Are Affiliate Programs Worth It?

Key Takeaways:

  • Affiliate programs are more successful when there is more in it for the referral (i.e. you’ve got better margins to pay out of or you’re willing to lose money on the first sale)
  • There are some SEO benefits (read: relevant links)
  • Gives you leads you don’t have to pay for until they become customers
  • Can account for between 5% and 35% of online sales (less if your online channel is already well established)
  • Current affiliate programs don’t properly reward the entire “clickstream” just the last click
  • Understand what an affiliate is doing in regards to your overall brand

A gray area of Inbound Marketing (and Digital Marketing in general) revolves around what’s known as having an “affiliate” program. For those who may not already know, what an affiliate program is summed up well on Wikipedia, “Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.”

Said another way, affiliate marketing is paying outside parties for sending customers your way.  To me, affiliate marketing is a gray area since it doesn’t always incentive the best practices from affiliates, namely since they typically don’t have a long-term interest in traffic they send you so they may resort to unsavory business practices in the pursuit of short-term rewards.

Simply said, all marketing efforts should help grow the brand for your business. Will an affiliate help grow the brand for your business? Or will they simply send you someone for you to build your brand with?

All marketing efforts should help grow the brand for your business.

Now, that’s not to say an affiliate can’t add to your business’s brand, I just recommend that you evaluate if they do or do not (i.e. don’t just assume they do).

SEO Benefits of Affiliate Programs

While it may seem like all the benefit from an affiliate marketing program is from the traffic the affiliate generates, there’s actually a little more to it than that. Depending on how an affiliate links to your site (i.e. does it seem “natural”? is the affiliate a site that is relevant to yours? is it a “follow” link?) you can see some search engine ranking benefits.

Now, before you think you can base your entire link-building campaign around affiliates, you need to realize this aspect of affiliate marketing is more of a fringe benefit since Google may or may not pass value across links that seem to be affiliate-based.

Typically, we want to handle [affiliate links] appropriately. A lot of the time, that means that the link is essentially driving people for money, so we usually would not count those as an endorsement. – Matt Cutts, former head of Google’s Webspam team

Take that statement with a grain of salt though. The Internet is a highly complicated thing and Google isn’t all-knowing. They may not be able to easily decide what is an affiliate link and what is not an affiliate link (i.e. you Google sees it as an endorsement link and gives you full value for it). The big thing here is to get (or just hope) your affiliates link to you in a natural way that adds value to their visitors.

Paddy Moogan over at Moz did a solid post a few years ago about getting the most SEO value out of your affiliate program. In case you don’t want to bounce over to it, here is the quick rundown:

  1. Create a dedicated URL & landing page for large affiliates (just be sure to utilize rel=canonical tags so you don’t inadvertently create tons of duplicate pages)
  2. Make sure they’re linking to the right page (mainly important for older affiliate programs that may have had their changes in URL structures over time)
  3. Help affiliates make their site more valuable to their own visitors by providing them with relevant and shareable content (like YouTube videos you’ve produced)
  4. Ensure that the content your affiliates share have data that search engines can see and understand (like making sure a shared image has a link back to your site plus keyword targeted Title & Alt Text)

What Makes For A Successful Affiliate Program

A successful affiliate program is one that helps you build your brand. Oh, and drives sales. There is a delicate balance to how your structure your affiliate program in that you’re trying to weigh the value of the sale against the other revenue opportunities an affiliate has. If there’s not enough reward in it for the affiliate, then they likely won’t continue to promote your company on their site.

The reward is the product of how much an affiliate makes per sale (commission) and how many sales their referral traffic generates every month. If the affiliate feels that the traffic they’re sending you should either be worth more (i.e. a higher commission to the affiliate) or the traffic should be converting better, then they will likely promote a different company that they feel will generate more revenue for them. You just have to decide what the value is for your business and stick to it. If an affiliate is asking for a higher commission than you think they’re worth, you have to be comfortable with them not promoting you (and possibly taking down all their referring links).

I can’t tell you what the best option is for your business, but there are two main routes to take when evaluating the value of an affiliate. One is the immediate value (how much profit do you make on a sale after you take out their commission) and the other is the discounted lifetime value of a customer (how much profit will you get during the lifecycle of the typical customer from this affiliate?).

If you take the discounted lifetime value route, then you’re likely willing to lose money on the front end in order to get a hold of that customer for the rest of their customer lifecycle. Just make sure you run the math in order to substantiate your value assumptions of the average customer that come from that affiliate. If you’re willing to lose money on the first sale to a customer, then you’ll likely to have happier affiliates. Just make sure you don’t tank your company by giving away all your profits.

Also, I want to point out my use of the phrase “discounted lifetime value.” It’s easy to fall prey to assuming “Oh, I’ll get $X over the next Y years with the average customer.” But in reality, you’re paying upfront for that assumed value. As the saying goes, a dollar today is worth more than a dollar tomorrow. This isn’t a blog where I want to get into the aspects of finance, but I recommend you read up on discounted cash flow in order to be able to properly value how much to pay for a customer.

Your Affiliate Program May Not Reward The Main Builders of Your Brand

While some affiliate program SaaS providers claim to be solving the issue, the problem with “Last Click Wins” is still a chronic conundrum for affiliate programs. What this means is that the company that gets awarded is the one that had the last click that resulted in a paying customer for you. While on the surface this may seem fine, you have to step back and understand the total journey that the customer took to giving you money.

It’s rare that someone will buy from you after they visit just two sites, the affiliates and yours. What the typical customer journey (or “clickstream”) looks like is one of becoming aware of your site/brand through a blog they follow, clicking to your site to check it out, clicking out from your site to Google you/your product to read more about it, read various other blogs or reviews about you/the product, they like what they read and so decide to buy, they then go to a coupon site in order to make sure they’re getting the best price possible, clicking through on the supposed discount being offered, and finally buying on your site.

Now, who gets paid the commission? That’s right, the coupon site. Everyone else that helped convince the customer that they should buy from you get zero rewards. Instead, the company that tried to take the most value from you (by providing a customer with a discount code) is the one that gets rewarded. It’s a bit of a broken system and I don’t have a great solution for it, I just want to make sure you’re aware of how an affiliate system actually works.

One way you can alleviate this issue of “Last Click Wins” is to have a multi-tiered affiliate model. You could offer minimal-value adding but high volume sites (like price and coupon scrapers) one commission rate while offering value-adding affiliates a higher rate (assuming they are crucial to helping identify and educate your customers for you).