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March 16th, 2006, 04:47 AM #1Question to OPMs & AMs
How would you definite a "well established affiliate program"?
March 16th, 2006, 05:08 AM #2
I mean: would you measure it %-wise against sales coming from sources other than affiliates? If so, wouldn't it then be wholly tied to your already established channel of distribution (when it shouldn't be, as the latter can either be extremely well-established, or just brand new and under-performing)?
March 16th, 2006, 06:02 AM #3
March 16th, 2006, 06:17 AM #4
Originally Posted by Noth
Would you agree that a certain % of the total number of affiliates being active be a good measure to use in this case?
Originally Posted by Noth
Originally Posted by Noth
March 16th, 2006, 06:30 AM #5
A "solid base" of active affiliates isn't saying to have ALL active affiliates. But there should be a certain percentage who are active and sticking with the program.
Not sure just what percentage that'd be, though. Nobody likes to talk about how many affs they have that never put up any links, or only get 2 hits/year, after all...There is no knowledge that is not power. ~Hemingway
March 16th, 2006, 06:37 AM #6Originally Posted by Leader
As for the percentage, no need for anyone to disclose how many are active within his/her program. We're talking, "affiliate program audit" if you want. So let's talk perfect world...
Or: maybe the definition of the "well established program" should really not be tied to the "solid base of active affiliates" but rather to a solid base of active affiliates generating a particular % of the company's gross sales?
March 16th, 2006, 06:38 AM #7
Geno, by "Having a solid base of ACTIVE affiliates", I think, what was meant is that you should have an established number of affiliates who you can count on performing year in and year out. Those would be your base.
The non-performers and under performers are not your base. They just add to your growth potential. They are people you have contact with who own web sites and who, at least, one presumes, have a positive opinion of your program and think they can see some possible uses for it on their sitses.Comments are opinion unless otherwise noted. Remember, pillage first. Then burn. Half of all people in the world have IQs under 100. You best learn to trust ol' SSanf!
March 16th, 2006, 07:42 AM #8
Geno, we measure our affiliate program several ways. Here are a few:
1. Definitely always work to keep an active base of affs who we can always count on for steady traffic.
2. As a percent of the company's total revenue
3. Our level of customer service for both affiliates and merchants, after all, we need both to succeed.
4. High overall conversion rates, EPCs, eCPMS
5. The % growth month over month
March 16th, 2006, 08:05 AM #9
Ok... I guess, I have to rephrase the original question. I am not asking how different people/companies evaluate their affiliate programs. Too simple...
I am asking: What program would you call a well-established one (or when would you call it such)?
Originally Posted by danay
March 16th, 2006, 08:18 AM #10
It depends on your biz model. Everyone is different and other avenues of revenue ae so varied from company to company. For instance, a network would have to make it 100%
An established jeweler who has been in biz for 10 years may be happy with a 10% of total rev coming from his aff program. If that 10% represents 500K and he can pay his OPM or network or AM, marketing costs, yadda yadda and still show good net growth month over month, then he may consider it a success.
It's a great question, but due to the nature of AM, which encompasses so many different business models, I don't knwo if htere is a specific measurement to go buy that would be all encompassing.
hmmm, I just used encompass twice in one post. That's a new one.
March 16th, 2006, 10:08 AM #11
As you say Geno, affiliate revenue compared to other channels is the obvious benchmark. But if you look deeper there's more to it than just that. Those relationships may be a little different for a start-up online store versus an established online store that adds an affiliate channel. In fact, if the startup has a brick and morter presence already those relationships may be different than a completely online startup.
Comparing affiliate revenue to overall revenue would be the standard way of judging effectiveness of the affiliate channel. In my opinion, that percentage may go down as the affiliate traffic gets turned into regular customers. You might say that a successful affiliate program would be one that eventually grows the regular business beyond the affiliate business. This may take years to achieve. So percent of overall sales may change overtime and not be the only way to judge success.
