Getting your products into people’s hands and generating new sales is tough as a new ecommerce business.
You’ve probably heard the term affiliate marketing thrown around, but with all of the different digital marketing tactics out there, it may seem a bit confusing or get lost in the shuffle.
Here’s the good news.
By starting an affiliate marketing program for your ecommerce store, you can quickly and affordably drive more traffic and increase sales from your online store. All while not paying a dollar up front.
Then you’ll want to learn more about affiliate marketing.
When you look at the stats below, it makes sense why many ecommerce brands are considering starting their own affiliate programs:
- 81% of brands use affiliate marketing programs.
- Approximately 15% of all digital media industry’s revenue comes from affiliate marketing.
- 38% of marketers call affiliate marketing one of the top customer acquisition methods.
- In 2015 Amazon’s revenue surpassed $100B and affiliate marketing accounts for $10B of its sales.
That said—what is an affiliate program? How can you get started?
First, let’s define exactly what this form of performance-based marketing is.
What is an Affiliate Program?
Affiliate marketing is the process of earning money by promoting another website’s products.
It’s a simple relationship between two websites: an advertiser and a publisher.
An advertiser (you as the ecommerce store owner) has products you want to sell, and a publisher (affiliate) promotes these products on their own site and earns a commission on every sale.
The ecommerce store owner can leverage another website’s influence, traffic, and expertise to generate sales for their business, and only pay after the sale is complete.
The publisher uses their influence and web traffic to make money from the advertiser.
They can earn a commission from on direct sales, but can also earn commissions based on a number of other actions taken on the website, based on their agreement.
Examples of Affiliate Program Payouts:
- Direct Sales. Earn a commission from traffic that drives a sale.
- Leads. Earn commissions on actions like email sign-ups, social media follows, form submissions, content downloads, etc.
- Clicks. An advertiser looking to generate a large amount of traffic might pay an affiliate on a cost-per-click basis.
What are the Benefits of Affiliate Marketing?
There are many benefits to pursuing affiliate marketing for your ecommerce site.
The internet has become a very collaborate place and the more websites you work with, the wider your reach and potential website visitors.
Here are some of the key benefits you’ll receive if you get started with affiliate marketing.
1. Everything is trackable.
You can view data on impressions, clicks, leads, and sales all in simple affiliate dashboards
2. Affiliate marketing has a strong return on investment.
One main benefit of affiliate marketing is that it is all performance-based, and you set the rules.
3. Affiliate marketing has the ability to scale.
In unison with your other digital marketing efforts, recruiting affiliates into your program will allow you to scale traffic faster.
4. It provides third-party validation and social proof.
By partnering with trusted influencers and high authority websites, you can improve your reputation and build consumer confidence.
It isn’t expensive to get started.
For many reasons listed above, affiliate marketing is very cost effective.
So now that you understand the basics of what affiliate marketing is, how do you start your own affiliate program? How can you leverage this type of performance-based marketing to drive more business to your ecommerce store?
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Things To Consider When Developing Your Affiliate Program
If you’d like to get started with an affiliate program, you’ll need to consider some key business aspects first.
You’ll need to research the competitive landscape, know your program’s goals and objectives, and calculate some key metrics to ensure you’re successful.
Here are the top six things you need to know to start your own ecommerce affiliate program:
1. Do competitor research.
Before you jump into the world of affiliates, analyze what your competitors are doing.
Make a list of your competitors and find their affiliate programs on Google.
You can create an Excel spreadsheet to keep track of their affiliate network of choice, commission payouts, incentive or bonuses, cost-per-action, and cost-per-lead.
You can even join their affiliate program to see what kind of emails, incentives, and bonuses they’re offering their affiliates.
For instance, if your competitor pays 10% per sale and you see his or her business on prominent review websites, you can match the commission and target those sites.
Many ecommerce sites offer commissions on product sales between 8 and 15%, so make sure you take margin into account while also being competitive, based on your industry.
If you have a limited budget, you can experiment with affiliates in different verticals, find affiliates that your competition does not have a relationship with, or maximize ROI with a few select affiliate partners.
2. Know your affiliate program objectives and KPIs.
After your competitive research, you need to set your objectives and key performance indicators (KPIs).
This will determine the type of affiliates in your program and your commission payouts.
Some common objectives could be:
- To increase site traffic by 15% month-over-month.
- To increase revenue by $10,000 by the end of the year.
- To increase average order value by $10 within two months.
- To increase conversion rate by 20% year-over-year.
Once you have a set of objectives, think of the metrics to evaluate your progress towards achieving your goals.
Some common KPIs include:
- Click traffic – number of clicks your affiliate program received over a given time period.
- Gross orders – total sales your program reported.
- Net orders – number of gross orders minus orders that were voided due to complications such as customers returning the product, cancelled orders etc.
