With more and more influencers entering the world of blogging, podcasting and video making, many brands are entering the treacherous yet exciting world of affiliate marketing simultaneously by creating their own affiliate programs or joining affiliate networks at the very least.
In this post, we’re going to go over the advantages and disadvantages that come with running an affiliate program. First, let’s go over what affiliate marketing, affiliate programs and even affiliate networks are.
What is Affiliate Marketing?
Affiliate marketing is a form of online marketing that rewards influencers and publishers when they refer their audiences to products and brands they’re affiliated with. The influencers and publishers, known as “affiliates” in this form of marketing, are given commissions when the customers they refer complete purchases.
Affiliate marketing has been around since the ‘90s, ever since Amazon launched its Amazon Associates affiliate program in 1996. The industry has been booming from the very beginning. In fact, eMarketer reported on a study conducted by Rakuten Marketing, a major affiliate network, and Forrester Consulting that predicts affiliate marketing spending to rise to as high as $6.8b by 2020.
What is an Affiliate Program?
An affiliate program is a system ran by a company or individual brand where affiliates agree to a set of terms and conditions and the company or brand agrees to pay affiliates commissions when they refer customers to the company’s products and/or services.
When you run your own affiliate program, as opposed to joining an affiliate network that manages your program for you, you can set whichever terms you like. You can either pay the affiliate a percentage of what the customer paid or pay them a flat fee per completed order.
You can also choose to not issue commissions when customers return products and even keep things like taxes and shipping costs from being counted.
Advantages of Running an Affiliate Program
More and more businesses are generating revenue from affiliate marketing, as is evident by the $6b the U.S. market is willing to spend on it. However, many forms of marketing give you plenty of opportunities to grow your revenue, so why go through the trouble of managing an affiliate program and paying influencers to promote your brand?
Let’s answer this question by describing a few of the advantages that come with running this type of program.
You Only Pay for Results
With affiliate marketing, you pay to promote your brand, so it’s most comparable to ad marketing and sponsorships. You pay upfront for both forms of marketing in hopes the ads you create and buzz your sponsored influencers generate will lead to higher conversions.
While you can conduct plenty of research beforehand and make strategic moves, receiving profits from these types of campaigns is never guaranteed. Affiliate marketing is different.
Because affiliates only earn commissions for completed orders, you only pay for results. That is, you only spend money on this form of marketing when conversions are made.
Reaching New Customers Without Lifting a Finger
All forms of marketing provide different ways for your brand to reach new markets and get your products in front of new customers. Ad marketing will cost your business quite a bit of money, and creating the right ads for the right audience can be difficult, not to mention expensive and time consuming.
Social media marketing and content marketing are less expensive for the most part, but they still require a lot of research and generally eat up a lot of your time.
With affiliate marketing, your affiliates take on the majority of these tasks when they promote your brand and products to their audiences. They have a deep understanding of the problems their audiences have, and they’re quite intuitive when it comes to knowing which products would suit them best.
Because of this, you’re able to reach new customers in ways you weren’t able to before.
Receive More Brand Awareness
This one piggybacks off of the previous advantage. It’s simple. The more affiliates you have promoting your products, the more awareness your brand will receive as a whole.
This is how Squarespace was able to go from a relatively unknown company to one of the most widely used website builders in the web development industry in a short period of time.
By targeting YouTubers and podcasters with its affiliate program, Squarespace has been able to multiply its revenue 6,000 times of what it earned when it first launched in 2004.
SEO has changed quite a bit over the last two decades, but it’s still one of the most effective ways to acquire more traffic on your website. Google uses over 200 factors to rank your website, and backlinks are certainly one of the most essential.
A backlink is a link from another website that leads to your website. When Googlebot, Google’s search engine crawler, crawls your website, it counts the number of backlinks you have as well as the quality of those backlinks.
High-quality backlinks are ones that come from high-ranking websites. This is why it’s imperative for you to seek out affiliates with large audiences and plenty of traffic. The more backlinks you have from trusted high-quality websites, the higher your rankings will be.
Disadvantages of Running an Affiliate Program
As many advantages as it may bring and however beneficial it is compared to other forms of marketing, there are a few disadvantages that come with running an affiliate program.
They mostly relate to the size of your marketing budget and company as a whole as well as how much additional time you and your team can spare.
While you only pay for results with affiliate marketing, you’re required to hand over a percentage of every sale your affiliates make for you. These costs must be factored in when you consider whether or not this form of marketing is for you.
If you aren’t making enough of a profit to pay affiliates for referring your brand, you may wind up in a position where you lose more money than you earn.
The best way to avoid this is to start with a low referral rate no larger than 10%. While it may not attract many affiliates, it’s better to start with a low rate and raise it if the program succeeds. Starting with too high of a rate and lowering it will only anger affiliates and cause them to lose trust in your brand.
While there are a number of different tools you can use to set up and even automate your affiliate program, it’s still going to rack up a lot of time for your business. This either means taking on extra tasks and spending extra time in the week to get them done or training and even hiring someone to take care of them for you.
There’s also a lot to learn, and that’ll eat up time before you even start building your program.
Your Brand’s Image May Become Difficult to Manage
This is a by-product of affiliate marketing. You don’t work as closely with affiliates as you would with influencers you sponsor. Once affiliates are approved, they’ll start promoting your products across various forms of content and on multiple pages on their websites.
Depending on how large your program grows, it may become difficult to keep an eye on the content affiliates promote your products on. This can become an issue if a controversial influencer you have in your program winds up receiving a string of bad press.
Does Your Business Need an Affiliate Program?
While there are many benefits to running an affiliate program, it can be difficult to decide if your business truly needs one. This is especially true if your business is still small.
Start by doing a bit of research to find the biggest influencers in your niche and the various niche markets your products reach. If you can't find any, your niche may simply not be a good match for affiliate marketing.
If you found a few influencers, continue by taking a look at your monthly profits and determining how much you can spend on your marketing budget. If you have room for affiliate marketing, you can keep costs down by limiting your program to 25 affiliates or less until it starts taking off.
Lastly, determine if your products and/or services are a good fit for affiliate marketing. Research your competitors to see if they've already started dabbling in this form of marketing.
How to Set Up an Affiliate Program
Fortunately, starting an affiliate program doesn’t need to be difficult. If you have a WordPress site, you can expedite the process of building one with a handy little plugin called AffiliateWP.
AffiliateWP is a premium plugin that allows to integrate an affiliate program with WooCommerce, Easy Digital Downloads and a number of different membership plugins.
You can accept an unlimited number of affiliates, choose how much to pay them, pay them efficiently and even allow them to manage their own accounts. You can even configure different referral rates for individual products and affiliates and even create exclusive coupons.
Pricing for AffiliateWP starts at $99/year.