Affiliate programs have the potential to change the fortunes of a business, driving more visitors to websites and increasing sales. It is such a successful strategy that it is used by many of the world’s major companies, from banking to eCommerce. Indeed, Amazon is said to earn around 40% of its revenue from its ‘Associates’ program. In this post, we’ll look at what affiliate programs are and explain how they work.
What is an affiliate program?
An affiliate program is where a business pays website owners to promote its products and services online. Unlike online advertising, payment isn’t given for how many impressions or clicks an advert gets, instead, the affiliate receives a commission, usually a set percentage, on any sales which are made from people who have clicked on one of the links on their website. This means you only pay an affiliate if a sale is made and only once you have received payment from the customer.
Whereas you are not guaranteed to get a single sale from your advertising budget, the advantage of an affiliate programme is that you only pay for the promotion after a successful sale. Every penny you spend, therefore, has generated income and it is from that income that you pay it. This is very helpful in terms of managing your marketing spend and keeping a healthy cashflow.
The other advantage is that, because affiliates have to generate a sale in order to get paid, they are more incentivised to promote you and often do more than just place an ad in their sidebar. The higher the commission you pay, the more likely they are to increase their efforts on your behalf.
How do affiliate programs operate?
Setting up and managing an affiliate program can be done by installing a plugin on your website. This lets affiliates sign up and provides you will all the management tools you and the user needs. Each user is given a unique link that they can add to their website text, images or any banner ads you create for them. Your affiliate software tracks these links so it knows when a sale has been made and automatically works out the commission the user has earned. Of course, you are able to set your own commission rates and you can provide different rates for different products or incentivise affiliates by paying them higher rates for increasing numbers of sales.
The affiliate software also provides a user area where your affiliates can sign in, find out how many clicks and sales they have had and how much commission they have earned. They can also use this area to provide payment details so they can be paid and to download any advertising materials you may have created for them to use on their site.
The program also generates data for you, so you know which products or ads the affiliates are promoting, how many clicks and sales you are getting and how much it is costing you.
An alternative to doing this is joining an affiliate marketing company, such as CJ Affiliates or AWIN who will manage the program on your behalf and promote it to their affiliates. While this may cost you a monthly fee or further commission on sales, you do benefit from having an account manager working on your behalf and a vast network of affiliates looking for new programs to join.
Who will join my affiliate program?
There are lots of websites that benefit from joining affiliate programs, especially blogs and online newspapers or magazines. Many of these sites find affiliate programs one of the main ways they generate income and so are keen to advertise your products.
Some websites are set up specifically with the purpose of making money from affiliate programs. These are often blogs which specialise in a particular niche and write content aimed to get their users clicking on links. If you see a blog post with the title ’10 Best Gadgets For 2020’ and each gadget is discussed in glowing terms and with a link to where you can buy it, you can usually take it for granted that those are affiliate links.
You can generate new affiliates through creating an affiliate program page on your website (usually created by the software) which you can use to promote the benefits of signing up with you. The more commission you offer and how soon you pay after the sale has gone through are the most important elements for the affiliate. For niche affiliates, your products obviously have to be related to the niche they write about.
How much commission should you pay?
This is one of the most frequently asked questions by companies setting up an affiliate program and the answer depends a great deal on the products you are selling, the market you are operating in, the commission offered by your competitors and how much you can afford.
While rates vary considerably, the average rate for physical products is around 5%. For digital products, such as software or video streaming, where the overheads are smaller, the commission can be considerably higher, perhaps reaching 50%. For those selling monthly subscriptions, it can be 100% or more of a single monthly subscription. For annual subscriptions, the rate is less but some programs pay out again if a user renews their subscription.
You should also consider tiering your rates; paying higher percentages to affiliates that generate higher numbers of sales. This way, you incentivise everyone to work harder to promote your products.
Affiliate marketing has a long track record of helping businesses to generate more traffic and to boost sales. Relatively simple to set up, it is financially more effective than advertising, with no upfront costs, and enables you to incentivise affiliates to do more to promote your business than simply putting a banner on their page.
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