The idea of paying someone for sending you business has been around for a long time. Affiliate marketing is just a new, Internet-based, take on it. An affiliate sends traffic to your website and is paid a commission on each sale. For software this commission will typically be in the range 20-50% of the sale price (although commissions of 75% or more aren’t unheard of). Commission is usually calculated by using cookies to track the number of successful sales (‘conversions’) due to each affiliate.
In theory you can set up your own affiliate commission tracking system, but affiliates would have to trust that your system is honest. It would also involve quite a bit of wheel reinventing. Consequently most vendors use affiliate marketing systems administered by third parties such as shareasale, clickbank or commission junction. Payment processors, such as Avangate and e-junkie, also have their own affiliate marketing systems.
It sounds great. The affiliates are doing marketing for you and you only pay them when you make a sale. How can you possibly lose? In fact there are quite a few potential downsides:
- You may end up paying commission on sales through affiliates that would otherwise have come to you direct.
- Affiliates won’t be happy if there is any way to purchase where they don’t get their commission (‘leaks’). This might mean you may not be able to offer some forms of payment, such as cheque or credit card over the phone.
- You will be competing against your affiliates for search engine ranking.
- Somebody who wants to buy several copies of your software could sign up as an affiliate to get the commission on their own purchase. You then have to pay commission, but get no additional sales.
- Affiliates may compete against you in PPC ads, driving up the cost of your ads.
- Even though you make less on the sale, you still have the full cost of supporting the customer.
- Some affiliates operate at the shadier end of the market and may resort to various dodgy, or even criminal, practises to get their commission, including:
- Spam.
- Annoying pop-up ads.
- Cookie stuffing.
- Misrepresenting your product.
- Adware.
- Buying your product with a stolen credit card.
You maybe be able to prevent some of the above abuses with appropriate terms and conditions. ( I should also point out, in the interest of fairness, that there are various ways that the affiliate might lose out on commission that is rightfully theirs. For example customers who block cookies and even fraud by vendors.)
Drawing up agreements, recruiting affiliates, providing them with marketing materials, doing the accounts and paying your affiliates all takes time. You can automate quite a lot of it, but it still takes time to set-up the system, answer questions, keep everything running smoothly and check that affiliates are behaving themselves. Time that you could be spending doing other more lucrative and interesting things. As always, there is no such thing as a free lunch.
Joel Spolsky has been an outspoken critic of affiliate marketing:
We did an affiliate program, and found it to be a big waste of time. It generated only a trickle of sales; most of the people in the affiliate program would have linked to us anyway; probably 80% of the affiliates just became affiliates to get a kickback on the one item they bought for themselves or their job.
Affiliate links only works well for mega retail sites like Amazon, where an affiliate has a chance of making a reasonable amount of money.
Our affiliate program was one of those cases where we learned that time spent improving our product pays off many times as much as time spent dinking around with so-called clever marketing schemes.
Don’t waste your time. Move on. Do something to make your product better and Just Say No.
I am inclined to agree with Joel. Hard data isn’t easy to come by. But, from reading around and talking to other vendors, it seems that very few of them are getting more than 5% of their sales through affiliates. I did have a home-rolled affiliate program for Perfect Table Plan, but I shut it down because the number of sales just wasn’t worth the administration overhead. Some of the affiliates never sold a single licence. I might be more successful if I used a more automated affiliate marketing system and put more effort into recruiting higher calibre affiliates, but I still don’t think it would be the best use of my time.
I have heard that there are ‘super affiliates’ with mythical powers to drive serious sales. But these people, if they really exist, get to pick and choose amongst thousands of products to market. They are going to pick mass-market products with a proven track record and they are going to want a big commission percentage. And how do you tell who is a super affiliate and who is a wannabe? They all talk a good game.
Affiliate marketing is big business, with estimated sales of over £2 billion in the UK alone in 2006. But I suspect a lot of it is from selling ‘get rich quick’ schemes, gambling and porn – not software. Particularly not software from small companies and microISVs. Obviously a lot depends on your product and market. Perhaps if you are selling mass market software (e.g. back-up utilites or virus scanners) and you have dedicated marketing staff, it might be worth your while to run an affiliate program. But make sure you automate as much of the system as possible and be realistic about the results.
Successful Software 
The trouble with Joel Spolsky giving marketing advice is that there’s a huge elephant in the room, in the shape of his blog. He sells software to software developers, and has a billion software developers following his blog – his experience of software marketing can’t ever be same as yours or mine.
Richie, I agree. If most the wedding & event planners in the world read my blog I wouldn’t worry too much about other forms of marketing either. Joel’s ‘concentrate on the product not the marketing’ philosophy is much less likely to work for us mere mortals. But he does say that he actually tried affiliate marketing and it wasn’t worth the effort, so I think it is still relevant here.
Why not setup an affiliate software like http://www.osiaffiliate.com and then setup an affiliate program to pay your users say 20%. A program like this is only a one time fee and it has tons of features.
Well, super affiliates are out there. I have one and he accounts for around 30% of my sales. It’s “just” about finding the leading site for your niche and make them promote your product.