For a start up the affiliate percentage may be larger than the regular business at first but as the business becomes established and regular customers increase, it may go down. In fact, as the customer base increases, email and other more direct marketing techniques SHOULD become more effective than an affiliate channel.
Besides generating sales, a big role of the affiliate channel is customer aquisition and creating lifetime value for the business. I heard someone say that great marketing does more than sell products, it creates relationships. The affiliate channel is just one touchpoint for beginning that relationship. For any business, what happens after that touchpoint is as critical for turning that business into a success and maintaining those relationships. This is where shopping cart effectiveness and customer service become critical.
Having said all that, and trying to judge what kind of affiliates are valuable, it says to me that all affiliates are important—just in a different way. A shopping site that sends 100 clicks a year but 5 of those clicks convert is important to overall revenue. If those 5 sales turn into lifetime customers all the better—but I don't expect it.
A content driven site that promotes your value proposition, presells and creates credibility for you has a different kind of value. They may be more likely to find those lifetime customers for you because they really present your program in the best way. However, from that affiliates perspective, they may not see the conversion that the shopping site does. It may take 500 clicks to get those 5 sales, but those 5 sales are more inclined to turn into relationships. And those other clicks that don't buy are more likely to eventually become customers. Is it worth paying these affiliates more. We think so. They should probably have longer return days as well. These are high value affiliates in our mind.
So a successful program would not only have a lot of active affiliates but the correct mix of shopping versus value added affiliates as well. It's clear that the more value added affiliates the better, BUT, you still need all kinds to drive business NOW.
Anyway, that's my opionion. Sorry for the long-winded answer.
March 16th, 2006, 01:11 PM #12
Good one. Thanks, Rick!!
The question itself is meant to be tricky. I myself don't think there is one answer to it. But I think it's a good open-ended question, and frankly, I'd appreciate eveyone's opinion on it (not just OPMs and/or AMs)...
March 16th, 2006, 01:27 PM #13
Ya it's a great question Geno. It made me stop and think. I'd love to hear what Andy and Chris and other AMs have to say but also from the affiliate perspective.
I was wondering what motivates a value added (content) affiliate knowing they may not convert as well as a shopping/coupon affiliate. God bless em, cause it takes a lot more work to be value added but I sure appreciate it. Would a bigger commission motivate someone to go value added or what?
Also, I know we talk about "conversion" being the holy grail but from a merchant's point of view it may not be as important as "lifetime value." If we look at it from that point of view, every click is important because every click is an introduction and may turn into a relationship someday. That's why return days is important as a motivator. It's not just about a sale but also about that introduction. Every click is important and any affiliate who sends a click has value. Even one a year.
What do you affiliates think?
March 17th, 2006, 07:31 AM #14Originally Posted by GigaGolf
March 17th, 2006, 10:34 AM #15Originally Posted by GigaGolf
Let's say someone comes to phillyBurbs and buys a widget through an affiliate link for $10. We get our 10% cut - $1. I'll go out on a limb and figure that, even at a $9 net sale, the mechant is making money. Now they have contact information. The customer now receives regular e-mails about specials or coupons or new products.
If the customer likes the widget, they'll keep coming back and spend more money. The merchant won't have to pay that pesky 10%, either. Over the course of a few years, that could mean quite a bit of money added to the bottom line. Meanwhile, we got a dollar.
If the affiliates had leverage, they could craft a compelling argument that an initial sale was worth much more than commission most merchants offer.
March 17th, 2006, 10:34 AM #16
I would define a "well established affiliate program" as one that:
1) Has been around for quite a while (several years),
2) Has a large number of active affiliates (hundreds or more earning checks each month), and
3) Generates a significant portion of their company's sales through their affiliate program (20% or more).
That's not necessarily a "good" affiliate program, but it's "well established".
March 17th, 2006, 10:39 AM #17Originally Posted by phillyburbs
What I think is most fair is an equitable commission for all sales, plus a hefty new customer bounty that more appropriately reflects the lifetime value of a customer. For instance, a 10% commission and a $10 new customer bounty, like Drugstore.com offered when they first opened.
