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What Does Good Affiliate Management Cost?

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I was reading a post from Greg Hoffman about Tips for Successful Affiliate Management today on Sugarrae.com and it got me thinking about merchants with poorly run affiliate programs and what it would cost them to hire a good affiliate manager, what they should pay, and what would qualify as “good”.

Rather than say “you should pay X per month” or break it down by an hourly rate, or anything like that let me approach it from a different angle: How much can a good affiliate manager save you and how much money are you wasting with bad management?

First we need a starting point. Just so we have some nice, round numbers to work with let’s say your affiliate program is generating $20,000 a month in sales. And let’s say you are offering a 10% commission. And let’s also assume that it isn’t being managed at all right now. With $20,000 a month in sales and a 10% commission that is $2,000 you are paying in commission and around $400-500 in network fees so let’s say $2500 is your affiliate marketing cost.

If your program isn’t being properly managed you can bet that there are some affiliates out there who are bringing no value to your program, who are poaching sales you already would have had, and are earning commissions on sales you would have generated otherwise. Chances are a big majority of your sales are coming from these affiliates if your program is on auto-pilot. Based on affiliate programs I have managed I would guess you are looking at probably $18,000 of your sales are coming from toolbars, low value coupon sites, and low value paid search affiliates if you aren’t currently managing your affiliate program well. Just to make it easy to do the math let’s say $6000 of your sales are from the toolbars, $6000 from coupon sites, and $6000 from paid search. The other $2000 will be from quality content sites, bloggers, review sites, affiliates with social followings, etc and these are the sales you want. Those numbers will be different in every program but in general it is probably fairly accurate.

Let’s break these down a bit:

1. Toolbars – These can work in various ways but 99.99999% of the time they add no value to your program. They hijack sales from other marketing channels, overwrite other affiliate cookies, and even set a cookie while someone is already in your cart. A good affiliate manager knows who these affiliates are and shutting them off will result in no drop in your overall sales but save you the commission you would have paid. That is a savings of $720 a month ($600 in commissions and $120 in network fees).

2. Coupon Sites – First off, coupon sites in general aren’t evil. Some of them can be very beneficial to your affiliate program (I would suggest only working with 5-10 of them) and in many cases can either help drive more sales or close more sales. But you have to know which ones to work with, know how to work with them, and pay them according to their value. Most of the sales from coupon sites come towards the end of the sales funnel. Someone has already introduced the customer to your site (in many cases your own marketing efforts or other affiliates), someone has informed the customer about your product, and someone has convinced them to buy. At this point the customer would go out looking for a coupon and in many cases come back to your site through a coupon site. The coupon site does provide some value since they helped close the sale but do they necessarily deserve the full commission? I would say no.

If your affiliate network provides good clickstream data (Shareasale.com does this) you can see that in many cases the affiliate cookie is set a very short time before the sale is made. If you know your site analytics and know that a normal customer takes 8 minutes or 5 minutes or whatever from when they come to your site until the check out and you see coupon sites setting the cookie 1 minute before the purchase you can determine that the customers they are driving are people that probably were already at your site, left to find a coupon, and then came back.

There are many, many different ways you can structure your commissions (especially in Shareasale with their Advanced Commission Rules) to mitigate these costs but still pay the coupon sites for high quality sales. A good affiliate manager will know what to look for and know the best way to structure these commissions. Once all is said and done you can probably save about 80% of your commissions you are paying coupon sites. So out of the $6000 in sales from coupon sites you can probably save 80% of the commission or $576 ($480 + $196 in network fees). Your sales will be about the same from the coupon sites but you will be driving the sales at a much lower cost.

3. Paid Search – If an affiliate is looking for easy money they can just bid on your trademarks and domain names, send the traffic directly to you through their affiliate link, and collect their commission. If someone is searching for your company name there is a good chance they already know about you and are looking to buy your products so the conversion rate is usually fairly high. But if you have done even the most basic SEO on your site you will already be ranking #1 for these searches so to have an affiliate poaching your trademark traffic doesn’t make sense.

That being said, you should be running your own paid search on your trademark terms. The traffic should be very cheap and it keeps your competitors out of that valuable screen real estate on the search results page. If you really, really don’t want to run your own paid search campaigns there are a couple quality paid search affiliates who can handle this for you. They can bid on your trademarks and also other keywords that can drive traffic and sales. But I only know of 3 that I would trust. A good affiliate manager should know who those 3 are.

For the sake of this case study let’s say you decide to run your own, very basic paid search campaigns. You can probably cut your costs in half so instead of paying $720 ($600 in commission and $120 in network fees) you would only pay $300 in advertising costs. That is a savings of $420.

So we have a savings of $720 from getting rid of the toolbars, $576 from properly working with coupon sites, and $420 from paid search for a total savings of $1716 in commissions you probably don’t need to be paying. Yeah, your sales through the affiliate program will drop but your overall sales will probably remain right about the same. Wouldn’t it make sense to pay a good affiliate manager $1,000, $1,200, or $1500 per month to properly manage your program rather than pay it to these low value affiliates?

And that other $2000 in sales? The sales from the quality affiliates? A good affiliate manager will be able to make that number grow over time. So along with saving $1740 in commissions and network fees per month they will be able to help your affiliate program generate new, quality customers for your business. This is where a good affiliate manager can really earn their money and where they can provide real value to your business.

If you are looking for someone I would consider a good affiliate manager drop me an email at joe@whatdoesjoethink.com or leave a comment below, give me a bit of information about your site, and I will recommend some to you.

Comments

  1. It’s also important for merchants looking for a manager to understand that all of these example numbers can vary depending on what it us you sell. Not all programs are equal, so when choosing an manager, make sure they understand your business and what kind of sales you want.

    Also, you can’t just hire a manager and say “Here – make me more money”. You need to be willing to work with that manager, cooperate with their suggestions and keep them in the loop with your other marketing efforts as a whole company. Be prepared to lose some money at first when the manager cleans out those bad affiliates – it’ll be worth it in the long run :)

    • Every merchant would need to look at their own numbers, their own goals, and figure out what what works for them.

      But what to realize is the merchant really won’t lose some money at first. The affiliate program will but those sales would then be properly attributed to other marketing channels. So the drop in overall sales should be minimal.

  2. Joe, you did a great job. Thank you.

    It usually takes me about 3 months to revitalize a program and start showing real growth. My numbers show a drop anywhere from 30% to 50% immediately when removing toolbars, bad couponers and trademark poachers. If it was going to be as much as 80%, I might phase in the cleansing process for a longer term strategy.

    • I would agree you don’t want to go in and clean house in the first week. A 3-6 month cleanup and then another 3-6 months of heavy recruitment seems like a good way to go.

  3. Great article Joe, it definitely goes to show that working with the right people matter. I’ve never really been on the management side of it, although I’ve been contemplating it, but this is also valuable info for affiliates to understand a little better how managers work. Nice work on this.

  4. As a coupon site owner myself I appreciate this article. From my perspective, a good affiliate manager helps level the affiliate playing field by removing incentives to be unethical. That encourages ethical affiliates to do more and push your program harder. It’s great to be a trusted coupon partner for a retailer and know we are working together in an environment of trust.

  5. Joe,

    You are right on, but just as important, you did an excellent job of illustrating the plus sides of working with legitimate affiliates, couponers, ppc, and search. Thanks for sharing your thoughts!

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