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Affiliate Marketing

The experts discuss an error that many ISPs make when designing their affiliate marketing program.

[February 11, 2008]

PR changed tack in a thread on the ISP-Marketing list in January with a couple of thoughts:

Two thoughts on Affiliate Programs and Referral Systems:

1. Why limit it? If they are bringing in paying customers, give them all the money they can earn!

2. Better to give them a check than a credit. A credit is barely noticed. A check is a tangible reward.

[KB replied] "I suppose, but many that are paying recurring like the credit. I'd have no problem doling out cash if it came down to it... I just do not see people bringing in enough of a volume to warrant that ATM."

[TC noted] "A thought down this path: MANY companies just don't seem to understand (i.e.: "get")...what about giving the lion's share of a referral bonus or commission to the rep. Essentially referral programs provide a LOT of free advertising (free for the company, not the referrer). By providing the lion's share to them they're more motivated for you than with other companies, a lot happier, and a lot more inclined to help others if it's a tiered commission structure. Success breeds success."

MM said that affiliate marketing isn't for everyone:

I think this only really works if you've got inventory to spare and have met all your budget requirements. If you put a "lion's share" referral program down as your LEADING advertisement/marketing approach, what you've just done is decrease the net profit per unit. I use referrals, and they've been valuable, definitely—but there's a limit in the other direction too—and unless you can afford an increase in price in your market (difficult in a commoditized environment), you're taking a loss to capture those sales.

Now the one place where I may have missed your comment is if you're talking solely about 1-time referral fees (as opposed to residuals). On a one-time—I agree wholeheartedly—dump the money into the well—pour it on large!

[TC responded] "Correct in what you said but it wasn't what I meant. My bad, I wasn't clear. (I guess I put too much stress on my only brain cell left yesterday.) The ONLY time I've ever advocated the consideration of taking a loss is with big retailers or grocery stores (advertise and sell oranges that are normally 89 cents a pound at 39 cents a pound for a limited time to get people into the door to spend hundreds of dollars on other items). Like you stated, only on a high inventory location. I was wanting to refer to the use of affiliate and referral commissions that has a set budget that is profitable for the company but the corporate marketing section is short sighted.

Simple example: Let's say you're the marketing arm (just yourself or a handful of team members...) for a product/service and you want or need to build a tiered (let's say up to 5 tiers) referral program and the company has $5 per unit to give to the marketing arm for commissions and/or tiered commissions. Let's say the company is willing to give the marketing arm $5 per unit sold. The marketing arm is a bit short-sighted and only gives a maximum of $1 in total commissions per unit and retains $4 per unit. So providing only $1 across 5 possible tiers is a bit small and the structure only sells 10,000 units per month.

It turns out that $0.20 per unit isn't real motivating for the affiliates, so after using up their connections, their webspace, maybe even some personal ad dollars, they start dropping out because it's too much work for too little. The marketing arm has to put a lot more effort into building (actually rebuilding) the affiliate structure because of high turnover.

Now imagine if the marketing arm gave out 80 percent of the available commissions to the affiliate structure. How much more motivated are they to give the product ad space, web space, personal effort, etc...especially when the revenues are better than the other programs out there? Then the efforts the marketing puts out to the affiliate structure build a much more stable, less churning, and higher volume sales structure.

This is a win-win-win-win scenario. The company makes its desired profit per unit. The marketing arm succeeds at getting a lot more sales. The affiliate structure makes more money and is more motivated. More buyers have more of the product and a better brand is built through volume. I think this is a little more clear than my short statement."

—End