Today, on October 19 2011, at 3:00 pm UK time — or right after finishing their It’s All in the Data panel discussion which finished literally 40 minutes ago at a4uexpo London (nice timing!) — Econsultancy has released its UK Affiliate Census 2011. They haven’t had one out since 2009; so this one has certainly been long-awaited-for.

I was honored to be invited to contribute my thoughts to this important annual report. And in my today’s post I’d like to share them with you, highlighting the three things I chose to comment on, and giving you a snapshot of the things the report addresses:

Most Important Promotional Methods

Regardless of the growing popularity of mobile, social, and retargeting, it is good to see that content is still king; and the two most popular promotional methods are content-related (both self-made and user-generated content). As an affiliate program management agency we see much of the same — most loyal and targeted customers come through content affiliates.

Main Reasons Why Affiliates Drop Merchants

I’d like to thank affiliates for pointing out one of the major problems of this relationship. Somehow many merchants believe that they can drop commission or change their payout structures as they please; often without notifying affiliates at all.

The two most widely-spread reasons for dropping a merchant are ‘found a better merchant’ (34%) and ‘Commission structure changes’ (17%). Often these are closely interconnected. Merchants must understand that when hundreds of affiliate programs are competing for the attention of one affiliate, it is the affiliate who will win; unless the merchant stays truly competitive and attractive.

Popular Sources of Information on Affiliate Marketing

It is still imperative for affiliate networks to spend more time on putting together quality, educational materials (comprehensive knowledge bases, webinars, how-to blog posts and videos, etc) to help affiliates succeed.

The full 61-pages report is available for purchase via Econsultancy’s website here.

For further insight into the present-day UK affiliate market, make sure you also check out the results of Bigmouthmedia‘a Affiliate Survey 2011 (released earlier this week): infographic/overview here & full 6-pages report here.

The September 2011 issue of Website Magazine — which was distributed to every Affiliate Summit East 2011 attendee just a few days ago — has an interesting article where Peter Prestipino, the magazine’s Editor-in-Chief and good friend of mine, analyzes the affiliate marketing industry in light of data from 2011 AffStat Report released earlier this summer. It’s a solid article, but there’s one thing in it that I do not agree with. On pages 32-33 we read:

High Turnover Plagues the Industry

Know at the outset that affiliate marketing is difficult. Perhaps the most disconcerting aspect of the report is that the turnover is unusually high.

Forty percent of affiliate marketers have been involved for less that three years, and 32 percent have been involved for four to six years. That, of course, leaves 28 percent that have been involved for seven years or more.

A highly critical analyst might predict that the chances of success are low with such a rate of turnover. But for those who have achieved some success, they stick with it as the returns are measurable and can be extremely positive.

I would disagree with that analyst. So we see:

• less than 3 years — 40%
• 4-6 years — 32%
• 7 years or more – 28%

Per a 2008 study by JupiterResearch, affiliate marketing was expected to grow “at a compound annual growth rate (CAGR) of 13 percent” between 2007 and 2012 [source]. Its revised version, which was published by Forrester Research in Fall of 2009, forecasted “the affiliate marketing industry to grow from $1.9 billion in 2009 to $4 billion by 2014″ [source]… And the industry has been developing this fast not only in the recent years. Back in 1994 out of mainstream online retailers it was only CDNow.com that had an affiliate program. In July 1996 Amazon.com started theirs… Today nearly all online retailers from the Internet Retailer’s Top 500 list have affiliate marketing programs in place. And looking just at the top affiliate networks we see around 20,000 affiliate network-based programs with hundreds of thousands of affiliates involved… No, the above stats isn’t implying high turnover rates — while, of course, there are both affiliates, and merchants who try it and drop it; but in most cases I tie this to their own approach(es) — or low chance of success. It’s more or less mirroring how the industry has been developing over the past 7-10 years.

Whether you agree or disagree with the above, I’d love to hear your thoughts on this one too. Please use the “Comments” function below to add your take on this.

Typically, yield is being used as an investment term that reflects a return on investment (ROI) normally expressed as a percentage, and tied to a period of time. Since ROI is what affiliate marketing is all about, a week ago I asked merchants to help me determine the yield (or percentage of sales) that their affiliate marketing programs bring in (as compared to the overall online sales in the company).

