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  1. #1
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    June 28th, 2005
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    Calculating a budget
    Hello Everyone,

    I must say that I'm very happy to have found this forum. I've learned a lot in two hours and can't stop reading it! I work for a company that plans to launch an affiliate program this coming fall, however I'm having trouble calculating the budget for the $amount of commissions to some of the would be affiliates? Even though i understand that if the program is successful that this should not matter too much, I still have to hand in some numbers to the higher officials before I go ahead. Is there a formula I can use to get such an estimate -based perhaps based on our average conversion rate and other variables?


    Thanks,

    MPVSearch

  2. #2
    Moderator MichaelColey's Avatar
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    I would set a goal of generating some percent of sales through the affiliate program, like perhaps 20%. Let them know that it's a target and that you don't know how quickly you can generate that much sales through the affiliate program. Make sure to point out that the revenue and expenses are proportional, so the expenses won't hit your target until your revenues hit your target.

    For instance, if your company currently does $100,000 in sales per month and you want to have affiliate sales increase that by 20% (to $120,000), that'll be $20,000 in affiliate-generated revenue per month. If you're paying a 10% commission and have another 3% in affiliate overhead, that'll be $2,600 per month in affiliate expenses.

    As long as you're generating a positive ROI with the affiliate program, they'll quicklly see the light and want you to generate as much as possible.
    Michael Coley
    Amazing-Bargains.com
     Affiliate Tips | Merchant Best Practices | Affiliate Friendly? | Couponing | CPA Networks? | ABW Tips | Activating Affiliates
    "Education is the most powerful weapon which you can use to change the world." Nelson Mandela

  3. #3
    Full Member asr_guy's Avatar
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    Some other guidelines for you to build on what Michael said:
    - take a look at your market and what other companies in your vertical market are paying. Also take a look at different markets but same kind of product and sales cycle etc. e.g. digital products tend to pay higher commissions, big capital expense items with high price pay lower
    - review your sales remuneration for in-house sales staff. Make sure you don't pay your affiliates too much and upset current staff or they might decide they are better off as an affiliate. In some cases that's maybe better for everyone where you have underperforming sales staff who would be happier with a higher % on performance but no base salary
    - if you have existing dealers/resellers/agents consider those relationships
    - also consider other types of payment e.g. pay per lead, per click, per anything, combinations of these

    Hope that helps.

    Regards,
    Peter

  4. #4
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    Great! Thank you kindly for taking the time to give me a sense of direction. A couple of more questions in regards to starting a program's budget.

    Michael, Is there a general concesus or studies that point to an x% increase once retailers get on an affiliate program? I understand that we can set goals but it'd be nice if there was some type of info, but I haven't been able to find any.

    Peter, I'm also considering at the same time going ahead with maybe LS, CJ, or Sharealink and your ideas of considering other type of payments such as pay per lead it's also tempting. Do you know if all of these companies have such flexibility as to the types of payments they are able to process? I have spoken to all three but I guess that this is one of detailed questions I must consider. Thanks,

  5. #5
    Full Member asr_guy's Avatar
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    Research concludes affiliate strategy boosts online sales
    Mvp,
    The Aberdeen Group wrote a paper on this topic and the basic conclusion is that affiliate marketing is worth doing. It's short on hard numbers however and is worded at a strategic level. I believe the paper's research was supported by one of the networks so they are mentioned while we know lots more are out there.

    Aberdeen charges for it but you might have success poking around with Google. The title is "Revisiting Affiliate Marketing: A New Sales Tier Emerges in the Digital Commerce Network".

    From my experience, most successful merchants get their online sales finely tuned first, before diving into affiliate strategies.

    I'll comment on payouts separately.

    -Peter

  6. #6
    Full Member asr_guy's Avatar
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    Payout techniques
    RE payouts - networks usually consolidate and payout on behalf of the merchant. Standalone solutions provide links to payment systems and also can export the data to different formats for further processing on the back-end or through third party check writing services. You can get an idea of different payout features on Affiliate-Software-Review.com.

    Everyone likes to get paid and we've all managed to come up with lots of ways to do it. I don't have them all listed but most of them and hey - you need to start with something, right?

    Cheers,
    Peter

  7. #7
    Moderator MichaelColey's Avatar
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    Your potential through an affiliate program will depend largely on the size of the company and the size of the market. A company like Walmart.com might have a hard time getting 10% of their sales through the affiliate channel. A company like BillyBobsWidgets.com that does $1000 in sales per month could easily get 90% of their sales from the affiliate channel. I think the 20% number is a fairly good average, but it could be considerably higher or lower. Also, it might take a year or more to get good penetration in the affiliate channel.
    Michael Coley
    Amazing-Bargains.com
     Affiliate Tips | Merchant Best Practices | Affiliate Friendly? | Couponing | CPA Networks? | ABW Tips | Activating Affiliates
    "Education is the most powerful weapon which you can use to change the world." Nelson Mandela

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