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What is affiliate marketing?

Do you have an effective SEO strategy, email marketing in place, PPC campaigns running and your social networks well underway? Then, it's time to add affiliate marketing to your marketing mix.

What is affiliate marketing?
Source: Depositphotos

Affiliate marketing is a complementary online marketing tool for established e-shops looking to increase sales and get advertising in places that can’t be reached otherwise. It is a collaboration between the advertiser (e-shop) and publishers (affiliate partners) who own or use a specific space on the internet to place advertising. They promote the advertiser’s products or services, paying them a commission for each order placed.

What do affiliate marketing and Shakespeare have in common?

Friends of Shakespeare published a collection of his plays, the First Folio, after his death. In the preface, they wrote: “Spread this work far and wide, and tell those who like it to spread it far and wide”. 

However, to understand the basic principle of affiliate marketing, we need to add an incentive – a reward – to that recommendation.

If we go back in time, the royal court ladies might have recommended whom they had their dresses made for the next ball. The seamstress would then receive an agreed-upon reward for her new customers.

However, the advent of the internet made affiliate marketing as we know it today possible. The internet allows us to accurately measure all the essential KPIs, such as the number of conversions (sales), the number of clicks, or the total sales generated. Based on this, an appropriate reward for the affiliate is calculated.

Own affiliate programme vs. affiliate network campaign

The first affiliate programme was set up by the owner of a flower and gift shop. He paid a reward to affiliates who brought him traffic from their websites.

Today, e-shops have the option of setting up their own programme or using an alternative choice: opening an affiliate network campaign.

The advantages of an affiliate network are:

  • Ready-made technical solution.
  • Connection to an extensive database of publishers and professional support for both parties.
  • Since the networks manage a number of affiliate campaigns, they can use their experience to help the advertiser set the terms of their campaign in a way that benefits both the advertiser and the publisher.
  • A good affiliate network should also bring new ideas for strategic collaboration with individual partners and advice on optimising the campaign to its full potential.

Source: Depositphotos

How does it work?

Each campaign and publisher is assigned an ID in the affiliate network, which creates unique affiliate links. The system can track which publisher the customer came from and the order value they placed using a tracking code on the advertiser’s website. It then allocates this to the customer along with the calculated reward.

The most common commission model used in affiliate marketing is CPS (cost per sale), i.e. a percentage of each order placed.

All orders go through an approval process by the advertiser, who does not pay for cancelled or returned orders. Therefore, the advertiser will only share his profit with the publisher if he actually placed the order.

However, depending on the e-shop’s specifics, the commission model can also be set up as CPL (cost per lead), i.e., a reward for filling out a registration form, or CPC (cost per click), i.e., a reward for a click through from the publisher to the e-shop.

Who is a publisher?

A publisher is a person or company that promotes the products/services of selected e-stores. They usually do this using their own website or social networks. However, they can also use publicly available space on the internet (e.g., Google Shopping, Facebook Ads, etc.) as long as the affiliate campaign allows it.

  • Review sites – provide customers with new product information and share their experiences through reviews or product comparisons. They answer customer’s questions, e.g. “What will be the best turntables in 2024?
  • Blogs and magazines – personal or topical websites with a relevant group of readers who share the same interests. For example, interior design magazines, books or sports portals.
  • Product Catalogues – sites that collect products in a structured catalogue where customers can search, filter and compare products from different e-shops.
  • Cashback portals – motivate customers to buy by refunding the amount they spend on an order. The portals share their commission directly with the customer or with a charity of their choice.
  • Coupon sites – work with customers who are looking for bargains. They collect discounts and promotions to motivate customers to buy from you before competitors. They can persuade a customer to try a new e-shop, complete a purchase or increase the value of an order.
  • Social networks and influencers – content creators on social networks who are followed by people with similar interests. They can influence their followers’ opinions and purchasing decisions based on their relationship with them.
  • CSS Partners – advertise products on the Google Shopping platform to help advertisers rank higher in search results than their competitors. They can also be used alongside your own Google Shopping campaigns.
  • PPC partners – drive paid traffic to the advertiser through paid Google Ads, Facebook Ads, etc

Source: Depositphotos

Which stores are affiliate marketing suitable for?

The publisher chooses which affiliate campaigns to participate in. The goal is to send as many relevant customers as possible to the e-shop where they will most likely buy.

If set up correctly, publishers can earn up to 15% of new orders. However, whether a customer will place an order is influenced not only by the affiliate’s promotion but also by several factors on the e-shop’s side.