- Commission – the amount you paid to affiliate marketers to promote your business.
- Top affiliates and their share of total sales – the top affiliate partners that are driving the most revenue for your affiliate program.
- Performance from each category of affiliate – the type of customers your affiliates are sending to your website. This includes the percentage of sales from coupon and loyalty affiliates, review sites, blogs, etc.
- Conversion rate – percentage of visitors who bought something from your site.
- Total affiliates – number of affiliate marketers in your program.
- Percentage of active affiliates – percentage of affiliates that drive clicks in a given period of time.
- Percentage of productive affiliates – percentage of affiliates that drive clicks and sales in a given period of time.
- ARPU – average revenue per order.
- EPC – earning per 100 clicks. This is an important metric which reflects the earnings your publishers receive per click to your site. Publishers like to see healthy EPCs to continue working with you.
If one affiliate partner drives 50% of sales for your program, then their departure could significantly affect your sales.
To avoid this scenario, recruit more affiliate partners to have a healthy distribution of affiliate sales.
3. Have a defined commission strategy
Next, figure out your cost per acquisition (CPA).
If it costs you $100 to acquire a regular customer, then you have to make $100 off that customer in order to break even, not including your gross margin.
A healthy affiliate return on ad spend (ROAS) is 3:1. So if you spend $100 on affiliates, you should make $300 in gross revenue.
Many ecommerce websites can run their affiliate programs at a ROAS of 10 or higher, as average commissions of 8-10% per order yield gross revenue 10-12.5x higher than the commissions themselves.
Okay, so now let’s discuss the formula for cost per acquisition (CPA).
This is the cost of acquiring a new customer.
Basically, you divide your affiliate spend by the amount of new customers gained:
(Marketing Spend/Customers = Cost Per Acquisition)
Let’s say that in your affiliate program you spend $10,000 and get 20,000 site visitors.
This means you spent about $0.50 per visitor.
If 5% of these visitors fill out an email popup and convert into leads (1,000 leads), then your cost per lead is $10.
If out of those 20,000 visitors, 1% convert into paying customers (200 customers), then your cost per acquisition is $50.
Coupling this data with your average order value (AOV), you can create a commission strategy in your affiliate program that takes into account cost per acquisition, conversion rates, cost of goods sold (COGS), and gross margin in order to come up with a percentage you can afford to spend.
4. Know your customer retention rate.
Your customer retention rate will play an important factor in the commissions you can offer.
With a high retention rate, you can afford to spend more in your affiliate program because the customers you gain will come back to purchase more.
In contrast, a low retention rate means that you need to constantly acquire more customers to stay profitable in the long run.
To determine the customer retention rate, determine the following:
- Number of customers at the end of the period – E.
- Number of new customers acquired during that period – N.
- Number of customers at the start of the period – S.
Once you have those, use the formula below:
CRR = ((E-N)/S)*100
Let’s say you started the quarter with 100 customers (S), you lost 10 customers but gained 50 customers (N), so when the period was over you had 140 (E).
Using the formula, calculate retention: ((140-50)/100)*100 = 90
You have a 90% retention rate, which is pretty high. Good job!
5. Know customer lifetime value.
The next step is to determine your customer lifetime value (CLV).
This determines the profit you gain from your average customer during the time they remain a customer.
To calculate CLV, you can use the formula below:
(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years)
Let’s say, you have an ecommerce subscription business and customers spend $15 per month for 2 years, then you’ve got this formula:
$15 x 12 transactions x 2 years = $180
This helps you realize that one new customer generated from an affiliate sale is really worth $180 to your business, not that initial $5.
Of course, this is a very simplistic overview, but you get the point.
If you want to get a more accurate overview, you can segment your customers and forecast the average customer lifetime of each segment.
You’ll also need to factor in predicted revenues, estimate the costs of goods sold (COGS), gross margin, and so on.
You can also use the Compass Revenue Report to calculate your LTV instantly.
6. Calculate your commission payouts.
There isn’t a specific formula for commissions.
If you generate a lot of sales from your affiliate marketing program and you can pay a 30% on product sales, then go for it, but keep in mind the previous factors we’ve discussed like customer lifetime value (CLV), customer retention rate (CRR), return on ad spend (ROAS), cost of goods sold (COGS), objectives and so on.
There are a lot of factors to consider, but don’t get overwhelmed.
If you’re not 100% sure what your commissions should be, ask others in your field and lean on what your competitors are doing to finalize your strategy.
That said—here are some of the tips you need to consider when determining your payouts:
- Don’t pay based on clicks or impressions. Affiliates will prefer CPM payments over CPA because it offers the lowest possible risk for them. Don’t fall for this. CPM does not always translate into sales and you might be spending a lot of money without real results.