We’ve had 35 merchants participate (thank you very much for taking the time, as it will help others get a better understanding of what to expect), and here are the results of that poll which has closed earlier this morning:

We can see that the spread is pretty wide. It seems to me that splitting the votes into 4 groups would make the above pie-chart a bit more digestible:

1. Low yield (under 8%) — 40%
2. Moderate yield (9%-15%) — 29%
3. Moderately high yield (16%-35%) — 21%
4. High yield (over 50%) — 11%

Conclusions? I’ll take a stab at drawing some:

1. As initially stated, much will depend on the size of your online business, and the sales volume it generate(d)/(s) before the introduction of the affiliate program.
2. Also, as stated before, merchants operating in some niches (less crowded ones, more online-friendly ones, etc) may see a better yield (from affiliate marketing) than others.
3. The yield will also be greatly conditioned by your affiliate program’s T’s and C’s (some programs choose to exclude certain groups of affiliates [e.g.: PPC, couponers, incentive sites, etc], others auto-decline affiliates on one reason or another, and so on).
4. Finally, the results of any affiliate marketing campaign are always directly dependent on the amount of time, money and effort the business invests in the development of their affiliate program.

In a nutshell, an array of situational variables will determine the outcome, and no, there is no easy one-size-fits-all answer to the question of what to expect. I stick to my original answer: aim at least at the 15%, and strive for more; but don’t expect much unless you’re closely involved in the development of your affiliate program (read: manage it! don’t leave it on a cruise control).

If anyone has other (complimentary or even opposing) views on this subject, I would appreciate you expressing them via comments under this post. Many thanks in advance.

Over two years ago replying to a question of what percentage of sales an affiliate program can bring I wrote:

Much depends on (a) the size of the business at the point of starting the affiliate program, and (b) the niche in which the business operates. In reality, it is next to impossible to quote the exact percentage. If it’s a small business in a moderately crowded niche, 40-45% is a realistic growth to expect. If, on the other hand, it is a Fortune 500 business with a solid online presence and a good flow of Internet sales prior to starting the affiliate program, a 10-15% growth is a great result to achieve through the affiliate channel.

Yesterday, as I was listening to Ozon.ru, one of Russia’s top if not the top online retailers or the Amazon of Russia, present at the Russian Internet Forum in St. Petersburg, I’ve heard them quote some impressive stats. Regardless of the fact that roughly 80% of their customers choose cash-to-courier as their payment method (the “beauty” of present-day Russian e-commerce), they’re growing and currently getting some 4 million UVs, carrying 1 million products, having 1k employees, and registering gross sales of some 4 billion RUB (which currently equals some 143 million USD)/year at a rate of ~6,200 orders/day. Answering the question of of what percentage of their sales come referred through affiliates, one of Ozon’s directors, Anna Matveeva, replied that between 10% and 13% of the e-tailer’s sales are affiliate-driven. That makes up a range of $14.5-$18.6 million/year which is impressive not only for Russia.

I’ve asked some major American online merchants the same question, but most of them sent me replies saying “sorry, we’re not able to share that information” or something along similar lines. DaySpring.com, a Hallmark subsidiary, whose affiliate program we manage, did agree to share their numbers though; and I’m happily linking to all of their online properties, in return. Jesse Lane, the company’s Internet marketing director, shared that Year To Date 2011 numbers have been 12% to 14% of all online store sales. This seems to roughly match the range that Ozon has quoted above.

If you’re reading this as a merchant (or an affiliate program manager), I could really use your help now. Here’s a 100% anonymous poll that I’m inviting you to participate in:

I hope the above poll will help us all understand what part of an e-tailer’s sales can be affiliate-driven a bit better. Many thanks in advance for your votes.

In case you haven’t yet heard, Affiliates4u.com has released its 2011 “Performance Marketing Guide”, and I’ve just picked up my copy.

It is an impressive 143-pages-long reference book on all things performance marketing, and the best part of it is that it’s available for a free-of-charge download (so, it’s an eBook of a kind).

On the first 60 pages of it, the Guide gives the reader an overview of Search Marketing, Mobile Marketing, Display Marketing, E-mail, Social Marketing, and Behavioural Retargeting.

Naturally, the largest part of the Guide is devoted to Affiliate Marketing. In it, the authors discuss different types of affiliates, affiliate networks, commission types, role of cookies, product feeds, and much more. There are plenty of examples, case studies, and up-to-date statistics that you don’t want to miss.