What conditions must an e-shop meet to expect this result?

  • Hundreds of sales per month (at least 800 – 1000).
  • Products/services sold daily (e.g., housing, fashion, health and beauty, sports). Products and services that are too specific risk not finding suitable publishers who can promote them effectively.
  • An uncluttered web environment that can handle the traffic that comes in.
  • A good e-shop reputation with strong brand awareness and positive reviews.

Start-up e-shops, e-shops with too narrow a target group, crafts, local projects or too luxurious products, e-shops aimed at B2B customers or those where the sale is not made online (real estate, car sales) are not suitable for affiliate cooperation.

What do I need to start an affiliate campaign?

As long as the advertiser meets the basic requirements, the affiliate network will help them to launch a campaign.

Each e-shop has only one affiliate campaign, meaning publishers can promote products/services from that e-shop. In the campaign, the conditions and permissions for affiliates are written down, such as:

  • Commission amount. It should be incentive-based for publishers but sustainable for the e-shop based on margin, overlap with other marketing channels and discounts
  • The length of the cookie during which the affiliate’s sales are recorded
  • The types of publishers the advertiser wishes to work with
  • The materials available in the campaign (product feed, banners, coupons, etc.)
  • The time it takes to evaluate or approve orders (when the e-shop is sure the order cannot be cancelled or returned).

To realise the true potential of your affiliate campaign as soon as possible, it is advisable to involve all types of partners and not underestimate the power of first impressions – offer a detailed campaign description and motivating conditions from the start.

Campaign optimisation

Affiliate marketing is a performance-based form of marketing so that campaign performance can be continuously monitored, compared over time, and optimised based on key KPIs such as the number of sales and click-throughs, total sales, PNO, and others

It takes approximately six months to collect enough data to understand how your campaign is performing. The questions we ask are:

  • Does the campaign attract partners? Did they engage?
  • Is the campaign converting and profitable for affiliates? Did they stick around?
  • What types of publishers are involved in the campaign, and to what extent?

Your affiliates are the people who prepare the campaign largely manually. It is, therefore, advisable to avoid making frequent and dramatic changes to the campaign conditions, as this may cause them to become suspicious and put the promotion on hold.

On the contrary, if the advertiser communicates openly and makes fair decisions with its partners, it will open the door to strategic and long-term successful partnerships. They can work with publishers on a one-to-one basis and support their performance, allowing them to become their right-hand man in good times and bad when launching new products or even rebranding.

Source: Depositphotos

Three myths about affiliate marketing

Myth 1: The more affiliate networks, the better the earnings.

In affiliate marketing, the well-known Pareto principle applies – 20% of publishers bring 80% of orders to a campaign. The quality of affiliates is more important than the number of affiliates, and most high-performing publishers are on all the major affiliate networks.

Launching a campaign on multiple networks rarely results in more sales. Instead, performance is redistributed according to which network certain affiliates prefer. As a result, it is more challenging to monitor campaign performance and identify the best-performing affiliates for each relationship. It is more difficult to optimise the campaign, and there is a risk of double commissions as an order may be assigned to a publisher in both networks.

Instead of opening a campaign in another network, it is advisable to work actively with affiliate managers, respond to their recommendations and suggestions, support the publishers involved and establish individual cooperation with them.

Myth 2: An affiliate campaign will bring new sales to the advertiser as soon as it is launched

While it’s a matter of seconds after launching a PPC campaign when we see the first results in Google Ads, with affiliate marketing, it can take several days to weeks.

Setting up a campaign with a publisher involves a process: studying the campaign, analysing the terms and conditions, preparing documents, gathering information, preparing the e-shop profile, articles, etc.

Therefore, the actual turnaround time to see if the campaign interests publishers and what performance they can deliver is usually 6-9 months.

Myth 3: I can turn an affiliate campaign off and on at any time

Publishers spend a lot of time preparing a campaign and, therefore, expect a return on their investment in revenue.

While suspending an affiliate campaign may seem like a good cost-saving solution, it means that the advertiser loses a lot of the advertising content they have placed in the campaign, which is no longer profitable for them at that moment.

Publishers will replace your campaign on their sites at that point and may not be open to continuing to work with you if you decide to rerun the campaign, as they will see it as unstable.

The affiliate relationship is a partnership between the advertiser and the publisher, and it should always remain fair. Therefore, an affiliate campaign should always be viewed in the long term.

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