In some instances affiliates ask merchants to pay them a flat monthly amount for a link placement on an affiliate website. Such insertion fees are commonplace in online marketing, and in some cases affiliates (especially the more selective ones with good traffic) use them to justify the investment of their time and energy into promoting merchants that they may not be as confident in. Yet, on the other side of the fence, merchants should be careful about placement fees. There is due diligence to be done prior to agreeing to an affiliate’s proposal that involves an insertion fee. Analyze their current website traffic with tools like Quantcast, Alexa and Compete.com. Tools like these will help you determine if the fee the affiliate is proposing is justifiable. In addition to such analysis, it is helpful to find out more specific information from the affiliate (him)/(her)self. What is the projected volume of targeted traffic you should expect from the placement? How targeted will this traffic be? Is the affiliate guaranteeing any minimum sales volume for the investment you are being asked to make? Do ask them for details. Never pay for something that cannot be measured.
It is also important to warn merchants from abuse of the placement fee concept by some affiliates. Remember to ask the right questions, and do your due diligence. Paying for insertion can be worth in many cases. In some situations, however, it is not.
Finally, the idea of placement fees comes extremely handy when in your affiliate recruitment you come across an affiliate that is not quite ready to become an affiliate, but wants you to try their advertising solution instead (e.g.: newsletter link/banner, certain number of banner impressions on site, etc). Do your math, and if you believe it is worth the try, offer them a synergetic model in return – one where you will pay them an insertion fee, but it will be lower than what they are asking you, because you will also pay them a performance bonus (see my example below).
- Affiliate asks for a $100/mo placement fee
- Affiliate guarantees that 30,000 unique targeted visitors (potentially interested in the merchant’s product/service) will see your ad every month
- Merchant — whose affiliate program converts at over 2%, AOV: over $50, default commission: 12% — assumes a modest 0.08% conversion rate, and offers the above affiliate a synergy: (i) $70/mo in placement fees + (ii) 8% commission on all referred sales
The merchant’s final goal is to get the affiliate interested in working on performance basis only. Knowing the average conversion rate within the program, yet assuming a conversion 25 times lower, the merchant expects the 30,000 unique visitors to convert into 24 orders. Knowing the AOV, the merchant expects the cumulative order value to comprise: 24 × $50 = $1,200. The 8% commission ($96) should then both cover the difference between the affiliate’s initially requested placement fee, and show the affiliate that working on the full 12% commission basis, he/she could make much more money than on flat rate insertion fees. And remember that we have assumed a conversion rate 25 times lower than is actually observed in the program.
Placement fees are a good way for affiliates to start working with merchants more comfortably. As it is with any business arrangement, it is important to reach a mutually interesting consensus; and for merchants constructing a synergy per the above-referenced model is often a good way to start a relationship with a prospective affiliate.