For many companies, finding new and cost-effective ways to market their products and services is a must. Effective marketing helps keep the sales funnel full of prospects. However, traditional advertising channels (such as TV, print, and radio ads) have lost their cost-to-performance ratio.
According to data from Linchpin SEO, the average cost of a lead from “traditional advertising” channels is about $619 ($38 on the low end; $1,200 on the high end). Fit Small Business states that the average cost of a 30-second commercial spot on a national TV network is about $115,000—not including production costs.
To improve their Cost Per Lead (CPL)—and ultimately, their Client Acquisition Cost (CAC)—many businesses have turned to alternative marketing strategies such as creating affiliate programs. What are affiliate programs? More importantly, how can you create an affiliate program that will drive success while minimizing the risk and impact of fraud?
What Is an Affiliate Program?
An affiliate marketing program is a tool used by businesses to generate awareness. In this program, businesses pay affiliates to promote the company’s products or services to the affiliate’s peers or audience.
Successful affiliates are paid according to one of several revenue models, such as:
- Cost Per Impression (CPM): This model pays affiliates based on the number of impressions they generate. Also known as “Cost Per Mille,” which means cost per thousand.
- Cost Per Lead (CPL). A model where affiliates are paid for each new lead they successfully generate for the business. Sometimes called Pay-Per-Lead (PPL).
- Cost Per Click (CPC): Under this model, affiliates are paid for the number of clicks generated to their website(s). Sometimes referred to as Pay-Per-Click (PPC).
- Cost Per Action/Acquisition (CPA): This is the term for when an affiliate is paid based on prospects taking a specific action on the company’s website. Since the advertiser can set custom actions for this model, it is useful for meeting specific marketing or sales objectives.
- Cost Per Sale (CPS): Sometimes referred to as “revenue sharing,” CPS models pay affiliates each time the company running the program closes a deal with a lead generated by the affiliate.
Different affiliate programs will use different revenue models. Some companies may shift affiliate revenue models as needed to meet different goals over time, as well.
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How to Create an Affiliate Marketing Program
So, how can you make an affiliate program that will drive results for your business? There are a lot of things to do and to consider when making an affiliate marketing program, such as:
Setting up an Ecommerce Store
If you haven’t set up an ecommerce storefront and website already, then you’ll have to do so before trying to launch an affiliate program. Your website and ecommerce platform will be critical pieces in your affiliate program—letting you track customer interactions and check which affiliate they came from.
Running a Competitor Analysis
Prior to setting up your own affiliate program, take some time to check out what your competitors are doing to advertise their products and services. Some things to check include:
- What revenue models are they using?
- Which influencers are they using as affiliates (if any)?
- How much are they paying their affiliates?
- Are affiliates satisfied with their partner program?
By looking for mentions of the competitor on third-party sites or social media platforms, you may be able to identify (and then reach out to) the competitor’s affiliates to ask these questions.
Reviewing the FTC’s Rules Regarding Endorsements and Testimonials
If you’re planning to have affiliates endorse your products, it’s important to review the Federal Trade Commission’s (FTC’s) Guides Concerning Use of Endorsements and Testimonials in Advertising.
Some of the key points of the FTC’s rules regarding endorsements include:
- (§255.2(a)) Consumer endorsements representing product performance should have “adequate substantiation.” This includes “competent and reliable scientific evidence, to support such claims made through endorsements.”
- (§255.2(b)) Consumer endorsements will be interpreted as being “what consumers will generally achieve with the advertised product or service in actual, albeit variable, conditions of use.”
- (§255.2(c)) Endorsements meant to be interpreted as being from consumers should come from “actual consumers.”
- (§255.3(a)) If an endorser is considered an “expert” in an ad, their “qualifications must in fact give the endorser the expertise that he or she is represented as possessing.” For example, say an affiliate is an expert welder, but is promoting a computer processor. They may be an expert in a field, but they could not be used as an expert in this case since their expertise is in a different field.
- (§255.2(b)) Endorsers “must be supported by an actual exercise of that expertise in evaluating product features or characteristics.” In other words, experts should actually use relevant skills when endorsing something.
