods to market your business online: e.g. pay-per-click campaigns such as Google's Adword, CPM (= cost per thousand impressions) of your banner on high-traffic sites, ads in newsletters etc. etc. What is common for these marketing methods? You never Pay For Results that campaign ctually generated. Idea of affiliate marketing is to Pay Only For Results. Don't spend money on ineffective advertising; build your own advertising channels instead. Build partnerships - and partners will work for you. That's why people refer to affiliate marketing as "cost-effective", "performance-oriented" or "risk-free".

What Kind of Business Can I Market with Affiliate Program?

Well, hard to find one that you can not. It doesn't matter if you sell hardware, mortgages, site membership or a service. You can even pay for traffic: pay per click or pay per CPM (= per thousand impressions). Profit margin of your products is a great factor here: however if you are able to share part of revenue, you can set up an affiliate program for your business.

Structure of Affiliate Program

There are 2 basic kinds of rewards: flat fee (=fixed amount) or percentage commission.

Your commissions to affiliates can be based on:

• Pay Per Sale
  
  most common, you pay commission (flat or percentage) for sales referred by your affiliates.
  
  
• Pay Per Lead
  
  suitable for e.g. membership sites or sites offering paid content: similar to "per sale" model, but you pay for new member subscription.
  
  
• Pay Per CPM
  
  you can pay even for thousand impressions of your banner.
  
  
• Pay Per Click
  
  if you want to reward each click referred: if you are considering this kind of affiliate program, make a careful research about fraud protection features of solution you choose - otherwise it can cost you a lot of money..

A lot of programs are 2-tiered (2 levels of affiliates) - it means affiliates - parent affiliates can have subaffiliates - and parent affiliate get commission for their subaffiliate's sales. Subaffiliates are those, who have been invited to your AP by parent affiliate.

2-tiered structure has its advantages: it motivates affiliates to recruit subaffiliates to your AP and maybe even train and communicate with them - which saves your time and generates your revenue.

How to Start Affiliate Program?

There are 3 main possibilities:

1. Stand alone solution
   
   
2. Hosted solution
   
   
3. Affiliate network

Stand alone solution - requires software that is installed on your website (called also "affiliate tracking software/script"). Affiliate program is under your total control and changes are just a matter of your decision.

Hosted solution - is similar to stand-alone solution, but the software is hosted on 3rd party server.

Affiliate network - software is again installed on 3rd party server, in addition to the affiliate tracking you gain immediate access to a network of affiliates.

Which Solution Should I Choose?

I believe your first concern is PRICE. Let's see what you
pay for if you'll choose particular solution:

Stand-Alone: one time fee for the software

Hosted: monthly fee, sometimes even progressive charging according to the growth of your affiliate program

Networks: will charge you relatively high transaction fee on each affiliate sale. Also some fee to join might be included.

Technical skills:

Stand-alone: requires basic skills to install the software (usually installation wizard is available) and to integrate with other systems on your website (such as shopping carts/payment gateways/website itself).

Hosted: almost no skills required

Networks: almost no skills required

Benefits of Stand-Alone Solution

Since Amazon started its affiliate program, affiliate marketing grew rapidly. Due to its cost effectiveness and undisputed advantages, this field became very competitive. And competition is always good for customers: prices go down. There is a lot of software sold on the internet today - and not always the highest price means the highest quality! Do not fall for success stories and don't spend hundreds of dollars for products that are just well marketed: you are probably not "the lucky guy from success story".

Affiliate marketing is competitive - if you are new to this field you will surely not find the best way to market your business at once. This is Major Benefit of stand alone solution: while hosted or network solution offer you few possibilities to change your program, with stand-alone solution you have total control over your program. You can find the best way to market your products. Try and choose the best for you. Always Want Software with a lot of Features. You might use a few of them at the beginning, but after several months you will certainly use more and more - would you like to pay for them? Or even pay for switching to another solution with extensive features? NO!

We already mentioned thePrice Advantage of Stand-Alone Solution: you pay one time fee - no need to discuss this any more - if you pay monthly, consequently you pay more than even for the most expensive stand-alone software on the net. It is worth to mention that solid software is sold for $150 or even less.

Another benefit is positive effect of affiliate links on your search engine ranking: because the software is installed on YOUR domain, they can help you to improve ranking of YOUR website - not domain of hosted solution.

Also stand alone solutions can be usually better branded for your business and customized for your specific needs.

Cons of Stand-Alone Solution

I honestly believe that stand alone solution is the best. Everything has its pros and cons. I'll explain possible cons of stand-alone solution and what it takes to overcome them. If you feel that you'll not be able to cope with what follows DO NOT choose stand-alone solution.

1. Technical Skills - will help you during installation and integration of the software with your shopping cart / payment gateway / website. Usually, very little technical skill is required, which depends also on the level of support provided by vendor and how sophisticated the software is. Generally, if you can imagine that you'll be able copy/paste some code snippets to certain places on your website or to some template page of your shopping cart, your skills are sufficient for most cases.
   
   
2. Affiliate Recruitment - this is strong selling point of affiliate networks - your program gets immediate exposure to a network of affiliates, while for stand-alone software you'll need to recruit affiliates yourself. The fact is that you must motivate affiliates of the network as well - if you don't, they'll stop promoting your products. Registering your affiliate program to numerous affiliate directories (for free) and setting up appropriate multi-tier structure helps you to recruit affiliates to your program. But it takes time and effort?
   
   
3. Security - with hosted solution you do not need to back-up your database, upgrades are applied by team of people in charge of maintenance. If your solution doesn't have feature to back-up your database / history this can be serious problem if some hacker attack occurs or something just "goes wrong".

Martin Melisek is affiliate program manager and he helps webmasters to set up their affiliate program using stand-alone software daily. Visit our website and feel free to contact us with any questions: http://www.qualityunit.com/postaffiliatepro/postaffpro.html