- You need to persuade affiliates to choose your program. There are a lot of companies running high paying affiliate programs. That said—It’s your job to attract affiliates to choose your program through rewards, benefits and competitive commissions.
- Be generous with your affiliate partners. Don’t think, “How much do I have to pay my affiliates?”, but instead think, “What is the most I can afford to pay my affiliates?” These affiliate websites are your dedicated partners – you should treat them well, foster strong relationships, and pay them competitively. The higher the payouts, the happier your affiliates, and the higher your traffic and sales in the long run.
- Strong commissions scale your program quickly. To scale your program, base payouts on customer lifetime value with a ROAS of 3 or higher, not on one individual sale. You’ll be paying more initially, but will generate the most possible sales over time.
- Incentives affiliates with contests and promotions. Make sure to email your affiliate and reward them with higher tier payouts, contests, and bonuses to get them excited to promote you. This works especially well at fostering a good relationship when you’re first onboarding your new partners.
- Set up commissions based on your competitor analysis. Analyzing competitors is crucial because you need to identify the standards for your niche, the amount of commissions paid, and their strategies. Understanding your competitors will help you determine how to attract quality affiliates for your program.
- Start with an affiliate network. If you don’t know where to start, look at affiliate networks. They can take a cut of your sales or require a monthly fee, but can provide everything you need to run your program.
Common Affiliate Program Challenges
Now that you’ve set up your own affiliate program, there are still some challenges you should be aware of.
How do you recruit the right affiliates? Who will manage your program and what software will you use?
In this section, we’ll discuss the most common challenges and how to overcome them.
1. Recruiting the right affiliates.
The Pareto Principle (or the 80/20 rule), when applied to the business world, states that 80% of sales will come from 20% of your customers.
The same is true of affiliate marketing – 80% of sales will come from 20% of your affiliates.
So how you do you find the best affiliates that will contribute to those sales numbers?
A good tip is to recruit based on your business objectives and the affiliate’s potential.
You’ll want to analyze each website to view their potential. Here are some factors to consider when looking into an affiliate’s potential:
- Website traffic. The more traffic an affiliate can generate, the more potential sales they can bring you.
- Number of active campaigns. With an affiliate network, you can track the number of active campaigns an affiliate is running. The more, the better.
- Consistency with your branding. Does the affiliate website look professional, polished, and in line with a partner you’d like to work with?
- Affiliate verticals. If you are an ecommerce retailer selling housewares, look for affiliates in the home and lifestyle categories. Their audiences will best match those interested in your products and you’ll generate higher conversion rates and more sales.
- View the search landscape. If an affiliate is ranking highly for terms related to your products, they could bring in a lot of web visitors already looking for what you’re selling.
- Look for review and comparison sites. Affiliate sites that review products in your niche are a perfect target for affiliate recruiting. Comparison shopping engines can also bring in revenue by linking to your product pages.
To look into website traffic, use tools like Similarweb, SEMRush or Ahrefs to see how much organic and paid traffic each site is generating monthly.
Based on these numbers, can you estimate how many landing page visits your site will receive?
And finally, based on your site’s conversion rates, can you guess how many sales you will land from this website?
Remember, just because a website is getting 2 million visits/month, that doesn’t mean you will get a lot of traffic.
In fact, some sites that generate millions of monthly visitors may only be able to send you a few hundred clicks.
You need to know which landing pages you’ll be on and how long you will be on them.
Make sure to run individual landing pages through online tools to view page-specific metrics, and ask your partners how much traffic they estimate you will receive.
You need to evaluate their performance to understand which ones you’ll retain in your program.
With affiliate networks, you can view metrics like clicks, sales, spend, ROAS, and more. You can also build a Balanced Scorecard to rate them in terms of information, commission request, affiliate type, sales funnel, quality of traffic, volume, and traffic delivery speed.
Source: Smart Insights
Use these factors to find similar affiliates, or to offer even better incentives to your best affiliates to keep them around.
2. Find the right affiliate management technology.
How do you manage your affiliate marketing strategy?
Most businesses use affiliate marketing software or platforms to manage hundreds of affiliate partners.
The ideal platform should be able to aggregate orders from different vendors, collate different offers for affiliate marketers, set up tracking links and banner ads, and handle the administrative tasks.
There are a lot of affiliate platforms to choose from.
A good tip is to select a platform based on its quality of service and online reputation.
You can check out our affiliate marketing integrations to jumpstart your search.
3. Have someone to manage your affiliate program.
Choosing the right affiliate manager is a difficult process.
A successful affiliate manager needs to balance many different disciplines, including digital marketing, sales, relationship building, contract negotiation, account management, and web coding/HTML.
Experienced affiliate managers know how to build new relationships and maintain relationships with the publishers in their network.
