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While affiliate marketing is not new, many online businesses are beginning to embrace it as a marketing channel that brings sales and leads. However, affiliate marketing isn’t for everyone.
In this article, we will explore what affiliate marketing is, what PROs and CONs are, what kind of businesses get successful from using affiliate marketing, etc.So keep reading to determine if affiliate marketing is right for your business and whether an affiliate program is right for you!
Table of Contents
What is Affiliate Marketing?
Affiliate Marketing is a type of marketing in which a business entity or a merchant rewards the affiliate for bringing sales by paying a commission.
The affiliate only receives specific promotional resources from the merchant, like creatives, and carries out the marketing campaign independently but following the affiliate agreement terms (no SPAM, no deceiving, etc.).
The commissions might be based on the affiliate’s sales or just getting visitors to the merchant’s product.
Here are the three characters we will be referring to throughout the article:
Common Businesses That Use Affiliate Marketing
Now that you know what affiliate marketing is, you should ask yourself if your business is in an industry where affiliate marketing is a standard practice. The following are a few of the most common companies that have succeeded with affiliate marketing.
E-commerce/Retail
Online shopping businesses are making a killing from affiliate marketing. Amazon is one of the originators of affiliate programs to promote products, but now most online stores have an affiliate or referral program. For example, one large business, FashionNova, works with celebrities and influencers to promote their products to the masses.
A couple of examples: Amazon, eBay, Target
Software Companies/App Companies
Those companies might have affiliate programs if your business uses email marketing tools, social media management tools, or anything in between. These programs offer rewards, discounts, or free upgrades on their software for referrals.
A couple of examples: Uber, Lift, Revenue
Membership Websites
Suppose you’re subscribed to a subscription-based business, such as a subscription box service, small business group, or educational subscription program. In that case, you know that these companies are continually seeking new clients, members, or customers. As a result, most of these programs offer affiliate programs to their current subscribers, allowing subscribers to receive rewards and perks when they refer customers.
Service providers
Companies that offer services can also benefit from affiliate marketing. So you can pay affiliates to send qualified leads if you sell anything like web design, maintenance, financial services, loans, etc.
Further reading: 11 Companies That Grew Exponentially by Leveraging Affiliate Marketing
Why should businesses use Affiliate Marketing?
Due to its performance-based nature, affiliate marketing continues to increase in popularity among advertisers. According to a survey published by Rakuten Advertising, more than four out of five brands use affiliate marketing to generate revenue, and data has shown that publishers use the strategy even more.
According to one study that tracked U.S. affiliate marketing expenditures (from 2010 through the present), the spending will likely reach $8.2 billion by 2022, up from $5.4 billion in 2017.
On average, the digital products industry experiences a 40-50% share of sales made by affiliates. Take Amazon.com as an example; Amazon gets 40% of its sales from affiliate marketing under “Amazon Associates” and other third-party entities selling their products.
A 40-50% share in sales refers to an increase of almost 100% in the merchant’s current sales. Also, this number increases to around 300%-400% for smaller businesses. And the merchant receives all these “extra sales” by shelling out just a tiny percentage of the affiliate sales revenue.
Let’s see a case study for a merchant with a $100 product and 1000 monthly sales:
As shown above, the additional profits are from sales made by the affiliates with almost ZERO effort from the merchant’s side.
Affiliate marketing is a Win-Win Opportunity.
Thus, affiliate marketing is more of “People doing the things they know best.” It’s a win-win situation for both the merchant and the affiliate. The affiliate earns $20,000 monthly for a product he hasn’t made, and the merchant receives an extra $100,000 in sales without putting in any direct sales effort.
-> Affiliate Marketing for Beginners [Complete Guide]
This is just a small example to show you the importance of Affiliate Marketing. This guide will tell you how to get the best out of an affiliate program and how affiliates can earn more through affiliate sales.
PROs and CONs of running an affiliate program
Now that you know what affiliate marketing programs are, their benefits, and how to choose the best one for your business, let’s discuss the PROs and CONs.
PROs of Affiliate Marketing Programs:
- Paying only for performance.
- Getting more sales.
- Capturing the Untapped Market.
- More free Branding! Links and rankings.
Cons of Affiliate Marketing Programs:
- Fraud.
- Brand and reputation issues.
- Unfair competition from affiliates.
Let’s discuss the pros and cons of affiliate marketing programs in more detail. I want you to have a complete picture before considering starting one.
1. PROs of Affiliate Marketing Programs
Here are the details of the affiliate marketing programs PROs:
1.1 Getting more sales
Amazon is driving 40% of its sales through affiliates. Industry standards of around 30-40% of sales being driven through affiliates are good enough for merchants to understand the importance of affiliates.
With an affiliate marketing program, a $100,000 firm can quickly grow into $175,000 or even more. Also, the effect of affiliates on sales (percentage-wise) is more prominent in small and medium entities, where the merchants experience an increase of around 200-400%.
You should know that the above numbers need good affiliate marketing program promotion, affiliate commissions, fast affiliate payouts, and a good affiliate manager.
1.2 Capturing Untapped Markets
As a merchant, you should understand that you can not capture the complete market of your product. That’s because there are multiple languages, business cultures, geographical areas, etc. Each affiliate sells the product as an internet marketer and a sub-merchant with unique lists of potential customers and marketing techniques.
A merchant may be suitable with SEO or hire a PPC agency. Some affiliates focus on other marketing media, such as social media, content marketing, sales videos, etc. Tapping all these marketers and taking a 360-degree approach to the marketing campaign is always helpful.
Integrated Marketing Effort, or IME, encapsulates all marketing tools to build the perfect marketing campaign. By starting an affiliate marketing program, you will use IME with the help of affiliates that excel in a particular marketing form.
