I am signed up with a number of affiliate programs for the purpose of monitoring their promotions and affiliate motivation methods; and the day before yesterday (on March 17 at 2:05 pm) one program manager has sent me a newsletter which started with the following text:

I wanted to follow-up with you regarding the Tractor Supply Activation Campaign as our reports show your site has not yet generated any sales with our program for the past 6 months.   We want to help you make the most of our partnership and begin generating steady revenue.

Exclusive One Time Offer!
We have extended you a 7% Private offer now through March 31st as an incentive to become active in the [Merchant's Name] program.  Please log into your [Affiliate Network's Name] account to accept this offer to take advantage.

AND, as an extra incentive…

Generate $500 sales during this time frame and we will extend the 7% private offer through April 30th.

I am not mentioning the name of the company, because it is really irrelevant here. I will use them as an example of how this could have been handled better.

The default affiliate commission in this program is 5%. They have raised it to 7% for me for 14.5 days in March, and are telling me that if I generate $500 in sales during these 14.5 days, they “will extend the 7% private offer through April 30th”. And then what? Then it’ll drop back to 5%. Well… Maybe not. Maybe it will stay at the 7% mark through the end of the next month if I generate $500 (or will it be $1000 for the full month) in April too, and so on.

Here’s why I do not believe it’s a good incentive:

Anything that involves a commission drop isn’t a good idea. It just doesn’t go down very well with affiliates. Once you’ve raised that commission for them, either keep it at that level, or at the very least, give them a longer-term perspective (e.g.: keep generating $500 in sales every month, and we will keep you at the “private offer” level). Another option, which may even be more attractive (as dollar amounts are generally much more enticing than percentages), is offering your affiliates a cash bonus for performance.

For example, if $500 in sales over 14.5 days makes economic sense for you to give affiliates extra 2% in commissions, they why not offer them an automatic $10 bonus on every batch of $500 in sales sent in? After all, it is a fairly small gratitude as it is; so why cut it back at any time?

Also, when bonuses are tied to a time period (say, all sales through the end of Spring will qualify you for a $20 bonus per every $1000 sales sent in), it comes across much better than a temporarily raised commission level.

Affiliates reading this, I would also appreciate your input if you want to post it in the “Comments” area below.

One of very few theoretical and more academically-written books on affiliate marketing (if not the only one) is the Strategic Affiliate Marketing by S. Goldschmidt, S. Junghagen and U. Harris published in 2003.

While discussing the basics of affiliate marketing, the authors spend time looking at “Affiliates’ Characteristics” (p. 51-52). In their categorization of affiliates they split them “into three main categories” which are “based on their size/traffic and their level of specialisation/focus.”

These are:

1. Hobby Sites – 75% of all affiliates in the program – characterized by “relatively low traffic”
2. Vertical Sites – 20% of affiliates – affiliates with medium traffic “that have chosen to specialise in a certain topic” and therefore have “a very focused audience”
3. Super Affiliates – 5% of affiliates – characterized by ability to “draw a large amount of traffic, but are relatively unfocused in their content and audience” [underlining mine]

In this post I will not speak about the basis for the categorization, and the observations/statements made about any other group but the “Super Affiliates” one. The authors state that this particular group of affiliates is “characterized as businesses and organisations that evaluate the revenue potential of affiliate marketing in comparison with banner advertisement and other opportunities” and “are usually less interested in sales commissions than click commissions.” Whoa there! We’re either talking completely different industries, or all of the top affiliate producers that I have ever met are not really super affiliates. Let’s summarize. The authors characterize super affiliates as:

1. Websites with (a) loosely focused audiences, and (b) no particular specialization
2. Always comparing affiliate marketing opportunities with other types of advertising
3. More frequently interested in the pay-per-click than to per-sale or per-lead models

I would argue that none of the above three points correspond to present-day affiliate marketing reality. On the contrary, super affiliates are frequently extremely focused on their niches, have well-focused (and loyal) audiences, know exactly what they are doing through the affiliate partnerships with merchants, and aren’t looking at CPM or CPC models.

Three years ago the AffStat 2007 report registered the following breakdown of payment models across different affiliate programs:

• Cost per sale (CPS) – 80%
• Cost per action (CPA) – 19%
• Cost per click (CPC), etc – 1%

I don’t think there is any way to get farther from the truth than by defining super affiliates in light of the three above-quoted points. I’m including this post in the Affiliate Marketing Fallacies section of my blog.

Reference: Goldschmidt, S., Junghagen, S., Harris, U. 2003. Strategic Affiliate Marketing. Cheltenham, UK: Edward Elgar Publishing

Got my November 2009 Internet Retailer issue in the mail yesterday, and in it they have published some interesting data on the 2008 compensation of top online retailers’ executives, including those who are in charge of marketing. Each executive’s compensation package represents a sum total of base salary (s), bonus (b) and stock compensation (sc).

The top 5 highest paid execs were: SVPs of Amazon.com S. Gunningham (seller services) and M.A. Onetto (worldwide operations) the total compensation of which was $5,044,125 and $4,598,107 respectively; CEO of Nutrisystem, J.M. Redling with $4,572,312; COO of BarnesAndNoble.com, M.S. Klipper with $4,191,511, and CEO of Newegg.com, T. Liu with $4,191,511.

Only 8 marketing execs were mentioned on that Internet Retailers list of 120+ executives, and here’s how their 2008 salaries rank:

1. Leslie Kilgore (CMO, Netflix): $748,077 (s) + ? (b) + $1,334,546 (sc) = $2,089,703
2. Thomas F. Connerty (EVP/CMO, Nutrisystem): $350,000 (s) + $0 (b) + $649,026 (sc) = $1,025,139
3. Bradford Matson (CMO, BlueFly): $350,000 (s) + $227,038 (b) + ? (sc) = $585,269
4. Houman Akhavan (VP of Marketing, US Auto Parts Network): $209,616 (s) + $173,990 (b) + $166,155 (sc) = $570,010
5. Kristin M. Rogers (EVP of Sales & Marketing, PC Mall): $338,042 (s) + $22,689 (b) + $116,072 (sc) = $490,693
6. Michael Rudolph (VP of Marketing, ThinkGeek): $213,337 (s) + $49,040 (b) + $188,533 (sc) = $450,910
7. Sonya L. Lambert (VP of Marketing, Vitacost): $144,000 (s) + $107,496 (b) + $189,365 (sc) = $440,861
8. Stormy D. Simon (SVP of Marketing & Cust Care, Overstock): $200,000 (s) + $0 (b) + $242,476 (sc) = $375,583

Note: whereever you see the question mark above, the data wasn’t published

As it is obvious even from the above list, much of the compensation is tied to results: both individual and company’s overall performance as well. Internet Retailer comments:

…the growing role of stock in top executives’ total compensation underscores the trend toward e-retailers linking executives’ pay to company performance.

That’s only accelerated in 2009, as online retailers responded to the economic downturn. “There is far more emphasis on incentive-based compensation versus base salary,” says Wendy Weber, president of executive recruitment firm Crandall Associates Inc. “Companies are asking for more skin in the game.”

Interesting observations. The affiliate marketing payment model is obviously given preference in this economic climate, and there is nothing strange about it. It keeps all parties engaged, and when there is performance and growth, everyone is happy.