The part in the “Affiliate Marketing” section that I’ve appreciated the most was the “Analytics” part. Web analytics is an area that deserves significantly more attention that many affiliates and merchants currently devote to it. The authors of the Guide outline 4 processes and objectives of web analytics: (i) data gathering, (ii) identifying business goals, (iii) understanding your visitors and their intent, and (iv) making actions based on factual data [p. 122]

Here’s an excerpt from this part:

When it comes to performance marketing, wheather you are on the advertiser or publisher side, data analysis is essential to working well with the other party and producing the best results possible. Performance marketing is a win-win situation… but making it work well requires a lot of in-depth analysis and once you… have started tracking the visitors who are converting, you will need a program which will let you drill down the data to establish what people are buying, when they are buying it, where they are buying it from and how much you are paying out versus how much you are making. [pp. 127-128]

If you haven’t downloaded your copy of the Performance Marketing Guide yet, you may do so here. It’ll be worth your time. I’ve really enjoyed it.

On Tuesday (November 2, 2010) LinkShare affiliate network announced its Q3 2010 progress and highlights:

LinkShare in Q3 2010

…more than 110 new advertisers joined the LinkShare Network in the third quarter of 2010, an increase of 25 percent compared to the same quarter in 2009. More than 1,000 advertisers are now part of the LinkShare performance marketing network as the company continues to outpace e-commerce growth. Sales in the LinkShare Network were up more than 30 percent in the third quarter of 2010 compared to overall e-commerce growth of nine percent. [source; underlining mine]

Yesterday (November 4, 2010) ValueClick Inc, owner of Commission Junction affiliate network (LinkShare’s main competitor), has had data on its Q3 results published as well:

ValueClick & Commission Junction in Q3 2010

ValueClick Inc. reported $106.8 million in total revenue for the third quarter, up 1.5% from a year ago, when revenue was $105.2 million. Revenue for its owned and operated web sites, however, declined 13.5% year over year to $35.9 million.

…The company’s affiliate marketing segment, which includes Commission Junction fared better. Affiliate marketing revenue was up 13.3% from $26.3 million a year ago and contributed $29.8 million to total revenue during the third quarter. [source; underlining mine]

Three main points stand out for me:

1. Close to one-third of ValueClick’s Q3 revenue came from its “affiliate marketing segment”
2. While ValueClick saw a third quarter decline in revenue from “its owned and operated web sites”, the decline didn’t affect Commission Junction, which, on the contrary, grew.
3. While LinkShare hasn’t disclosed the actual revenue numbers, it’s quarter-on-quarter Q3 2010 growth seems to be considerably more impressive than that of Commission Junction (~30% vs 13.3%)

Related post:

• LinkShare vs ValueClick in Second Quarter 2010 Results

Last month Enconsultancy released its “Affiliate Marketing Buyer’s Guide 2010″. This 140-pager “provides details on the issues and trends affecting this £4.6 billion sector, as well as information about best practice and tips for choosing a suitable supplier”, and today I have finally found some time to browse through it.

The Guide can be roughly broken down into 5 sections: (i) The Market, (ii) Costs & Pricing Models, (iii) Tips & Pitfalls, (iv) Network Market Positioning Charts and Network Matrix, and (v) Network & Agency Profiles (where “network” stands for an affiliate network, while “agency” for an affiliate marketing and program management agencies). The latter section occupies over 64% of the report (90 of the 140 pages)

Three charts have caught my eye:

First of all, there is a chart that shows the overall growth of the UK affiliate marketing industry over the past 7 years.

– 1 –

2004-2010 Growth of UK Affiliate Marketing

Econsultancy has pointed out that during all these 7 years “the valuation for the affiliate marketing sector … underestimates the total value of affiliate marketing, because it does not include sales value outside the online shopping basket.” However, since “substantial commissions within the affiliate marketplace are based upon leads,” those should be included in the above calculations too.

The Guide also points out that “although the overall percentage of online retail sales driven by affiliate marketing is 8%, for many ‘blue chip’ merchants, particularly in retail and travel, this figure is much higher” [emphasis added by me].

Secondly, two network market positioning charts do a good job visualizing the situation with UK affiliate networks: their business models, as well as their sizes and focus:

– 2 –

Business Model Chart – UK Affiliate Networks

Looking at business models of eight major UK affiliate networks, Econsultancy has come up with the above chart where the vertical axis “charts to what degree the network has a focus on services versus focus on technology”, while the horizontal axis shows whether the network “is exclusive an affiliate marketing network” or if they are “part of a broader suite of marketing services” available to merchants.

