Financing an affiliate program
Affiliate marketing isn’t cheap, its not just about paying on a cost per sale or CPA. Ultimately a merchant should look on affiliate marketing as business partnerships, where the merchant is the supplier and the affiliate is the distributer. Put simply, the merchant has products and needs customers; affiliates have potential customers but need products to sell.
Many networks and agencies will have you believe that affiliate marketing is as straight forward as pay on results, however if you consider the various aspects of an affiliate program you’ll realize there are some hidden costs.
lets go over the basics -
1. commission – this is the amount that will be paid to the affiliate in one of three models – fixed fee, percentage of sale, or percentage of lifetime value of customer.
2. override – typically, networks will charge an override, a commission of the commission, this is usually 30% of the commission, so if a product is £100 and commission is £10 then override would be £3, and the total cost for commissions to the merchant would be £13.
3. Fixed fees – both networks and agencies charge fixed fees, typically if you use an affiliate management agency the fee for a network will be lower or cut altogether. Fees range from £1000+ a month and are very much dependant on the campaign and the level of management needed, whilst this is can be an expensive cost what you are paying for here is the expereince, planning, reporting and management that will make all the difference to a new affiliate program.
4. affiliate incentives - whilst not an obvious cost, this needs to be budgeted for and can be expensive, when setting up an affiliate program you should have some budget to allocated to creating incentives for affiliates this will greatly aid affiliate management.
5. consumer incentives, typically merchants will already have allocated for this, if not, this should be considered as part of the planning for an affiliate program.
asides from these costs you’ll also need to factor in the costs for techinal team and creatives, both of which are required as part of any affiliate program.
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