Are you thinking of turning to affiliate marketing in order to promote your products or services and boost your sales? Now is the best time to do it, and Rosemarie Spiher did a great job explaining why in this recent post of hers.
Of course, before you get started, you want to know how much it will all cost you — so that you can plan your budget. I have good news and bad news.
The good news is that running an affiliate program will cost less than you would spend on most other marketing campaigns to promote your products and services by yourself.
The bad news is that it is impossible to give you an exact figure because the costs will depend on your decisions, on whether you build and run your program in-house, on an affiliate network, or both, on whether you manage it in-house or you outsource, on the specifics of your business, and even on the performance of your affiliates.
Moreover, there are both up-front and ongoing costs you need to be aware of. The set-it-and-forget-it approach does not work in affiliate marketing.
If you were hoping to set up your affiliate program and continue making a profit without investing in it, you should think again. You will understand why by reading this post.
In a nutshell, the costs of running an affiliate marketing program can vary from as little as a few hundred dollars to thousands of dollars. Most costs will fall into four major categories that we will review below.
4 Costs Categories to Take Into Account
When budgeting for affiliate marketing, we recommend taking into account four components of your future affiliate program. As Geno Prussakov explained in the second chapter of Affiliate Management: An Hour a Day, when planning your affiliate program, you need to budget for costs related to:
Let’s look at them one by one and see what types of costs each may entail.
1. Affiliate Program Platform(s)
Before you can build your affiliate program, you need to make an important decision that will weigh heavily on your budget:
Will you build your program in-house, on an affiliate network, or will you exploit both alternatives?
In order to make this decision, you should be aware of the main differences between an in-house affiliate program and a network-based one.
Running an In-House Affiliate Program vs. Joining an Affiliate Network
- In order to build and run your program in-house, you will need your own platform. The costs can go as high as $500 a month, even more, depending on the platform you choose. Affiliate networks provide the infrastructure (tracking, reporting, creatives hosting, payment solutions). For more information, review the post on what affiliate networks do and what they don’t do.
- When running your program in-house, you have full control over all its aspects and a chance to work directly with your affiliates. This is a good thing when you have an experienced and knowledgeable affiliate program manager or you outsource to your program’s management to professionals but it can be costly. When running your program on an affiliate network, you still need an affiliate manager but the burden on their shoulders may be a bit lower, especially if they are already familiar with the affiliate network. They receive all the information they need in an easy to read format, and they may have access to a pool of publishers to recruit affiliates for your program.
- Obtaining results with an in-house affiliate program takes more time than with a network-based program. You would have to build the program, advertise it, recruit affiliates, and review their performance. When you join an affiliate network, you gain instant access to a huge number of potential affiliates and to a wide range of tools and solutions.
- An in-house affiliate program involves higher starting costs but lower long-term expenses. A network-based program is cheaper to start but can be costlier in the long run. As mentioned above, affiliate platforms costs reach hundreds of dollars monthly, without counting program management costs. Affiliate networks charge around 30% override. This means that, for every $100 you pay as commissions to your affiliates, you will pay ~$30 to the affiliate network. The important thing to remember is that network costs, similar to affiliate commissions, are performance-based. If you have to pay them, it means you’re selling and making a profit.
Taking into account the above, if this is your first affiliate program, I suggest that you start by joining an affiliate network. You will spend less and obtain results faster, with fewer hassles.
Later on, when you start scaling and gaining a better understanding of affiliate marketing, you can build and run your in-house affiliate program.
This will give you a chance to compare the results and the costs and decide whether to continue on both fronts or settle for one option alone. Check out this post that explains why using both options is a smart decision!
If you want to know more about affiliate networks and what joining them means, you can check the terms and conditions of the most popular affiliate networks in the U.S. According to our recent analysis of Affiliate Marketing in the USA, these are:
- ShareASale – close to 6,000 programs
- CJ Affiliate – over 1,700 programs
- Rakuten LinkShare – over 1,400 programs
- AvantLink – close to 700 affiliate programs
- Pepperjam – over 500 programs
2. Creative Inventory
No matter if you run your program in-house or on an affiliate network, you will need a creative inventory. The term refers to text links, banners, videos, flash content, and any other materials that your affiliates can use to promote your products and services.
A smaller, simpler inventory may seem a viable solution to save money. However, without adequate materials, publishers won’t commit to promoting your products or services. Even if they do, their performance could suffer.
Depending on your graphic design and programming skills, you may be able to create everything yourself and avoid spending money on professional services.
If you already have someone qualified for the job on your team, obtaining the materials you need while keeping costs under control could be easy.
When your skills and staff resources are not enough, outsourcing their creation remains the only option available. Unless you or your staff members really know what you’re doing, you should consider outsourcing as a solution to ensure great results.
