Ever since we had products for sale in the offline world, we had sales agents. You know the ones - the multi-product travelling sales "reps" carrying products and business cards from different manufacturers. They made sales without having to carry inventory, handle payments, and sign contracts. Their focus was to make the sale by getting the order, which was then processed by the manufacturer.
In the online world we now have the same model, with a twist. Instead of agents we have affiliates. Affiliates are highly targeted pay-for-performance sales agents which pre-sell your customer and are paid a commission when the desired event occurs. The most common reward is pay-for-sale, where the merchant pays the affiliate who referred the paying customer.
Affiliates are treated as a complementary sales channel. The merchant still receives their own direct traffic and makes his own sales in parallel to the affiliate channel. The twist is that the affiliate doesn't need to handle the order. This is taken care of by the merchant, who has a tracking system to determine which affiliate sent the business to them. These tracking systems typically start with what are called affiliate links, which are the links that the affiliate puts on their site or in an email.
What's an affiliate link look like? There are several variations, but most have the affiliate link embedded in the linking URL. E.g. If you ever see a link like "www.some_clever_merchant.com/shop/?affid=1232" you can be pretty sure that the affiliate with id 1232 will receive money from some_clever_merchant when someone buys after clicking that link. Other affiliate links are more complex, encrypted, or set up so that the referring domain is tracked so no affiliate id is even needed in the link. Some sites will cloak their links so that the curious surfer can't detect that they have clicked or are about to click an affiliate link.
Amazon has one of the oldest affiliate programs. The Amazon Associate program rewards sites whenever someone purchases a book or Amazon product after being sent to Amazon via an affiliate link.
Other affiliate business models can be:
- "Pay per click" - the merchant pays the affiliate for the traffic they send them
- "Pay per lead" - the affiliate sends traffic to the merchant, where the prospects register their interest and a possible sale occurs later. The merchant pays for the registration information - usually some sort of application form on the merchant's site.
- "Pay per subscription" - the merchant has recurring revenue from the customer and the affiliate benefits accordingly
Merchants who are new to e-commerce usually don't establish an affiliate network as the first channel. Like the offline world, merchants typically build their own sales force first and fine-tune their sales and marketing strategy before taking on dealers and independent agents. The key for a new merchant is to ensure that their e-commerce platform will support an affiliate strategy later on. For merchants having a well tuned e-business, an affiliate channel has been shown to add 20-30% to their existing online sales.
However, it's not a free ride and many merchants end up with failed affiliate strategies due to their lack of investment in other related areas. The merchant needs to invest in a tracking system, which is usually an outsourced affiliate network or an in-house affiliate software system. Another expense to consider is having sufficient human resources to recruit, screen, manage, and motivate the affiliates. Without a good support system in place, the affiliates will not produce the desired results.
What types of businesses use affiliate strategies? It is usually any online business that sells products which can be pre-sold by an affiliate. Service businesses can also benefit from an affiliate program via a pay-per-lead program. If the service business has recurring revenue from a customer, they need to consider if they want the affiliate to receive a recurring commission - it depends on the industry and what the competition is doing.
Once a merchant has decided to establish an affiliate strategy, they need to define the unique aspects of their affiliate offering. Some questions to answer are:
- What are the benefits to the affiliate?
- What is the competition doing?
- What is the pay-for-performance model?
- What criteria should be used to screen the new affiliates?
- Who will manage the affiliates and motivate them?
- How are the affiliate to be paid and does your e-commerce system support the accounting required?
- What affiliate management features do I need? Which ones will differentiate me from my competition?
- What affiliate software tracking system or network should be used?
An affiliate strategy done right can increase your online sales. There are over 20 affiliate software packages - hosted, in-house, and networks to choose from. There are over 200 features in affiliate software and network offerings. Selecting the correct affiliate software will depend on your strategy and desired features. With the proper analysis of your strategy, selection of the correct affiliate tracking system, and an investment into the affiliate management resources required you will be well on your way to boosting your online sales.
About the author:
Peter Koning is the founder of www.Affiliate-Software-Review.comHe has been active in the international IT, telecom, and Internet industries for over 20 years.
Merchants can compare affiliate software products side-by-side, see examples of products in the categories mentioned, and instantly create free feature comparison charts by visiting http://www.affiliate-software-review.com
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