|Start Making Sense
BY Jason Ciment | November 16, 2001
I’m a big fan of affiliate marketing, as you might guess, and so I’m starting this article with three declarations of love for the practice:
Turning Over a New LEAF
As a merchant, I think affiliate marketing is spectacular because maintaining a relationship with an affiliate is like turning over a new “LEAF”: leverage, exposure, and advice for free:
Affiliates want to give me leverage and exposure to their clients, because the customers will value the affiliates’ services even more, thanks to the offers they provide. Most important, affiliates know more quickly what works than I do sometimes, and if they help me improve my site or business model their sales will improve, too.
One example of the type of hints merchants could get from affiliates can be seen at GoToMyPC. Not only is this the next killer app (letting you log in to your office from anywhere via the Web), but it is also an example of smart online marketing.
The site loads fast and presents the offer without the need for scrolling. It has the right credibility factors, and it satisfies a need while doing so at a great value (to the customer and to the affiliate). Most important, it grabs you right away with a free trial offer. So far, it’s gotten a great reception from the community.
So my first recommendation this week is: Speak to your merchants.
Use affiliate forums such as ReveNews.com or AffilateFORCE to air your gripes and your praise. Merchants read this stuff. The good merchants even read feedback you post directly on the merchant sites.
Loving Affiliate Marketing As an Affiliate
Maybe I don’t get paid up front to make an affiliate-related offer to my customers or Web site visitors. But at least I’m the one with the opportunity to make money without having to deal with fulfillment issues, warehouse fees, merchant accounts, customer service problems, and a boatload of other overhead-related nightmares.
As an affiliate, I proclaim, “Let the merchants have all the headaches.”
All I want to do is market the heck out of whatever I’m pushing and collect a nice piece of the gross revenue without having to worry about anything other than when my commission check is going to show up.
Making Sense, Not Up-Front Payments
Ah, but this last affirmation is the most important. As much as I love affiliate marketing from both sides of the fence, my love is limited by my own sensibility. I want to briefly talk about a new trend in affiliate circles that does not make sense to me — paying up front for what are supposed to be revenue-sharing deals (in which affiliates by tradition are supposed to bear the risk).
It just does not make sense for merchants to pay untested affiliates up front for what are supposed to be revenue-sharing deals.
A long time ago, revenue-sharing deals were everywhere. But investors in advertising-supported or high-traffic sites eventually decided they didn’t like that term, because it didn’t produce the big bucks and they needed to monetize these sites’ prodigious impressions. Some shrewd marketing gurus got together and started calling them cost-per-action (CPA) deals — same product, different packaging, new investors.
This worked until the pressure built up again, because many sites still weren’t producing significant sales. So some even shrewder gurus came up with something they called an up-front payment (by the merchant) on the performance the affiliate was “promising to deliver” (which, of course, wasn’t going to be guaranteed) — a payment expected up front before the affiliate produced even one sale.
This up-front payment is nothing more than a disguised cost-per-thousand (CPM) or even cost-per-click (CPC) offer — a deal that can bankrupt merchants if they prepay for results, especially if the affiliate has never been tested. Can you imagine what would happen if 100 affiliates asked for up-front payments of $5,000 each (the most common amount bandied about)? I, as a merchant, would have to invest $500,000 to test different affiliates’ promotions, all of which could totally fail. This is wrong.
Affiliates are in the business of building their own targeted customer bases (for affiliate offers). If their customer bases can’t deliver, then I, as a merchant, shouldn’t have to pay for them.
Merchants are in the business of sourcing products and building a venue to distribute them. If affiliates can’t sell the products properly, it isn’t the merchant’s fault.
If the merchant’s product isn’t selling well, it could be that the affiliate’s customer base is the wrong one for that specific product (and the merchant shouldn’t bear the cost of testing the product to that customer base). Alternatively, it could be that the merchant’s site doesn’t work well (and the merchant will bear that cost because the affiliate will take his business elsewhere, as there is plenty of competition on the Web).
If you, as a merchant, ever get this kind of offer with a polite request to pay money up front, tell the affiliate that you want a substantial test of your product in its marketplace. Once you have some results, only then can you quantify a sensible up-front payment. Still, I’d advise against the practice.
What I recommend instead is a small deposit into an escrow account. Then, make payments from the escrow account to the affiliate as milestones are achieved. This way, everyone is kept honest. The affiliates know the money is there (one reason why some affiliates will only work with affiliate solution providers such as Commission Junction rather than private-label affiliate programs). With this kind of arrangement, the merchants know that they aren’t laying out any cash for affiliates with a lot of promise but no performance.
In closing, allow me to paraphrase what the Cat in the Hat might say to the next affiliate that offers him the opportunity to prepay for a performance deal:
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