Affiliate marketing demystified

By Michael Hines

The president of zanox answers some big questions on how affiliate marketing can benefit your company and your clients.


You probably already know the basic premise behind affiliate marketing. You know that the advertiser pays for sales or leads instead of impressions or clicks. And you already know that unless the campaign is successful, it hardly costs the advertiser anything. But what you might not be entirely sure about is how to get started, how to track campaigns or who the major players are. Or perhaps you've already tried affiliate marketing and been disappointed.

I am going to answer some of the questions you might have and, with any luck, help you understand how affiliate marketing can benefit your company or your clients.

Whom you need to know about
Generally speaking, companies involved in affiliate marketing fall into three categories: advertisers, publishers or affiliate networks. These categories have evolved into many sub-segments in the past few years, but we'll just focus on the basics.

In a nutshell, publishers -- also known as affiliates -- display ads supplied by advertisers. The role of the affiliate network is to bring publishers and advertisers together, offering them the infrastructure necessary to track purchases, pay affiliates and report back to both parties on online activities. Some advertisers choose to work with affiliate networks, while others prefer to recruit their own publishers and manage everything in-house. If you're new to affiliate marketing, you might want to start by working with a network, but if you decide to go the do-it-yourself route, you'll need to hire an experienced affiliate manager.

Our focus here will be on those who choose to work with an affiliate network. It usually works like this: the advertiser decides to run an affiliate marketing program targeting a specific audience. It chooses the affiliate network(s) that best reach(es) that audience, agrees on the objectives of the campaign and the value of the offer, creates the ad media and sets up all the parameters, such as the commission structure. After this is done, the publishers registered with the affiliate network(s) decide whether to sign up for the campaign. Some networks will assist the advertiser in promoting the offering to the right affiliates for the program. The network then launches the program into the market. The network tracks all purchases (or leads, clicks, etc.) that were initiated by affiliates, provides reporting to the advertiser on activities and makes commission payments on a regular basis to the affiliates. Payments can range from weekly to monthly, depending on the offer and confirmation of the sales.

Affiliates are a very diverse bunch
Not all publishers are the same. Most people think of websites and bloggers when it comes to affiliate marketing, but there are many other types of publishers. Affiliate marketing has grown into a sophisticated sales and marketing program that can be embedded into opt-in email lists, price comparison tools, shopping directories, review sites, cash-back networks and coupon sites, just to name a few. Affiliates can also be search engine marketers who run pay-per-click campaigns in order to drive traffic and sales for an advertiser.

Affiliate marketing is about performance!
While you are thinking about affiliate marketing for your company, there are a few things to keep in mind. First and foremost: affiliate marketing is all about performance. It guarantees that you only pay for actual results, such as sales or leads, or whatever action you define as success. You will know exactly which publisher and which advertisement was most effective. Imagine that! As more and more marketing dollars move online, that level of insight into online behavior is only going to become more important in optimizing spend. As Emily Steel reported in the Wall Street Journal: (subscription required) "Advertisers increasingly want more detailed feedback on the effectiveness of their online marketing efforts... to justify their increased spending. They want to know ...how many clicks translate into purchases." Right there is the biggest advantage of affiliate marketing: it gives advertisers data that other forms of online and offline advertising still struggle to offer. Most importantly, it provides immediate reporting, allowing the advertiser to adjust its plans almost immediately based on results.

You can still control your brand
Another thing to keep in mind: brand and affiliate marketing are not mutually exclusive. Getting involved in affiliate marketing doesn't mean losing control of your brand. As the advertiser, you should set the rules, determining which affiliates can sign up for your campaigns and exactly what they can do in your name. It comes down to staying in touch with your publishers and understanding their business models. Effective affiliate marketing campaigns are those run by companies that take the time to communicate frequently with their network of publishers, know what works for the key ones and are flexible in customizing programs as needed.

Remember, the affiliate is an extension of your sales and marketing department. You need to manage an affiliate as you would any internal team member. Engage with affiliates on a regular basis and you will see higher retention, the right level of brand control and overall higher effectiveness of your campaigns.

The 80-20 rule
Once you start your affiliate marketing campaigns, you will quickly learn that the 80:20 rule applies here, just as in most other areas of life: 20 percent of affiliates account for 80 percent of the business. Therefore, you want to make sure you reward your best affiliates accordingly and stay in constant contact with them. This 20 percent of publishers is the most sought after, so you have to work hard to attract them to your program. It is important to recognize they have the opportunity to work with many companies; they will choose those that help them meet their expectations. Here are the three fundamental things you must offer:

* Quick confirmation of sales and a short timeframe between confirmation and payment: It keeps affiliates motivated to sell more and builds your credibility.
* Tiered incentive structure: Your program should reward top sellers with higher commission rates.
* "Fair" tracking of purchases: The best affiliates just won't sign up for a program that doesn't reward their efforts fairly.

Tracking can be especially tricky, because there are so many things that can happen between the time an ad is viewed and when the purchase is made. What if the buyer doesn't buy the product immediately or types the address into the browser instead of clicking on the ad? Check out my previous post for some pointers.

If you are not yet in affiliate marketing... your competition likely is
Affiliate marketing is growing and evolving. It has become quite sophisticated, and has gone global like most industries. We are seeing considerable experimentation with regards to social networking and with video and mobile advertising. Get involved now, learn the basics of affiliate marketing and be prepared once new channels go mainstream. It will give you an advantage over your competitors. You will be reaching audiences, increasing traffic and generating sales that the other guys won't.