Affiliate marketing spending is increasing every year with no signs of slowing down. We often get asked by business owners and marketers if affiliate marketing works; there is no doubt that affiliate marketing can boost your sales. However, the right question to ask is “Will affiliate marketing work for my business?”.
What is affiliate marketing?
Affiliate marketing is a form of marketing that rewards affiliates (e.g. bloggers, websites, influencers, etc.) for every customer they bring to your business; to shed more light on this marketing channel, let’s start with some basic questions.
What exactly are affiliate agencies (and affiliates)?
The core objective of an affiliate agency (or partner) is to drive more traffic to your website, and more importantly, boost your sales.
For example, let’s assume you are in the winemaking business. The affiliate agency will have affiliates (bloggers, websites, influencers, and so on) in the wine space advertise your wine on their platforms (e.g. website) and, more importantly, drive their audience to your business.
It’s important to understand that many bloggers, websites, and influencers make a living from advertising, and specifically from affiliate marketing. Therefore, driving their audience to your site or product is how they monetize their passion (e.g. writing about wine).
How many customers can an affiliate agency (and affiliates) drive to your business?
Since affiliate marketing is all about revenue sharing (% of sale), an affiliate agency will drive as many potential customers to your website as possible. We have seen affiliate marketing efforts increase sales by a few percentages to over 30%. The sales percentage increase is usually closely linked to your unique selling proposition and how compelling your offer is.
What are the costs associated with affiliate marketing?
Assuming you are using an affiliate agency, you will likely pay a monthly minimum fee (e.g. $400), and a percentage of the sale (e.g. 3%). Obviously, fee and cost structure will vary from one affiliate agency to another, but they all have one thing in common – all contracts/agreements are performance based. In other words, the more sales they drive to your business, the more money they will make.
Who shouldn’t use affiliate marketing?
This is a difficult question to answer, without fully understanding your business model. However, if your profit margin is low (e.g. under 5%) then paying an affiliate agency a percentage of what is already a low-profit-margin may not be the best marketing strategy. Having said that, if you can generate enough volume, then it may make sense.
Are there any risks?
Some affiliate marketing agencies have been known to use deceiving tricks to entice audiences to click on your Ad. Also, sometimes you may not approve or like the content that your Ad is placed around. For example, you may not want your high-end wine to be associated with a low-quality website. With that in mind, you have to do your research, because not all affiliate agencies and affiliates are created equal.
Is affiliate marketing the right fit for my business?
Affiliate marketing, like most other marketing channels, is just a tool in your toolbox to help you grow your business; therefore, every time you revisit your growth strategy or a marketing plan you should resurface affiliate marketing as an option.
As is the case with all successful growth strategies, some level of experimentation is required, so you may need to try affiliate marketing to see if it is the right fit for you. The good news is with affiliate marketing the return on investment calculation is straightforward. For every dollar spent on affiliate marketing, you should get more than a dollar back, because you are not trying to build brand awareness or bring long-term value to your business; there are better marketing channels to meet those goals. Affiliate marketing goal is very simple, to have an immediate impact on your sales.
If you are thinking about implementing affiliate marketing, you should take the same approach as you would with any other marketing channel: start small, analyze results, and iterate. If the return on investment makes sense then increase investment in affiliate marketing, and if it doesn’t then relocate those funds in marketing channels that produce better results.
Finally, having someone with affiliate marketing experience to guide you through the process is ideal, but not imperative, if you are willing to do the research yourself (find the right affiliate agencies or partners).