It’s important to review these rules (and explain them to your affiliates) when running an affiliate marketing campaign to avoid potential liabilities.
Choosing a Revenue Model
There are a lot of different revenue models that companies can choose from when setting up an affiliate campaign. However, there are pros and cons to each of these revenue models. Some common considerations when choosing a revenue model include:
- How Attractive Is the Model for Affiliates? If you want a larger affiliate network, you need to choose a revenue model that is attractive to them—one that makes it simple for them to earn money.
- How Resistant Is the Model to Affiliate Fraud? Unfortunately, affiliate programs are a prime target for fraudsters and con artists. So, it’s important to pick a revenue model that makes it more difficult to steal money from your marketing campaign.
- What Tools You Have to Track Affiliate Success. What tools do you have in place to track affiliates? Do you have affiliate-specific tracking cookies placed by ads on the affiliate’s website? Are you planning to have affiliates share a unique discount code with their audience that can be used with your online storefront? Tracking tools like these can be vital for a successful affiliate program that pays partners appropriately and encourages them to bring more business to you.
For example, CPM is considered a poor choice of revenue model for affiliate programs. While attractive to affiliates, it’s all too prone to fraud. As noted by Crazy Egg, “Just because a brand got 100,000 impressions and 10,000 clicks from their affiliate campaign, it does not mean that the affiliate is productive.”
Fraudsters can use bots to generate impressions and clicks rather easily—then charge you for them even though they aren’t generating any real results. So, CPM and CPC revenue models aren’t generally used for affiliate marketing campaigns because of their fraud vulnerability.
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On the other end of the spectrum, revenue-sharing CPS models are picking up in popularity. While it’s harder to attract large numbers of affiliates since there’s more work involved in generating an actual sale versus just getting a lead, impression, or click, CPS campaigns can attract high-quality affiliates who generate real results.
This does often require more work on your end, too since you need to track sales back to specific affiliates. If your commissions are percentage-based, then you will need to calculate the total value of all the sales an affiliate generates to reward them appropriately. Some companies use revenue sharing models that only pay for the first transaction, while others pay a portion of every transaction to the affiliate.
Preventing Affiliate Fraud
Affiliate fraud can be an enormous drain on your affiliate marketing campaigns. Based on past Anura customer data, the rate of affiliate fraud in any given campaign can vary between 25% and 40% on average.
In other words, for every million dollars you spend on affiliate marketing, you can expect to lose between $250k and $400k to fraud.
Finding ways to fight fraud in your affiliate campaigns can be a great way to reduce advertising costs and improve affiliate campaign ROI.
Aside from using an affiliate revenue model that is more difficult to defraud, one of the best ways to fight affiliate fraud is to use an ad fraud solution. A software-based fraud detection tool can help you identify affiliate fraud in real time so you don’t end up paying fraudsters for fake leads.
Affiliate Program Examples to Learn From
What are some current affiliate marketing programs that you could use as inspiration for your own affiliate program? Here are a couple of examples of top-ranked affiliate programs that you can learn from:
Amazon is one of the largest retailers on the market today. Their Amazon Associates program is a part of that success. Under the program, affiliates (called “associates” by Amazon) can sign up to receive customized linking tools to promote various products on Amazon. Then, Amazon pays associates “up to 10% in associate commissions from qualifying purchases and programs.”
It’s a relatively simple revenue sharing model that makes it easy for affiliates to join and earn money. Also, because Amazon sells so many different products, it’s easy to attract a broad range of affiliates with different interests and expertise. This contributes to Amazon Associates being one of the largest affiliate networks in existence.
Instead of building an affiliate network internally, ShareASale gives companies a chance to access an existing affiliate network. There are many preexisting affiliate networks like this that offer companies an easy way to launch an affiliate marketing program without having to make extensive (and expensive) technology investments.
Using a service like this to access publishers can help save time and money on affiliate campaign setup. However, it may mean surrendering some control over the campaign—particularly of ad measurement data that may be needed to spot fraud or measure campaign success.
Do you need help setting up a fraud-proof affiliate marketing campaign? Reach out to Anura today to get started!