9 steps to a successful online affiliate program

February 22, 2011 § Leave a comment

Affiliate programs, where you generate incremental traffic to your site through third-party publishers who are compensated on a performance basis, can be a highly effective and efficient way to extend the reach of your brand.  Unlike with paid search or display advertising, affiliate marketing transaction costs can be relatively stable, and after scaling up to cover the initial program infrastructure – team, technology, tracking, etc. – the leads that come through can be highly profitable.  It’s no wonder that many brands have grown affiliate networks to 10 – 50% of their total sales volume.

Here’s a summary of what it takes to operate a successful online affiliate program, gleaned from years of running one myself.  It’s not entirely comprehensive (it assumes, for example, that you have a product or service that customers demand, and still requires the hard work of getting the word out), but if you can check off each of these items in the affirmative, you’ll be well on your way:

  1. Pay affiliates well – they’re doing the hard and sometimes costly work of generating leads, so compensate them appropriately. Make sure you’re in line with competitors’ programs. If your brand is comparatively weak or unknown, expect to pay more.
  2. Provide growth incentives – reward strong volume performance with higher commission tiers, bonus payments, or other incentives, to further motivate your affiliates to reach their full potential.  No doubt, this can be difficult to track.  Some affiliate platforms offer tools to manage this.  If you plan to manage commission tiers in house, make sure your accounting is right.
  3. Pay affiliates quickly – there can be quality/control issues with immediate payments, but generally speaking, the shorter the time between lead generation and payment, the more motivated your affiliates will be to drive new sales.  The most aggressive policy you can have is to pay for every lead (as opposed to a converted sale or even further out, a service installation).  But if you pay this way, expect an inverse relationship between volume and activations – higher volume but lower conversion.  Make sure your economics support your decision.
  4. Pay accurately – one of the most common criticisms of affiliate programs is that they lack the necessary tracking to ensure that affiliates get paid for everything they are owed. Once you get poor reputation in this regard, it’s very challenging to reverse it.
  5. Convert well – if you pay based on converted leads, a high commission alone will only get you so far. Regardless, you’ll need to achieve strong conversion rates for the long term viability of your business. Make continuous improvement a company priority.  Maximizing order flow conversion (or minimizing cart fall-out, if you prefer), is a topic in and of itself.  For now, let’s just agree that it’s a never ending process.
  6. Provide tangible support – no matter how well designed your program is, your affiliates will inevitably need support in one way or another … custom creative, program approvals, reporting, troubleshooting, etc. FAQs and Wikis alone won’t suffice.  Make sure you have the appropriate number of staff allocated to the program.
  7. Along with providing tangible support, you have to be responsive to your affiliates. Troubleshoot quickly, and they’ll be back on their way to generating sales for your brand.
  8. Help your affiliates to be successful — provide them with tools they need to close sales, such as a wide array of creative elements, content management, compelling acquisition offers and promotions, and so on.
  9. Establish clear guidelines – you will no doubt be concerned with issues such as channel conflicts, brand protection and so on. Provide your affiliates with guidelines that you expect them to follow. Then police aggressively by conducting keyword searches and at least sampling a set of affiliate pages on a regular basis.  Let your affiliates know that non-compliance will not be tolerated. Keep in mind that most affiliates want to do the right thing, but often times, programs are unclear, or don’t make it easy to comply.  The ones who follow the rules (or who mean to) will thank you for ridding the program of those who don’t.

Don’t launch your program until you’re in a position to provide the above. Once you are, promote aggressively. At a minimum, post a sign-up link in the footer of all your web sites. You may also test paid search, and certainly organic search and free directories. You may also want to participate in the large affiliate marketplaces, such as CommissionJunction and/or Linkshare, but note that you will be asked to pay a significant sum to do so. But you may find it worthwhile, especially if you don’t have the resources to build a support platform in-house, and can benefit from their reporting, payment and communication tools.