– 3 –

Size & Focus Chart – UK Affiliate Networks

Here the vertical axis “indicates the number of merchants” on the affiliate network, while the horizontal one “charts whether affiliates are focus on a specific sector” or if there is a fairly “equal focus across a range of different sectors”.

If you’re doing e-business in the UK, this is a very good report to get your hands on. You may download a sample of the Affiliate Marketing Buyer’s Guide here or purchase the full report from Econsultancy here (on some of their membership levels it will actually come free).

I’ve just come across an interesting article by Multichannel Merchant, a Chief! Marketer publication, where the author looks at the results of The State of Retailing Online 2010 survey recently conducted by Forrester Research for Shop.org.

Comparing paid search to social media marketing, Multichannel Merchant points out:

…According to the results, merchants that earned less than $10 million in annual revenue spent 37% of their average $600,000 budgets on paid search; this group spent 5% of their budgets on social media.

Marketers with annual sales of 10 million to $100 million spent 38% of their average $3.2 million budget on search vs. 2% on social media. And merchants with more that $100 million in annual revenue spent 39% of their average $11 million budgets on search—they spent only 1% on social.

Wonder where email marketing, and especially affiliate marketing fit into the picture? Multichannel Merchant continues:

E-mail marketing — both to house files and prospects — was the second-most popular marketing spend tactic for small and medium size merchants, while affiliate marketing was the second-most popular for the merchants with more than $100 million in annual revenue [underlining mine].

Interesting data. Is affiliate marketing interwoven into your digital marketing mix yet?

I’ve just finished reading yesterday’s iMediaConnection article entitled Performance marketing: Avoid the newbie mistakes. Overall, it’s a good article, but there is one thing I cannot agree with. The author wrote:

A little secret in performance marketing is that more than 50 percent of total performance transaction volume is driven by email list owners who have developed loyal audiences that respond to offers sent to their lists [underlining mine].

The rest of the statement about emailers is right on the money, but I am not entirely sure where his stats about email list owners came from. Over half of affiliate marketing transactions are driven in by emailers? Hmmm… I am not so sure. Yes, Affiliate Summit’s 2010 AffStat Report‘s findings showed that the majority of affiliates (more than 51%) maintain opt-in email lists:

However, this by no means implies that these mailing lists are their main marketing vehicle.

I know, the below will not clarify the situation completely, but Econsultancy’s US Affiliate Census 2009 which asked affiliates to rank linking methods (i.e. methods of sending traffic to merchant websites) in order of their relative value revealed the following picture:

The above is very close to what I myself have been observing in close to 50 affiliate programs which I have managed in the course of the past 6 years. Yes, email marketing can be a powerful tool in the hands of an affiliate marketer (when used properly), but it is by no means the method that yields the largest chunk of “performance transaction volume”.

Back in March I wrote my Run Affiliate Program In-House or on Affiliate Network? post where I answered the “network vs in-house software” question from the merchant perspective. Yesterday (May 11) I’ve had a pleasure of interviewing one of the original developers of a famous affiliate program software, which led me to think of affiliate preferences (if there are any). We can talk all we want about the convenience to the merchant, but what do affiliates prefer?

Based on the data revealed by Econsultancy’s 2009 U.S. Affiliate Census, affiliates work with both network-based, and in-house-operated affiliate programs, but there’s an obvious cling to the networks:

Do affiliates work with in-house affiliate programs?

Econsultancy summarized that roughly “two-thirds of affiliates (68%) work with at least one merchant that runs its own in-house” affiliate program “compared to just under a third of affiliates (32%)” who said that they prefer not to work with merchants directly (italics mine).

Affiliate Summit’s 2010 AffStat Report, which worded its related question somewhat differently, discovered further data on affiliate preferences. It was reported that 47.4% of affiliates favor network-based affiliate programs versus 14% who prefer in-house programs, while the remaining 38.6% were reported not to have any stringent preferences:

From the above-quoted survey data it appears that affiliate preferences are split roughly 50/50, but there are affiliates (at least 1/3) who do not work with in-house affiliate programs at all. From my discussions with individual affiliates, it seems that much of this decision is tied to payment-related questions.