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:
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.