Andy,
Thanks for this post; I asked about Avangate’s affiliate program on the BoS forum the other day, but it looks like no-one had anything they wanted to say about it.
We’re running a promotion with Bits du Jour sometime soon, and will probably use the Avangate program as a way of simplifying the book-keeping for that, but beyond that… almost everything I read agrees with your post: avoid affiliate programs.
On the other hand, one thought based on Brian’s comment above is that one could only offer affiliate status to selected people – say, the people who run opinion-forming blogs in your market, or to carefully-selected partners with complementary products. Presumably you (or some of your other readers) have tried that…? Or is that the “these people would link to you anyway” case?
Cheers,
Giles
Until 1938, Coelacanths (a type of bony fish) were assumed by all leading scientists to be long extinct. Fishermen in South Africa had however been bring them ashore in their nets quite regularly, and knew all about the fish. No scientist bothered asking the fisherman however, and it’s only when Marjorie Courtenay-Latimer (curator of an museum in East London) looked in one such net, that they found the fish were still alive in living in the seas. Of course, if Courtenay-Latimer had only looked in fishing nets from England, Newfoundland, or Mexico – she wouldn’t have found a Coelacanth.
The point of this? Not finding something is not particularly good evidence of its non existence.
Joel not finding any good affiliates for his product, doesn’t prove that there could never be any. Especially if he was not really fishing at all, or fishing in the wrong waters (wrong affiliate program), or not using the right bait (not paying enough commission).
Ask yourself this – if a leading wedding company – let’s say for example a major chain of department story with their online wedding lists – wanted to be your affiliate, would you want them as an affiliate?
Indeed, you can’t prove a negative. Try proving there is no god.
Unfortunately, hard data on affiliate sales is hard to come by. All I have is plenty of anecdotal evidence that most small software companies could find better things to do with their time. If you listen to Mike Dulin’s sharewareradio.com podcast, pretty much every interview he asks about affiliates and the response is almost always negative.
I did approach a major chain of department stores some time back. It quickly became obvious that they wanted to royally screw me. That was retail, rather than affiliate sales though.
Well, as Avangate was mentioned twice (once in the article and once in the comments) I will add my feedback – it’s not really impartial because I’m the Avangate Affiliate Manager.
Yes, affiliate marketing doesn’t work for everybody – especially if you sell B2B software (which is harder to sell with affiliate marketing – I think this is Joel’s case) or if product is not well known.
But affiliate marketing works for some. Think that you would have to bring all your potential buyers to your site: let’s say 1 million potential customers. Do you think that your site will be able to appear in all the searches of your potential customers? The answer should be: no…
Because they might be French and search for information on their local portals. A French affiliate could sell better than you could do in France. Or simply because people search for something that is long tail and your site doesn’t have it. Affiliates can help you with that as well.
Affiliates (the ones that sell of course) are really very good web marketing experts – they experiment, test and measure until they find the best way to sell your products, while the primary risk is theirs: if they don’t make the sale, they don’t get paid. Affiliates can make the sales where you can’t.
So let the affiliates bring you that extra boost of sales that you wouldn’t normally get. The trick is not to rely on the big mass of affiliates that don’t do anything for the sale but to find and work with niche affiliates – the ones that target a market where your sales could do better.
You can still use affiliate marketing principles without having to deal with outside affiliate marketers. Offer good discounts, monetary rewards, product access and training to your current customer base for referring or introducing your product to someone they know. The principle is same and your dealing with people that know and like your product. You may never know, one of them might have access to a huge audience.
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Marketing using affiliates works but, in my case at Regnow i have more of 500 relationships with affiliates but only one or two of them generates sales. But i’am not happy with his extended download service..
Affiliates are nice, although it does kind of stink giving up a large % of your profits. It’s still better than not having any additional revenue though.
-Jack
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When I had free affiliate registrations on shareit I had plenty of orders made with stolen credit cards ;), I guess it works because:
1. Carders buys my software
2. They gets 20% commision fee
3. Refund is issued but those 20% stays in carder’s pocket ;)
Hello Guys,
Here are my 2c as an Affiliate.
I KNOW it works, because I make good money with it.
I don’t only look for mass-market products with a proven track record, I might try out almost any product- it the product sells then I’ll devote more time and effort and grow a site(s) around it.
I might buy a product for myself, but only after I’ve had several sales and I want to dig deeper into the product/niche.
I don’t look for huge commissions, small commissions of products that sell regularly help stabilize my income, but of course larger commissions are always welcome ;-)
Running an affiliate program requires skills just like anything else, try hiring somebody fit for the job that knows what he/she’s doing and that will not only manage the existing affiliates and increase their individual sales through constant training and stimulation.
An affiliate manager will know where to recruit top affiliates and what policies the company should have with the program.
In all, give things a good try before saying it doesn’t work.
Affiliates always like popular softwares, for some professional software, is there anyone interested in?
i agree with zproject the more popular the software the better the results this is a fantasic post this is how articles should be wrote