March 17th, 2006, 11:08 AM #18
Thanks for your replys Mike and Karl.
The percentage we can give you guys is based on net margin. Some companies have larger margins than others. Computers and electronics have very low margins so they couldn't do 10% even if they wanted. A better way to say would be "what percent of net margin is a fair commission to pay affiliates?" If you sell something for $100 and your net margin is $20, is it fair to pay half of that? (10% of $100 or 50% of the net $20). You guys are all business owners what do you think is fair?
Perhaps a better way to pay for repeat business would be to increase return days to 6 months or something.
Also I think shopping sites versus value added (content) sites might be compensated differently. As I mentioned before, a value added site presents us better and that customer may have more lifetime value. They may deserve more commission and longer return days.
March 17th, 2006, 12:02 PM #19Originally Posted by MichaelColey
Well, if there's one thing we're good at, it's driving repeat visitors to our site; that's just the nature of what we do. So I can agree with you to a point. That being said, once the merchant has direct access to the customer, your chances of a repeat sale through an affiliate link are diminished. Yes, you may still get a user to click again on an affiliate link and buy something else, but the chances are diminished - I would say significantly so.
I realize commissions are based on net margin. What I'm suggesting is that premise may be faulty, to the disadvantage of affiliates. Let's take another for instance, using your computer merchant.
The merchant sells its widget for $100. Its margin is, let's say 5%, so it offers affiliates a 3% commission. So a person clicks through on phillyBurbs and buys the widget. Good for us, we get $3. Good for the merchant, he still clears $2. Now the customer has a great experience and when they receive the stream of promotional e-mails (or paper catalogs), they respond by buying several widget accessories, totalling another $100. Good for the merchant, he makes $5 additional dollars. The affiliate makes ... $0.
Early next year, an updated widget comes out, this one a little more pricey - say $150. The customer gets his e-mail directly and buys it. Good for the company, they make $7.50. The affiliate makes ... $0. Oh, and the new widget needs a new accessory, which is still $100. Good for the company, they make $5. The affiliate makes ... $0.
So in this scenario, they company makes $14.50, the affiliate makes $3.
Now, let's take another approach. What if all customers were tagged as "lifetime customers" for the affiliate? Instead of a flat percentage, the affiliate gets $5 for all new customers that purchase from the site, plus a "lifetime commission" of 1% of all sales. If the emphasis is lifetime value, it should be emphasized, right? OK, following this model, our previous purchaser still spends $350. The affiliate, though, ends up with $5 for delivering the new customer, plus 1% of all sales. That's $8.50 for the affiliate. If you figure that the net margin is 5%, that means there's $17.50 out there, so the company still makes $9 on this customer. The real downside is for new affiliates, of course, who'll have a tougher time finding new customers for the merchant.
There are other flaws, too, but my point is most merchants dismiss "lifetime value" in the affiliate equation when it's obvious that is a crucial long-term metric for them.
March 17th, 2006, 12:56 PM #20
I see your point Karl. It does make perfect sense that if you bring a GREAT customer to a merchant you deserve something for that lifetime value. Why do you think this has never been brought up before? Do you think the current model has been too well established to change now?
After all — an affiliate is just a salesperson for the merchant. If you sold for a normal brick and mortar company you would get the commission for all sales that your customer had as long as you work for that merchant.
I'm trying to think of some way to make this palatable to management. Because it sure would motivate affiliates to know that there would be a residual to their work. They would work hard to find really good, qualified customers who would buy again.
I'll have to give this some more thought. It sure is a good argument for longer cookies though.
