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The Lowdown On Affiliate Marketing
by Kent Lewis

When I ask a stranger on the street what Amazon.com is best known for, they quickly reply "books." When I ask savvy Internet marketers the same question, they easily reply, "Affiliate marketing." Indeed, Amazon.com became one of the first, if not the best-known proponents of affiliate marketing. Amazon.com’s program pays Web site owners that guide visitors to purchase on Amazon.com. Indeed, affiliate marketing has made many affiliates wealthy, but it can be a two-edged sword.

There are two primary players in the affiliate marketing game, affiliates and merchants. Merchants pay affiliates for visitors, leads or sales and affiliates drive traffic to merchants. It’s a keen balancing act, but the lines have blurred in recent months, as merchants become affiliates and vice versa. Regardless, there are a few simple considerations to keep in mind, if you’re thinking of jumping into the fray.

For merchants, affiliate marketing is ideal for generating incremental leads or sales. Unlike direct response or banner advertising, affiliate marketing is pay-for-performance, where the merchant decides the appropriate metric and payout. Similar to direct response and banner advertising, affiliate marketing does offer an element of branding. Lastly, affiliate programs can be highly measurable and flexible.

There is a downside, however. Affiliate programs can be very expensive to implement and maintain. Internal development can run into six figures, while outsourcing starts at $1,000 for startup and includes an annual membership and a percentage-based fee (usually 20 percent of commission or 2 percent of sale). There are also many options for a merchant to consider: banner creative or text copy, jump pages, infrastructure and payment. In addition, possible brand erosion resulting from poor placement on affiliate sites can be very damaging.

For affiliates, consideration should first be made for the Web site community. If visitors are comfortable with "referral" based marketing from the site owner and the site generates reasonable levels of traffic, money can be made. The most successful affiliates build a strong community and spend time driving traffic to their own site before letting them leave to a merchant’s site. Associating with a brand name can even help build credibility for smaller sites. For small to medium-sized sites, affiliate marketing is a solid alternative to implementation of a full-blown banner program.

As with merchants, affiliates should heed caution. Perhaps the most important factor to consider in implementing an affiliate program is that the site is losing valuable visitors. Another important factor is possible brand erosion within the site’s community if inappropriate merchants or creative are chosen. Implementing an affiliate program can be affordable, but detailed analysis should validate that it’s the best possible use of real estate on the site. Banner programs offer consistent income in the form of impressions, whereas merchants pay-for-performance, which can be unpredictable.
Perhaps one of the best real-world scenarios I’ve encountered personally involves a simple domain name purchase. An associate bought a memorable domain 5 years back and let it sit. Late in 1999, she realized the site was getting a substantial number of visitors. She acted quickly and implemented affiliate agreements with top companies relevant to the industry related to his domain. After only a few weeks, he was able to determine where the traffic was originating: an offline advertising campaign directing viewers to a domain with a similar (but less intuitive spelling). The hapless "competitor" has continued to pump dollars into offline marketing campaigns, which will benefit my associate to the tune of six figures this year.

A good example of a merchant program designed to sell actual product belongs to Edge Audio. As manufacturer and online-only retailer of high-end home theater speaker systems, Edge Audio has the advantage of margins and a dedicated community of enthusiasts. They elected to outsource their backend to Commission Junction, freeing up bandwidth and dollars for other marketing activities. While the program is only recently been implemented, the simplicity of their program illustrates the process. If you were to click on the banner below and purchase a set of speakers, I get 8 percent of the total sale.

There is a reality that must not be ignored, however. Many affiliates and merchants may be setting themselves up for failure with unrealistic expectations. Remember to do your homework, understand the value of a visitor, whether you’re an affiliate or a merchant. Don’t compromise your brand or community for a few bucks. Take it from me, after running banners on Anvil for 3 months, I’ve generated just shy of .60 in revenues. That should show you how much performance can vary. Which reminds me, if you’re looking for some killer home theater speakers, you HAVE to check out Edge Audio.

If the above has sparked your interest, but you don’t know where to start, give Affiliate Marketing World a try. They run a solid resource and can be found online at:
http://www.affiliatemarketingworld.com