How much does it cost to set up an Affiliate Program

January 30, 2013

How much does it cost to set up an Affiliate Program

you are thinking about setting up an affiliate program? The first thing on most Merchants minds is, just how much will it cost you to set one up and maintain it?. Before I start giving you numbers, take a few minutes to think about if your website will facilitate an affiliate program. See a brief check list below.

Your website is consumer friendly – This means the following.
Clear navigation from any point of entry.
Clear delivery time lines.
Clear Shipping costs.
Clear returns policy.
Easy check out and consumer assurance about the security of their credit card details.
Clear privacy policy.
For the fashion sector, clear sizing charts, color description, material and if possible care instructions.
High quality images of the product (attention to detail)
Clear and concise product descriptions.
Location of the business and address, who owns the company.
Clear customer support contact details.

Ultimately, what are your current website conversions? This is the litmus test, if you already have a website and making transactions, your conversions will tell you if having an affiliate program is viable.
A poor converting website is just that, no amount of additional traffic or money will fix your conversions until you find out why your conversions are low.

How do you know if your website conversions are good or poor?
Here is a website conversion calculator widget you can use to help you but think about this, working out your conversion rate is a good step, what you really want to know is what your competitors are doing, use this widget then do some research on your competitors. Note when using this widget double click on the numbers, when the box goes black enter your numbers.

Next: What are your objectives in launching an affiliate program?
Most merchants would say, increase sales, this probably goes without saying but there are other objectives that seem to get overlooked. Affiliate Marketing can be broken down into sub categories based on types of affiliates and their specific expertise in a given area of marketing below represents the main groups of affiliates who will work on a revenue share basis.

The True Content Affiliate : Bloggers for example, good for search engines.
Incentive Affiliates: Coupon sites, Reward sites like cash back sites.
Paid Search Affiliate: Pay Per Click, example Google Adwords
Comparison Affiliates. Sites that compare prices on “like or same” products.
Social Networking Affiliates. Facebook

Example Objectives: I have a website that sells clothing, I have not retained a pay per click agency to run any paid search campaigns, I want to use paid search affiliates to do this. I don’t have a trademark and I am unknown. At this point I don’t mind if paid search affiliates bids on my website name. History shows us that by allowing some paid search affiliates to bid on the name, actually protects merchants from competitors.

My products are of good quality and my customer service, shipping time and price is awesome, if only my potential customers could try on the product, how do I translate this to potential customers? I may want to contact some true content affiliates and offer them a free product in exchange for a review. I may also set up a coupon code (Money off) for the product that is being reviewed.

My main objective is to acquire a new customer, it will cost me money to acquire a new customer but if my retention marketing is good, then Ill make my money back on repeat orders. So Ill use incentive affiliates and offer coupons based on first time customer orders.

I am selling skinny jeans, my prices are very competitive, I will use comparison affiliate sites and give the consumer more choice.

I have my own store in Facebook, we have hundreds of fans, I know facebook subscribers, if they saw us they would shop with us, Ill use social network affiliates so they can promote us and in exchange, Ill set up exclusive competitions for their fans, maybe a coupon to give to one facebook member to spend on my site.

The above is possibly how I would use my affiliate program if I was relatively unknown, I am not a brand if I have no sales. My objective here is to create and build my brand. If I was a know brand, then my objectives may change. I may not allow Paid Search affiliates to bid on my name or trademark. I may use incentive traffic but only based on new customer acquisitions.

Have a think about what setting up an affiliate program means to you and think about the long term affects and plan how you intend to work with your affiliates, the above are just examples and each program can be tailored to suit your needs.

I wrote the above in an effort to get merchants to have realistic objectives, goals and expectations.
In my entire career have I ever seen a few merchants go from zero to wow in just two months, an affiliate program should be seen as a long term marketing channel and the longer you have one the better it gets.

The cost of setting up an affiliate program varies wildly.
Rule of thumb, bigger does not always mean better, expensive does not always mean a better service.
Number of affiliates within an affiliate network is not the greatest selling tool as not all affiliates within the affiliate networks will join your affiliate program. This is where contacting us would be beneficial, we will give you impartial free advice based on your budget and or needs and of course, the beauty of contacting us, if you decide to use us to set up and manage your affiliate program, Affiliate Network set up costs for our clients decreases as the Affiliate Networks and APA (The Noise Farm Inc) have a good working relationship with most if not all.

Affiliate Network set up cost range from free to 10k
Affiliate Network override costs can range from flat cost per transaction but the norm is from as low as 10% override commission to industry standard of 30%, what is an affiliate network override commission?

Let’s say I set up an affiliate program and I pay the affiliates 10% on all referred sales.
Affiliates generate 20k in sales in the month of March, this means affiliates get 2k (Affiliate Commissions).
Lets say the Affiliate Network charges 20% override
Network override commission is based on an additional 20% of the affiliate commissions which was 2K
2k + 20% = 2.4 (400 is the affiliate network override commission) total paid out is 2.4 to get 17,600 in sales.

Some affiliate Networks also charge a monthly admin fee, some waiver their monthly admin fee based on sales volume you bring in. The low is no admin fee and high can be 1.2 k per month. Usually the admin fee is used to help support the merchant. In the case of recruiting an agency like ours, you already have the expertise and I would be haggling to reduce or waiver that cost.
As we work on a part revenue share, our cost is small and based mostly on our performance.

Next you need to look at your margins, can you afford an affiliate program?
Selling price take away cost price and multiply by 100 to get the percentage.
Once you have the percentage, you can work out how much you could feasibly afford to acquire a new customer.  An equally important metric to know is what is the life time value of your customer, meaning how many times do they or will they come back and buy from you? If you can work this out then your margins for acquiring a new customer will look better.

Affiliate Commissions, when deciding how much to reward your affiliates, look at your margins and factor in some leeway, example, if your default commission is 10% on all referred sales, you may want to pay some affiliates a little more, paid search would be one area where by the paid search affiliate is investing their own money and remunerated on a revenue share basis, they essentially are taking the financial risk.

Finally, I have to say that the position you are in is exciting, there is nothing like a blank canvas in which to start on a journey that not only helps your business grow but you will be learning new things about the industry, the people and most of all about your business and how it interacts with the world.

Enjoy and remember to have fun setting up your affiliate program J


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