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By Kerry Murdock, Practical eCommerce
Affiliate marketing can be a useful tool for an ecommerce site looking to boost its sales as its commission-only structure helps business owners amass an army of commission-only sales agents.
"Most any online merchant can utilize affiliate marketing," says Andy Newlin, online marketing manager for www.sierratradingpost.com, in Cheyenne, Wyo., an ecommerce merchant selling outdoor gear and clothing. "We’ve been using it for five years, and we are absolutely pleased with the results. It enables us to create partnerships with niche, high-traffic websites around the globe, and the results have been outstanding. We view these affiliate websites as strong business partners that together comprise a commission-only sales force. We have thousands of these affiliate partnerships."
What is affiliate marketing?
Say a merchant, we’ll call her Sue, has an ecommerce site selling gardening supplies. Sue’s friend Bob has a website that sells plant seeds. Sue strikes a deal with Bob to place a banner ad on his site that promotes her gardening supplies. Bob does this, links this banner ad to Sue’s site and Sue pays Bob 20 percent of every sale he generates from his customers who (a) click on the banner ad, and (b) purchase an item from her site. The arrangement makes sense because his visitors have an interest in plant seeds and she sells gardening supplies. It’s logical that folks interested in purchasing plant seeds may also be interested in purchasing gardening supplies.
Commission percentages
Commission percentages paid by merchants to affiliates vary. Typically, products with relatively higher prices receive smaller percentages, and, conversely, lower priced items receive higher percentages.
Heidi Messer, with LinkShare, said "We see commissions in the 1 percent to 30 percent range though they can be even higher. Products with lower margins and higher purchase prices tend to carry lower commission percentages."
Affiliate networks
Paul Colligan, who is the owner www.theaffiliateguy.com and consults with companies on their affiliate marketing efforts, believes affiliate network companies can help. "Network companies bring a lot to the table," says Colligan. "The obvious benefit is that they have a line-up of thousands of potential affiliates. I don't know many ecommerce merchants who have time to run down this number of potential affiliates by themselves. But, the affiliate network companies also bring management expertise. They monitor affiliates to make sure the click-through rates are acceptable. They physically prepare the commission checks. They resolve disputes between affiliates and merchants. Those jobs alone could require several internal employees. And they advise on product offers, commissions, and new ideas."
Affiliate networks themselves work on a commission basis. Most charge a fee ranging from 20 percent to 30 percent of the affiliate commission or a percentage of the gross sales an affiliate generates. That is, if a merchant pays his affiliates a 15 percent commission on sales, a network company would typically retain 20 percent to 30 percent of that 15 percent. Thus, for an affiliate commission of, say, $10 on a $100 sale, an affiliate network company would typically keep $2 to $3 above what the affiliate is paid.
In addition to the transactional fees, many network companies charge a one-time, up-front fee to their merchants, ranging from a few hundred dollars up to $20,000 or more. For most network companies, affiliates sign up for free.
Click-through and conversion rates
Spend any time in the affiliate marketing community and you'll hear both merchants and affiliates discuss "click-through" rates and conversion rates. Both terms refer to the percentage of a site's visitors that actually click on an affiliate offer and then purchase an item from a merchant. The terms are used interchangeably and can be confusing. For example, 2 percent of visitors to Bob's site may click on an offer from Sue's gardening supply company. That's a 2 percent "click-through" rate. Perhaps 10 percent of that 2 percent may actually purchase a product from Sue. That 10 percent is typically referred to as a purchase "conversion" rate. The affiliate marketing business revolves around click-through rates and conversion rates. Both merchants and affiliates closely monitor those rates and adjust and juggle products, prices and other factors to improve upon them.
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This article is used with permission from Practical eCommerce magazine, copyright 2007. Practical eCommerce is a printed an online resource for ecommerce businesses. For tips, tools and advice to improve your ecommerce business, click here.
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