Performance marketing is a comprehensive term that refers to online marketing and advertising programs in which retailers and service companies pay a commission to publishers (also known as affiliates) when a specific action is completed, such as a sale. With traditional display advertising, advertising fees are paid up front and do not depend on a specific transaction taking place. With performance marketing, since advertising fees are only paid upon completion of a sale or lead, it is the most measurable way to tie marketing program costs directly to results.
THE BENEFITS OF PERFORMANCE MARKETING
It’s trackable and measurable. In performance marketing, advertisers and marketers only pay for successful transactions. Each transaction is based on a consumer taking a defined action, such as making a purchase from the advertiser or signing up for a subscription. Instead of spending money to advertise your product via traditional media and not knowing if those ads generate sales, you will be able to track every click. Department store magnet John Wanamaker once said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” That is not the case with performance marketing. The trackability of performance marketing isn’t based on estimates. It’s based on actual results — meaning that a marketing program’s effectiveness is accurately determined, down to the mouse click.
Performance marketing extends your advertising reach. You will essentially have an army of website publishers that will promote and market your brand, products and services. Many of these publishers have reach into very specific niche markets that you do not. You may find that sales are increased when your message is targeted to specific groups and vertical markets. For example, an affiliate could have a site targeting stay-at-home moms, giving your products exposure to their loyal users, and attracting sales in a market you might not consider.
It helps diversify your revenue stream. Instead of simply relying on your existing sales channels you will have another method for generating revenue. This can be valuable in tough economic times – especially if sales begin to lag in other channels.
Affiliates add innovation and creativity to your marketing. Affiliates are aggressive and very creative. Remember, the more traffic and sales they drive to your business, the more commissions they earn. So, they are willing to try new methods that your company may not have the time or resources to leverage. Affiliates are quick to jump on new trends such as using social media campaigns. They are also often more nimble and can launch a new campaign in just a matter or a day or two, whereas it might take your company weeks to coordinate the effort.
IS YOUR BUSINESS READY?
The benefits of performance marketing are undeniable. However, it requires a certain level of commitment and there are some other things about your business to consider before you start a program.
What kind of business do you have? Nearly every type of advertiser can benefit from performance marketing including those selling computer and electronics, accessories, home and garden, travel, financial services, automotive, internet service providers, dating services, software developers and much more. However, performance marketing is most effective with direct response campaigns because it incentivizes publishers to drive consumers to take action. It is not appropriate for branding campaigns or…
You should be selling products and services to a national audience. If you sell products only locally, affiliate marketing may not be for you as affiliates tend to have a national audience. The Internet has no geographic boundaries!
You should have been selling online for at least a year. Starting any performance-based initiatives will be much easier if your company has an established presence and systems in place to deal with e-commerce and transactions.
Your company needs to generate at least $50,000 per month in online sales. This is not a hard and fast rule, but the start up costs for a performance program will put less strain on company finances if you already have a steady revenue stream.
You need to be active already in other forms of online advertising. If will be very helpful if your company is already familiar with other forms of online marketing and advertising such as SEO (Search Engine Optimization), PPC (Pay Per Click programs such as Google AdWords) or CPM. Starting totally from scratch increases your learning curve and the can delay your return on investment (ROI).
Your site should have a secure shopping cart and a return policy and guarantee.Affiliates will invest in marketing your company and products if they are sure their consumers have trust in making purchases from you. If these elements are in place, the task of adding affiliates into the mix will be much easier. It will also streamline the process of setting terms of service for affiliates when you have set policies and procedures.
You need technical development resources. The ability to set up tracking, data feeds and online ads are required to integrate with affiliate networks. You must be able to track a consumer on your site and provide relevant information back to your affiliate network, to compensate your publishers.
SHOW THE VALUE
If affiliate marketing looks like a good fit for your company based on those factors, then you need to set up your program for maximum results..
Look at similar programs. You’ll want to see if your competitors have an affiliate program. Also look at companies that are similar in size to your company – even if they are not in your market. Evaluate what seems to be working in those programs and consider how to emulate their success while adding value for your company.