March 19th, 2006, 07:29 AM #21
New Customer bounties were more prevalent back before the dot com bust in 2000, especially with companies that were preparing to go public. Since very few of the dot coms had profit back then, Wall Street (which normally values companies as a multiple of earnings) had a hard time valuing dot com companies. Their growth rates were incredible, but there was no profit. Wall Street seemed to settle on a "multiple of the customer base". I remember many dot com companies were valued at $100 to $1000 times the number of customers they had. All of a sudden, it made sense for dot coms (especially ones who were going public) to offer huge new customer incentives. It wasn't uncommon for them to offer customers $10 off their first $10 order and free shipping, while at the same time paying affiliates hefty commissions plus a $10 new customer bounty. They knew they would get $100 to $1000 for each customer when they went public, so it was a great deal for the company. Dot com companies faced a scary reality in 2000, however, when they discovered how disloyal these customers they acquired were and Wall Street started demanding profitability.
They were used wrong initially, but I still think new customer bounties are a good way to go if they're used properly.
Building on Rick's example of sharing 50% of the profit with affiliates, let's look at some potential ways that merchants could profitably offer and justify new customer bounties. Let's say that the net margin is 20%, average order size is $100, on average you get 2 orders per year from your existing customers, and 25% of those repeat orders come from affiliates. Obviously those numbers will vary from merchant to merchant, but this will supply an example to use.
Over 5 years, every new customer should give you 10 orders, $1000 in revenue, and $200 in profit. Based on that, a merchant could easily justify a $25 new customer bounty (even on top of 10% commissions). They would lose money on that initial order, but would make it up in less than a year. Or, they could offer a $10 new customer bounty and basically break even on that first order.
I do like Karl's idea of "lifetime customers" at a lower commission, too, although I think there should be a provision for future affiliates who refer the customer to earn a percent. For instance, if the base commission rate is 10% and you pay a "2% lifetime commission" to the original referring affiliate, I think you should still also pay a 10% (or even 8%) commission to future affiliates who refer a sale for that customer.
March 19th, 2006, 08:10 AM #22
I'll also point out that my answer was posed on an affiliate forum, so I didn't really consider the "lifetime value" for the merchant. As an OPM, while my ultimate goal is to grow a merchants customer base, I know that the only way I will be successful is to continually add successful affiliates.
At the end of the day, although an affiliate may get warm and fuzzy thinking they've helped a merchant (but probably not ), they want to see increased traffic to their OWN sites based on the products and/or creatives provided by their merchants.
So in the context of Abestweb, I stand by my original answer. If my 3 points are accomplished, then:
1.) You will have a good "buzz" anbout your program since active affiliates will be talking about it (unless they want to keep it as their little private cash cow).
2.) Your affiliates will stay active, since the merchant converts the traffic they send to an acceptable degree.
3.) You won't receive "bad press", since you're clean, and making people money.
The benefits to the merchant are many, including the all important low cost of customer acquisition...
March 19th, 2006, 01:53 PM #23
Originally Posted by NothWebmaster's... Mike and Charlie
- Join Date
- January 18th, 2005
- St Clair Shores MI.
"What have you done today to put real value into a referral click...from a shoppers viewpoint!"
March 19th, 2006, 02:07 PM #24
Would the following be just to assert:
"Well established" when viewed from the inside of the company running an affiliate program may be totally different from "well established" in the eyes of affiliates?
Sounds like it. More and more I think of this "definition of a well established affiliate program", it hits me time after time that any given affiliate will first go after a program with a solid EPC, good conversion, look at it whichever way you want... but they/you will sell what sells fast, best, and giving the best ROI in the shortest amount of time...
Now, if this is so, then the definition of a "well established" affiliate program will enevitably be different depending on which side of things you look at it. Or should I say - not different, but differently prioritized?...
March 19th, 2006, 05:56 PM #25"Well established" when viewed from the inside of the company running an affiliate program may be totally different from "well established" in the eyes of affiliates?
OPMs and AM's need to educate their merchants more than they educate their affiliate base. The affiliates you want already know what they're doing. You might need to hold their hand a bit if it's a really unique product they haven't promoted before, but it's almost a guarantee that they know more about Aff marketing than the merchant does
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