What better can a merchant ask for??
1.3 Pay only for sales!
Affiliate Marketing is an excellent tool for merchants to advertise their products. Merchants only pay a commission to the affiliates after they make a sale, so the fixed costs for an affiliate program are ZERO. The merchant pays a commission that he has already calculated to be profitable, making affiliate marketing an almost zero-risk investment.
1.4 More free Branding! Links and rankings
Affiliates make websites, write articles, reviews, and testimonials, and share about the merchant’s product on social media. All this, directly and indirectly, helps to build a stronger brand for the merchant. Therefore, the merchant’s website drives more traffic through backlinks on affiliate sites and increases the targeted audience’s reach, thus enhancing the brand.
1.5 Increase your digital presence
More affiliates mean more advertising, websites, blogs, and digital presence for the merchant. All this transcends into more sales and a better brand for the merchant.
We have seen the rosy picture an affiliate program can paint and will paint for the merchant. The merchant must be aware that he is handing over his product to unknown people (people who do not know the product and the merchant) to market.
Ok, so here are the benefits of affiliate programs. But let’s consider the risks as well:
2. Risks of running an affiliate program
2.1 Fraud
I believe the highest risk of running an affiliate program is fraud. The risk is even higher if you run a CPA affiliate marketing program. That’s because people will always want to cheat the system.
The most frequent affiliate marketing fraud cases:
- Self-referring—Some customers will sign up as affiliates and order the product through their link to save 25%- 30% or commissions for affiliates. You can prevent this by checking the first couple of sales for new affiliates for purchasing details. Also, you can set a minimum of at least 2 or 3 sales for the first payment.
- Purchases using stolen cards – Some affiliates may try to cheat the system by generating purchases with stolen credit cards through their link and hoping to cash in the commissions. You can prevent this by scrutinizing the affiliates well, having antifraud systems, and paying the affiliates using payment methods requiring verification. You may avoid accepting credit cards and paying affiliate commissions in Bitcoin or other cryptocurrencies.
- Low-quality leads—If you have a CPA affiliate program, you should carefully check the leads the affiliates sent. They may try to increase their commissions by sending incentivized leads (offering money to people to sign up) or fake leads (generated emails, etc.).
Ensure you have clear affiliate terms, use antifraud systems, and scrutinize the affiliates well before making their first couple of payments. The fraud will be insignificant compared to the benefits.
2.2 Brand and Reputation Issues
Unfortunately, a small percentage of affiliates only care about the money and will do almost anything to maximize their earnings. This includes sending spam, making false claims, etc., which may have brand image consequences for you. That’s why you must scrutinize the affiliates well, offer clear branding usage instructions, and don’t hesitate to ban them from the program if they fail to comply.
2.3 Unfair competition from affiliates
With all the competitive intelligence tools like Semrush, SEO Power Suite, or SpyFu, affiliates can quickly analyze and reverse their marketing campaigns. So, it would be best to prohibit PPC bidding on your brand. Otherwise, they will capitalize on your brand without bringing any value to the client.
Transparent terms and a good affiliate manager who scrutinizes the affiliates and their activities to ensure compliance with the rules can quickly diminish all these risks.
Case Studies of Implementing Affiliate Programs
Below, you will find a couple of case studies that outline various projects where we designed, developed, implemented, and promoted affiliate programs for multiple types of businesses.
Each project has its challenges and solutions, so feel free to browse as many as you want before contacting us regarding affiliate program setup or affiliate marketing consulting.
Case Study 1: Creating and Promoting an Affiliate Program for a SaaS business
The Client: Linguise is an automatic translation solution SaaS that helps you translate your website into over 85 languages with unlimited, instant translations. They come to us for viable solutions to design, set up, launch, and promote an affiliate program to grow more.
The Challenges: The Client uses WordPress for its main website, but the SaaS app is custom-coded. Hence, we need an affiliate management solution tool that integrates easily with WordPress and custom solutions through API. Also, the client had experienced affiliate fraud cases previously, so we had to ensure the terms and monitoring solutions prevent fraud and misbehavior.
–> Read the Linguise case study to find our solution and the results.
Case Study 2: Creating and Promoting an Affiliate Program for a Digital Services Agency
The Client: WPRiders is a world-recognized top WordPress development agency offering secure, scalable, custom web design and development solutions. They wanted a reliable affiliate program that would help them reward their partners for sending qualified leads.
The Challenges: The client uses WordPress for their presentation website and a custom-built solution to track leads and referral sources.
They also had existing partners in the system that had to be imported into the new system. We also had to ensure the forms and legal terms followed GDPR legislation.
–> Read the WPRiders case study to find our solution and the results.
Case Study 3: Creating an Affiliate Program for a Membership Site
The Client: TopGold.Forum helps people and businesses worldwide by providing a safe place to connect, discuss, and research money-making opportunities. We helped them launch an affiliate program their members can use to promote the community and get rewards on every purchase.
The Challenges: The client uses Invision Community to power their community, so we have to work only with the official software and custom modules to match their expectations. Also, we had to ensure the legal pages comply with EU legislation and cover fraud protection measures, as they reward free members, which could lead to abuses.
Read the TGF case study to find out our solution and the results.
Conclusion
Congratulations on reaching the end of this article. You now know what affiliate marketing is, what PROs and CONs are, what kind of businesses get successful from using affiliate marketing, etc.
An affiliate program can be a significant growth asset to your business. However, it is a considerable task, and the work it requires isn’t for everyone. We hope the questions and information we’ve provided above will help you determine whether an affiliate program is a good move for you.
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