June 18th, 2010 by Pete Stevenson
The promise of guaranteed ROI sounds enticing to many small businesses – especially cash strapped start up operations. Why invest in advertising up front when you can fund your campaigns by paying out commissions only on customers and revenue you’ve received?
Unfortunately, Affiliate Advertising isn’t necessarily cheap, easy, or free to start and is best utilized by experienced, profitable businesses with proven sales systems and extremely effective advertising promotions.
Here are a few questions to review to find out if affiliate advertising might work for your business:
Does your product or service produce a large gross profit?
Affiliate advertising may offer a guaranteed ROI but you still need to offer a competitive commission to attract advertising partners. On top of the affiliate commissions, you will need to cover the costs of creative development and affiliate network fees. To create a profitable and scalable affiliate advertising system, you will need to either have a high profit margin, high sales volume, or a high repeat purchase and customer retention rate.
Does your website convert leads and sales efficiently?
It doesn’t matter how much you offer to pay affiliates for sales if your website doesn’t convert. Affiliate partners monitor their ROI just as closely as you do and if your website can’t close sales efficiently, you’ll have a hard time finding anyone willing to feature your advertisements. Improving your website conversion rate is the most effective way to improve your affiliate advertising program profits. Affiliate partners are more willing to run a campaign that offers a lower commission rate if the conversion rates are higher. As long as the affiliate partner generates a higher gross income, it’s a win-win on both sides.
Do you have excellent brand reputation and customer service?
No affiliate partner likes to see order cancellations and refunds negatively impacting their commissions. And large volume of affiliate advertising is driven by reviews and recommendations by the affiliate partners. Affiliates are less likely to risk their business reputation on brands with unusually high customer complaints.
Do you have the ability to efficiently and accurately track affiliate partner sales?
Are you able to provide online tracking for all affiliate sales activity? If you have a retail store or call center, are you able to accurately track phone and walk-in sales? It doesn’t matter how good your promotion and commission offer is if you can’t accurately give credit to your affiliate partners.
If you are unsure of any of these questions, we can work with you hand-in-hand to evaluate your business model, establish some small scale advertising tests, and put together a plan to build a successful affiliate advertising program.