You can have either an in-house affiliate manager or an outsourced program manager.
There are pros and cons to each approach.
An in-house affiliate manager is a member of your team that will understand your product inside and out.
They are dedicated to the affiliate program 40 hours/week and will handle the overall strategy, recruiting, onboarding, active affiliate management, email newsletters, finance, billing, and more.
Consider the chart below when deciding between hiring in-house and outsourcing.
Source: Consorte Marketing
4. Ensure you do not hurt other marketing efforts.
Affiliate marketing is only one piece of the puzzle.
Once potential customers reach your website, you have to maintain their interest through the following strategies:
- Focus on creating killer content. Write actionable blog posts and send newsletters to encourage people to return to your website regularly.
- Spice up your social media profiles. Encourage first-time site visitors to follow you on Facebook, Twitter, Instagram or LinkedIn.
- Craft an email list. If someone isn’t quite ready to buy a product on your site, make sure there is an easy way to let them opt-in for an email list. And make sure to offer them an incentive – 10 or 20% off their next order will have them coming back for more.
- Create AdWords ads and target site visitors across various online channels. Set up retargeting campaigns to site visitors. You can even set up retargeting based on people that visited individual category or product pages and send them custom banner ads. If you need assistance setting up a custom AdWords campaign, one of our DSP partners can assist you.
- Conversion rate optimization. Make sure you are providing your affiliates with the highest converting landing pages to send traffic to. The higher the conversion rate, the higher the earnings per click and revenue for your site.
Don’t forget that while affiliate marketers can introduce people to your business, it’s your job to guide them along the sales funnel and encourage repeat purchases.
Examples of Software to Manage an Ecommerce Affiliate Program
With a wide variety of businesses who work directly with affiliates, most businesses opt for software to easily manage and onboard affiliate marketers to their program.
Here are some examples of highly-recommended affiliate software options.
Once you’ve signed up, LeadDyno sets you up with your own Affiliate Website right away.
You can then receive traffic from affiliates and get your own hosted and customizable page where you can track customers, leads, visitors and AdWords campaign.
The best part?
Once you recruit new affiliates to join your network, they get access to their own unique affiliate dashboard.
This will contain all of the information they’ll need to promote your business.
LeadDyno offers a 30-day free trial along with setup plans from their team.
Their paid pricing options start at $49 per month for the starter package.
They also have a Biz Builder ($59 per month) and Accelerator ($79 per month).
The Affiliatly app can help you setup a fully functional affiliate program, where you can manage your affiliate partners.
You can use it to choose how affiliates earn money, manage affiliate earning percentages, pay affiliates quickly, view stats, and upload promotional materials (i.e. banners) that affiliates can use to market your business, among many other tasks.
They offer plans based on the number of affiliates you have.
These include Starter ($16 per month and up to 50 affiliates), Advanced ($24 per month and up to 200 affiliates), Professional ($39 per month and up to 500 affiliates), Pro 1000 ($59 per month and up to 1000 affiliates), Pro 2500 ( $79 per month and up to 2500 affiliates), Pro Unlimited ($129 per month and unlimited affiliates).
All of their plans have a 30-day free trial.
Refersion is a powerful affiliate marketing platform that you can launch in minutes.
Whether you want to connect with bloggers, influencers, or other websites, Refersion will help you recruit, track, and pay your affiliates in one easy-to-use platform.
They also have a setup guide that will help you get started with zero technical knowledge required.
They offer a free 14-day trial to test the benefits of their paid plans.
4. Impact Radius.
Impact is a well known and powerful affiliate marketing platform that enables global brands and agencies to work with media partners in a scalable way.
It features a fully-integrated suite of affiliate tracking and tag management options, media attribution, email marketing, and powerful analytics.
It can also track cross-channel marketing efforts and data insights to drive revenue growth.
They are a more expensive option but offer best-in-class features and support for a growing affiliate program.
Affiliate marketing can be one of the most cost-effective and scalable ways to make money for your ecommerce website.
You’ll be able to leverage the abilities of other website and influencers in your niche to promote your products, only paying them once they deliver results.
You’ll be able to grow quickly without investing a lot of money upfront.
Finally, you will generate more sales while being viewed as a trusted store on reputable third-party sites.
It’s a win-win-win.
To get started today, learn what your competitors are doing and develop a strategy based on your business goals.
Next, get familiar with the numbers behind your business, like customer retention rates and lifetime value, so you earn money out of the gate.
Finally, reach out to and recruit new affiliate partners, building real relationships with other website owners in a mutually beneficial way.
Want more insights like this?
We’re on a mission to provide businesses like yours marketing and sales tips, tricks and industry leading knowledge to build the next house-hold name brand. Don’t miss a post. Sign up for our weekly newsletter.
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