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  1. #1
    Affiliate Manager OutdoorPlayToys's Avatar
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    Thoughts for a soon to launch program...
    After reading so much about these affiliate tax laws - and this may be the dumbest question yet, but is affiliate marketing still a good path for a small merchant to even take?

    It seems like the states are going gangbuster to get these laws passed, and we personally have made the decision to not accept affiliates in those states - but it seems every few days there is a new state to add to that list.

    So we have started to wonder is it worth our efforts to even start the program?

    We understand the amount of time and energy and financial investment we need to make and we are fine with that - but to go through all this to only be able to have affiliates from some states - we are starting to wonder if it will still be worth it?

    Is there anything that can be said to make a nervous merchant confident that affiliate marketing is still alive and well.......

    Jill

  2. #2
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    It's certainly a fair question, but an "affiliate program" provides a unique advertising solution that eliminates the need for speculative spending on advertising; you're only going to pay for advertising that generates sales, and you set the rates you're going to pay for that advertising.

    But affiliate marketing isn't free for merchants, and you must weigh the costs (network setup fees or software purchases; in-house staff time to technically implement the program; staff time to design the program and terms; staff time to recruit and screen publishers; staff time to deal with compliance issues) against the potential returns.

    Start with the worst case: assuming that "advertising nexus tax laws" are widely adopted, there are still thousands of successful web publishers (affiliates) in the five US states that don't charge any sales tax, and thousands more based in other countries. And of course, it's unlikely that all 45 states with sales taxes will enact "advertising nexus" laws. And depending on your company's sales volume, you might remain exempt from "advertising nexus" provisions under some states' laws (if you sell less than a state's threshold amount, often $10,000).

    There is certainly another option worth considering: accept the burden of dealing with sales taxes for some (or all) of these states. Yes, there are costs to compute, collect, report, and remit sales taxes to each state. And of course, some customers will seek out other merchants who don't charge sales tax for their state. But you'd likely benefit from your ability to work with publishers in those states whose advertising relationships with other merchants are terminated. (See this thread discussing sales-tax collection.)
    Last edited by markwelch; April 13th, 2011 at 02:16 PM.

  3. #3
    Affiliate Manager OutdoorPlayToys's Avatar
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    Mark thank you so much. I guess you touched on one of our main concerns, the location of the affiliates, from what we have been reading it seems like such a large portion reside in the states of CA, TX and IL (or maybe it just seems like more b/c of the issues at hand.

    We will be looking at implementing options in the future so that we can bring in all states ( we can clearly see this will be a great avenue b/c of all the merchants that have run away), regardless of nexus issues - but that won't be for at least a year while implement some internal processes, but I do not want to hold off on starting the program.....

    It would really be great to see a visual of how many affiliates there are in each state! That would be interesting!!!

  4. #4
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    Instead of focusing on how many publishers (affiliates) you won't be able to work with, focus on how many publishers you will be able to work with. (As a publisher, when I'm looking for new advertisers for one of my niche sites, I don't think about the 100,000 advertisers [e-commerce retailers] whose ads won't work on my site; I focus instead on a few dozen advertisers whose ads might be profitable for my site.)

    The issue isn't "how many publishers (affiliates) there are in each state." Whether there are 5 or 50,000 publishers (in a particular state) who participate in performance-based advertising programs, what matters most are the tiny subset of publishers who might drive meaningful traffic and sales.

    Remember that for most advertisers' affiliate programs, 90% of enrolled affiliates never display your advertising; 95% will never be credited with advertising fees for a transaction; and fewer than 1% will ever earn a meaningful amount.

    It's probably also significant to recognize that some "super-affiliates" (those collecting lots of fees from performance-based advertising) have actually moved out of "advertising nexus" states (NY, NC, IL), to states without "advertising nexus" laws. It's certainly possible that if a particular state enacts an advertising-nexus law, your largest "affiliate" in that state will immediately relocate in order to continue their business.
    Last edited by markwelch; April 13th, 2011 at 02:47 PM.

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