Determine how the program integrates with other company initiatives. Affiliate programs don’t only generate another stream of revenue, they can boost other marketing initiatives such as advertising campaigns launching a new product. Performance marketing programs can also help you gather valuable feedback to improve customer service, product delivery methods, the user shopping experience and future product development. But keep in mind that the best use of a performance marketing program is to drive results, such as sales leads. Your company must have the proper expectations.
Project the Return on Investment (ROI). You will need to have a very good idea of what the overall costs will be and how much your company will get in return. Have a very realistic budget ready. See the next section on important considerations to build a realistic budget, to set your program up for success.
THE COSTS AND SETTING A BUDGET
In order to sell an affiliate program to the executives in your company, you’ll need to have a good understanding of what it will cost to start a program, so you can set expectations on the returns your affiliate program will yield. There are a variety of elements you will have to factor into your start up plans.
What additional technology is required? You must determine if you need additional servers to handle an increased traffic load. Will you need to update your backend ecommerce system to handle affiliate sales? Do you have technical resources who can add tracking pixels to your checkout pages, and test your tracking? Can you create data feeds if you have multiple products? Do you have an email program that can accommodate increased communication with affiliates and customers?
Will you need additional personnel resources to start and run the program? There are a variety of pieces that need to come together from other areas of the company. Do you have a designer in house that can create ads for your affiliates? Can your current search team handle the additional work? Will you need to hire a program manager or hire an outsourced program manager (OPM)?
How much is the cost to promote and market the program? You will need to get the word out about your affiliate program. Are you going to buy media or advertise to promote the program? How much will it cost you to recruit affiliates?
How do you set commission rates? You will need to determine how much you are going to pay affiliates. Fair compensation can directly lead to more sales. You might also have a secondary goal, such as building a loyal affiliate base. Determine the real cost of reaching your goals, and draw up a marketing budget. Put extra money aside to reward your top affiliates.
What are the costs of signing up for a network? Each network has different fees for signing up. They all offer most of the same basic services – tracking, payments, affiliate recruiting, etc., but there are additional fees for other special services. Networks can charge their fees based on percentage of publisher commissions paid out, or a percentage of sales you will generate through your affiliate program. You’ll need to do your homework and get quotes from the networks that can best serve your needs.
What additional strain will this put on the company? Setting up an affiliate program requires several thousands of dollars, including setting aside funds to guarantee publisher commissions. Evaluate the financial health of your company. Can it afford these additional costs at this time?
Can your company make a long-term commitment to the program? It takes about 6 to 9 months to get a program really firing on all cylinders. Can your company make a one- to two-year commitment to sticking with the program? There’s no point in launching a program and having the plug pulled after 4 months.
GETTING EXECUTIVE BUY-IN
Once you have all the costs and the budget worked out you will need to take the important step of selling this plan within your company.
Figure out the stakeholders. It’s likely you’ll have to get sign off from your boss as well as your boss’s boss. Identify all the constituents that will be impacted by the new program – the CEO, CFO, the COO, the director of marketing, the IT department, and the creative departments. No colleagues like to be surprised by a new plan – especially if they had no input. That can often result in push-back and resistance, and derail the program’s success.
Present the information in a way that is meaningful to each constituents’ needs. In order to sell this project, you’ll need to present your proposals in a way that speaks to each of the stakeholders. If you are attempting to convince the CFO, you might want to focus on ROI and bottom line returns. If you are speaking to the director of marketing, focus on how it will boost other marketing efforts. If you are dealing with the technical focus, talk about the process and how the specific details will impact them. Gearing your pitch to each stakeholder will help get them onboard.
Have a clear idea of costs. Make sure you have a crystal clear idea of what this overall program will cost. Realistic projections are always best. But don’t forget that, with performance marketing, your costs can be precisely measured and tied directly to results.
Don’t over estimate returns. Performance marketing can be a huge boost for companies, but don’t over hype or oversell the program. If you are unrealistic about the ROI, you might find the company pulling the plug if you don’t make your numbers very quickly. It takes time and patience to get things right.
Get buy from your boss and use that to leverage other higher ups. If you can convince your boss or someone at the executive level to be an advocate for the program, you’ll have more success getting buy-in for other executives. An executive or manager may have more influence with other executives and may also be privy to other factors about the business that you weren’t aware of or hadn’t considered.
Once you have all the pieces in place, you’ll be on your way to launching a successful performance marketing program.
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