Introduction to Affiliate Marketing
It is a revolution in the domain of marketing – or you can simply call it a different take to partnerships.
For those who are alien to this term of affiliate marketing, theoretically speaking, affiliate marketing is when you work with a partner and pay them on, mostly, a commission basis if they make a sale for you. Typically, these affiliates own assets which have crazy traffic or enjoy a high loyalty factor. Moving on, under this arrangement, you are only obliged to make a payment if that partner has bought you a sale.
For example: If I get into a partnership with X agency and agree to pay them a 5% commission on every sale they influenced, then that agency becomes an affiliate for me. Why do I call this a revolution in the marketing world? Because it secures the interests of both the parties- I, as a merchant (what you call a brand), am not obliged to pay the partner if they do not bring any sales for me and for them, as a partner, there is not any upper cap on the revenue that they can earn which would happen in case of upfront payments. Additionally, performance-based fee motivates these affiliates to work better and better.
Now your next question would be how do affiliate agencies really work? How do they ensure performance as if they don’t perform, how would they earn? What is their business model?
Very valid questions, indeed.
You would have witnessed various kinds of coupon websites like Couponzguru, Couponduniya etc. or content websites, bloggers and maybe various fintech partners also. These are affiliates. They leverage the daily traffic on their websites and blogs and convert them into buyers for brands. Now, think as a marketer. You are reaching the people you have no idea of your brand!
Now, there are two different ways affiliates can work - one is that we can work directly with them, for example I can approach any coupon website, ask them to list my coupon code (like 15% off on all products) and generate sales for me and then can pay directly to that particular coupon website. But in that case, I have to directly manage a lot of coupon websites, a lot of content partners, a lot of people who can make influences and can generate sales for me etc. This is not scalable. The better alternative but a bit costly one is that you should get an affiliate network. In this model, you pay the affiliate networks to onboard affiliate websites like the coupon websites, content partner etc. and get the brand listed there. Affiliate agencies are just like the middle man in the process who manages everything and ensures that all KPIs are met.
Now, just to get into some details, affiliate networks charges you on various models, it can work on a CPA model which is cost for acquisition - what happens in this model is that you pay a pre-decided percentage of total sale to the affiliate networks who further divides it among their inventory (individual affiliates) as per what their internal arrangement has been. The second and the most pitched one for new start-ups with low traffic is the CPV (Cost per Visitor) model where you pay them for every visitor that they bring to your website. The idea behind it is that affiliates websites are not only meant to build sales, but for start-ups, building brand visibility is more important for them and thus they bill you on this. They won’t commit sales for a very new brand.
When you get into such partnerships, be very aware of the KPI’s. A lot of affiliate networks can dupe you by sending junk traffic and thus you should closely monitor the average session time of the traffic that the affiliate network is bringing. What these networks typically charge depends on the business you are, on the industry you are in etc. but for a 5-year start-up with a decent awareness in the market, you can assume a 4 or 5 rupee per visitor. Sometimes, we can condition the cost on a conversion rate. For example, if the traffic they are bringing yields a conversion rate of 1%, I will be paying them 3 rupees per visitor but if the conversion rate is 2% which means a higher quality traffic, I can pay them 4 rupees per visitor. This mitigates risk.
This is a very brief introduction about how typical affiliate marketing works. There a LOT left to tell and learn. Especially TRACKING. But, as we have promised to only engage you for three minutes, I need to ask you to stay tuned for a part 2 of ‘Introduction to affiliate marketing’. See you next Friday.