Back in the day, when I was green to the world of affiliate marketing, a large telco provider that will remain unnamed, regularly started their affiliate program every month, only to stop halfway through. Why? Because somehow, despite their agency’s best intentions, could not seem to secure enough budget to last a full month of paying commissions.
Worse still they were running this on a monthly budget basis.
This stop/start continued for over a year with affiliates regularly complaining on open forums. The result: They never hit the estimated ROI.
Fast forward 10 years or so and although to my knowledge no one operates on a monthly budget anymore, there are still retailers out there that operate on a fixed budget for their affiliate program. Especially, and perhaps ironically, this is more prevalent in the US with large blue-chip companies.
This shows in the numbers too. A client operating on a fixed budget observed a -4% decline in Q4 in 2017 vs Q4 in 2016. Meanwhile, a client with an open budget observed a +151% increase in the same period (Q4 2016 vs Q4 2017).
However, if the fixed budget has been delivering great results for you, you can stop reading now!
With a channel that prides itself on delivering revenue at a fraction of the cost of say PPC, why would any marketing team want to run the risk of limiting sales by operating on a finite budget?
Isn’t that akin to, in the offline world, a store like Argos or John Lewis closing down shop at 3 PM on a busy Saturday afternoon quoting ‘hey, thank you for your custom, but we have received enough sales for the day and cannot afford to pay more commission to our shop floor personnel’.
Doesn’t sound quite right? But that is exactly what it is like.
Affiliate marketing is a cost-of-sale channel and should be treated as such – and the sooner a retailer’s e-commerce and finance team start working more closely with the marketing team – the better for all, as likely the channel will be budgeted for properly.
Of course, retailers may still want to place a budget for media placements, newsletter inclusions and the like into a fixed tenancy budget pot, but the core commissions on sales driven should always be funded from a cost of sale ‘unending’ pot.
Some of the most effectively budgeted affiliate programs work in this way. One retailer I have worked with was able to secure extra funds from their finance team for ‘tenancy’ activity, once the allocated yearly pot had been depleted and they saw there was an opportunity to drive additional revenue.
Retailers – let’s be ambitious here – you wouldn’t want to short-change your best salesperson. Your affiliates are your best salespeople online, and on whom you earn a chunky ROI to boot.
Neither is it something to be proud of if you reduce costs but it’s at the consequence of losing revenue and share of voice.
Quite a few times recently I have come across resumes of individuals who have managed retailer affiliate programs, and they cite ‘reducing the cost of the channel by x’ as a crowning achievement.
No Marketing Director is going to care about this if it has been to the detriment of losing share of voice, new customers and revenue.
Worse, it starts to impact scaling potential – so if targets double or triple for 2019 or 2020 and a retailer has been busy reducing commissions, or has stopped paying commissions on certain items, or is operating on reduced tenancy budgets – then they will have a hard time hitting the growth targets.
Affiliate marketing, like any good investment opportunity, yields what it reaps.
Retailers, please make sure you are investing in this strong channel adequately, and you will find the dividends are rich.
Go forth and multiply!
If this has made you think twice about how you are budgeting for this channel, here are some tips on how to scale this:
- Ask your account team ‘if we want to double or triple our sales this year what do we need to do, assuming budget is not an issue? ‘
- Task the team to give you a plan, and you may be surprised at how many opportunities you will get based on there being ‘no barriers’
- Rate them in order of feasibility versus revenue impact – you want to get to High Impact and High Feasibility – that’s the golden duo rating.
- Place deadlines to implement against each, secure the funding for these internally, then test and learn constantly.
- The investments that pay off keep investing – the ones that don’t initially, park and revisit at key trading times throughout the year.
- By year-end you should end up with a whole batch of learnings and some great incremental revenue!
Get in touch today to find out what Webgains can do for you and your business!