4 myths of affiliate marketing

Visualize your perfect small business affiliate customer. Right now, these people you are trying to reach are on the Internet…but are they? How can you find those small businesses that have an affiliate program? Figuring out the answer to this question will require you to dispel some of the myths about affiliate marketing so that you will not repeat the mistakes of those who have gone before.

Myth Number One

"If I participate in an affiliate program, I will automatically get new customers without much expense."

This myth probably got started by some complacent Internet businesses who figured if their product could sell on the Internet without face-to-face contact with the customer, they didn't have to pay their affiliate very much to generate sales. It's understood when you purchase a product offline, "you get what you pay for." The same is true online.

Actually, a new trend is emerging. Good traffic is actually costing more because it is worth more. If you insist on going with cheap deals that will get you onto small sites, you will end up with less traffic.

So, the real response to this myth is both "yes," and "no." "Yes," with an affiliate program, you will get more customers coming to your site and you will have sales that you would not have otherwise had. "No," you will not automatically get these new customers without much expense if you do not know what you are doing. In fact, your ROI could really be diminished if you don't understand this marketing tool.

Understanding the basic principles of direct marketing will help you succeed.

• Make the right offer. The offer must be relevant and interesting to the affiliate.
• Obtain the right list. The list must be composed of responsible, trustworthy, and interested affiliates. (This is not as easy as it sounds. Finding online small businesses to become successful affiliate marketers for your product or service is one of the hardest tasks you will have.)
• Know the right time. For example, e-mails in August get few results because it is a dead time for direct marketing. You need to ask yourself, "What will my affiliates do for my product/service during the dead seasons?"Therefore, if you know when your customers buy, you have found an essential and often overlooked piece of the marketing puzzle.
  
  

Myth Number Two

"Performance-based marketing is risk free since I only pay for results (for sales the affiliate makes for you)."

All advertising has inherent risks, whether it is straight traditional media buys, or performance-based marketing. However, you actually have less control with performance-based marketing. The affiliates may be grabbing your links and promoting your products, but you have to ask yourself some questions to see if your decision to use a particular affiliate was a good one.

• What if the quality of their site is poor?
• What if my product is being misrepresented?
• What if the volume generated is higher than available inventory?

There are definite risks with this type of marketing. However, if you play an active role in the program, you can minimize all of these risks. Paying only when there are results is nice, but it will not happen without your input. Affiliates must do their part as well.

The best way to minimize risk is to handpick your affiliates, building an effective reseller channel. Performance works when the risk of both the advertiser and the affiliate are evenly weighted. You don't get that balance by simply posting a link on the Net and hoping for the best. You get it by taking control of your affiliates as serious reseller channels.

Myth Number 3

"Buying media based on CPM (Cost Per Thousand) is bad because it is risky. By opening an affiliate program I won't have to pay on CPM, only on CPA (Cost Per Action or Acquisition)."

The best response to this myth is, "It depends."

CPM can be risky if you don't know the metrics behind your media buys. If you know that an ad drives "x" number of new customers and it costs you "y" dollars to run that ad, you can easily determine if this meets your acquisition cost goals. In some cases and for some businesses, CPM is cheaper than paying CPA.

Smart affiliate program managers also buy CPM and then use their affiliate programs to benchmark deals. That way, when they strike those CPM deals, they know what results should be expected. It is one of the most powerful tools affiliate programs can provide.

The CPA advertising model can really be profitable when the relevancy factor between the merchant and the affiliate is excellent. It is also a good idea to use when the merchant has a very large inventory. Again, depending on your product or service, it could be the cheaper way to go.

People like to live in a black-and-white world in which it is either CPM or CPA. However, more and more top publishers are now looking for hybrid deals that include both advertising models. Smart companies know you have to live in both worlds, blending the risk on both sides in order to find the best solution for you, for the affiliate, and ultimately for your customer.

Remember, your affiliate technology should allow you to track your advertising metrics automatically to determine whether buying on CPM, on CPA, or on both is the right decision for your business.

Myth Number Four

"Success in affiliate marketing is driven by having thousands of mom-and-pop web sites promoting my products/services."

Certainly, there are many small web sites that will begin promoting your products. However, the key to success is finding a small number of partners who will drive large results.

For example, one financial services company has over 30,000 affiliates in its program, but 80 percent of the resulting revenue is generated by only 40 affiliates. This is a huge waste of time and money. Successful results are dependent on finding the right partners, big or small, that will drive results.

What is the formula for a successful affiliate marketing program aimed at small businesses? You need to create a system that generates performance for both the advertiser and the affiliate. To do that, you need to identify sites that will perform, and make sure you pay them enough to make it worth their while. Although it is not as easy as the mythology might suggest, if you do it right and get the right affiliate technology, you can rest assured you will succeed.