Resources:

Affiliate Network Rankings

Affiliate Program Directory Ex 1

Affiliate Program Directory Ex 2

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Beyond the politicking, the 30% “Apple Tax” is good for subscription publishers

February 16, 2011 § 4 Comments

In a story picked up by the Wall Street Journal and many other media outlets today, Apple clarified the new ground rules that publishers who wish to offer subscription services through its iTunes interface must abide by.  Starting this summer, publishers who promote subscription services via link-outs from their iPhone or iPad apps will be required to integrate the sign-up within the app itself, using Apple’s new payment platform.  Apple will levy a 30% fee for each sign-up.  Other details include:

  • Companies can continue to sell through their own Sites, but must then offer the same service and pricing within the Apple application
  • Companies can continue to link to their own subscription registration pages from the app, but must then offer the in-app registration option as well
  • Apple won’t automatically forward new customer name and email information to the publisher; the customer must opt-in for this to occur.  Apple claims this is to protect customer privacy
  • Compliance is expected no later than June 30

Predictably, the initial reaction from publishers is that the sky has fallen.  One publisher, representing the sentiment of many, I’m sure, was quoted as saying that the Apple Tax is “economically untenable” with its business model.  Another has said that the customer data opt-in provision gets in the way of its ability to forge a relationship with its users.  But let’s look at this issue from a different perspective.

As Apple is acting as a performance based channel (publishers pay no fees for listing their apps in the iTunes Store), the “tax”, as it’s been called, is no different from an affiliate commission.  Sales affiliates routinely command fees of 30% or more.   I’ve seen as high as 70%.  With benchmarks like these, 30% seems rather fair.  Until now, publishers have been getting a free ride.

Another important factor is customer lifetime value (CLV).  Any company publishing content worth its weight in salt is going to (1) be able to charge a premium relative to its cost to produce, and (2) retain the subscriber beyond the initial subscription period.  Its fully-loaded monthly margin, multiplied by its average subscriber months, is its CLV, which is offset by its initial Customer Acquisition Cost (CAC).  Assuming the Apple charge is one-time only, many publishers will more than recover the fee over the lifetime of the subscriber.  And let’s not forget that had it not been for Apple, the publisher would have incurred a CAC through its other channels.  And the cost to acquire a new sub – we’re talking about for paid services now – is typically non-trivial.  If your service commands a $100 annual subscription price, resulting in a $30 fee to Apple, you’re probably pretty happy.  Many publishers invest $100 or more to acquire a new sub.

I also expect that savvy publishers will identify ways to circumvent the system.  Apple seems to be saying that pricing (and let’s assume special offers as well) inside the app must mirror those available on linked pages outside the app.  But what about pricing and offers on marketing pages that aren’t linked to the app?  If the rules don’t apply there, publishers will be able to craft strategies that make it advantageous for customers to register outside the app, then download the app only for consumption purposes.  If, on the other hand, Apple has already closed this loophole, the fair-payment-for-services-performed and CLV arguments still apply.

Lastly, while this will certainly burden publishers, and especially those whose analog businesses are in heavy decline, as well as those who were 100% digital from the get-go, these new terms don’t amount to Armageddon for most.  Consider that for the time being, digital is a smaller segment than offline for traditional businesses, and within digital, Apple commands only one, albeit important, channel.  The magnitude will obviously vary by publisher.  But consider the example of the Financial Times, which reports that only 10% of its subs come through the iPad.

The bigger issue than the tax, I think, is that Apple has said that publishers will not receive customer names or email addresses unless opted-in by the new subs.  If they don’t, as will often be the case, it will make renewal marketing a bit more challenging (see the CLV argument), but not nearly impossible.  For instance, publishers could promote renewals through their service interfaces directly – as users log-in to access their content, the publishers will know who they are and the status of their billing relationships, even if not by specific name.  I suspect that smart, customer-minded publishers will make it worthwhile for users to opt-in, perhaps by offering something of incremental value, such as additional subscription months, exclusive content, or entry into a prize drawing.

Understandably, publishers need to make a lot of noise up front, and to vocalize their discontent with the new Apple terms.  After all, any charge that didn’t exist before is now going to negatively impact their margins.  But in the end, Apple is entitled to receive a commission for the channel it provides, and the more integrated purchasing experience is good for the consumer.  And a new channel with a relatively low customer acquisition cost is certainly good for the publisher.

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