If outsourcing to professionals is too expensive for you, freelancer platforms are a more affordable alternative to obtain the creatives you need. You or your affiliate manager will have to invest a little more time into finding a reliable freelancer, explaining your needs and expectations, and reviewing their work, but you will save big money.
One factor that will impact how much money you spend on creatives is your platform-related decision.
If You Run Your Affiliate Program In-House
In this case, you will need to create everything from scratch. How much it will all cost you depends on the specifics of your business:
- If your business focuses on subscriptions or a limited number of services or products, referral links may be enough. Your expenses could be reduced to the costs of an affiliate tracking software like CAKE, HasOffers, Refersion, or a similar solution.
- If your offer includes numerous products and services, the size of your creative inventory should be directly proportional to your products and services inventory. Your affiliates will need not only text links but also banners of different sizes, videos, category-specific and campaign-related materials. These could cost you a fortune.
If You Run Your Program on an Affiliate Network
In this case, your creative inventory requirements and costs would be lower. Many affiliate networks have specific tools that allow affiliates to create the materials they need by themselves.
For example, ShareASale has its Product Discovery Tool, a bookmarklet which allows affiliates to create their own text links and banners. CJ and Pepperjam have their bookmarklet link generators that allow affiliates to create text links to any page or product on the merchant’s website with a single click.
There are also merchants who choose to invest in such tools or apps that enable their affiliates to create their own materials. Although such an investment would yield considerable initial costs, it can bring about valuable long-term savings. How?
The expenses related to your creative inventory do not end once you’ve put it together. You will need to update it and enrich it as you launch new products or services, make changes to your website, or initiate new marketing campaigns.
This will bring about additional costs that you can avoid or at least diminish if you give your affiliates the solutions they need to create their own materials automatically.
Of course, there are many more aspects to take into account when it comes to your creative inventory, too many to cover in this post. However, if you are on a tight budget and you are offering a wide variety of products or services, joining an affiliate network could be a way to reduce initial costs.
3. Product Feeds (and Landing Pages)
Depending on the specifics of your business, your budget should also cover the costs of creating product feeds and/or affiliate landing pages.
Affiliate product feeds are files listing all of a merchant’s products and some of their attributes (product name, ID, price, page, category, etc). They are fundamental for the activity of several types of affiliates, especially price comparison sites, paid search affiliates, content sites, loyalty affiliates, and more.
If you’re an online retailer and you rely on affiliates to sell more, you should not even consider starting an affiliate program without product feeds.
You will need them no matter if you’re running your program in-house or on an affiliate network. Since each affiliate network has its specific requirements when it comes to product feeds, it is important to create your feeds starting from those requirements.
The costs will obviously depend on the specifics of your business, your inventory, your affiliates’ experience and commitment, you or your affiliate program manager’s skills, and the tools you use.
If you know where to recruit your affiliates from or how to educate and motivate them, there are several powerful tools available to affiliates as well. See this helpful list of such tools.
If your offer only covers one or two products or services and you rely on affiliates to generate leads, investing in separate landing pages would probably be a smarter approach.
One merchant who does this successfully is Bluehost. They create custom co-branded landing pages for their affiliates, making it look like their affiliates are offering special benefits to their referees.
Here is what their official landing page looks like (at the time of this post):
And here is what their landing page for one of their top affiliates, Jeff Bullas, looks like:
To visitors referred by another affiliate of theirs, Money Done Right, they show a different version — one looks like this:
If you check the details, you will see that the offer is basically the same. However, the custom landing page makes visitors feel they are receiving special benefits and goes a long way to convert leads into sales. It also makes it easier for the merchant to track the source of their leads.
Even though signing up for a service or buying a product through a referral link does not always bring you additional benefits you should not bypass the affiliate. After all, they were the one who introduced the product or service to you, so they deserve their commission.
Creating custom landing pages may seem costly, but it doesn’t have to be. If you check the example above, you will see that the page layout and the content are basically the same. There are only small adjustments referring to the offer presentation, affiliate name, and background photo.
4. Affiliate Program Management
At this point, you should have your affiliate marketing program ready to go live. You’ve hopefully decided whether to run it in-house or on an affiliate network, you’ve created the materials your affiliates will need, and the necessary product feeds and/or landing pages.
Before you go for it, there is one more category of costs you should be ready to face: program management costs. You will need to cover recurring costs related to:
- Recruiting and activating affiliates
- Creating and maintaining your program’s rules and policies
- Efficiently communicating with your affiliates
- Optimizing your affiliate program and creatives according to industry best practices, trends, and affiliate performance reports and requirements
- Creating and managing marketing campaigns, and more
Affiliate Program Management Costs
It should be obvious that you will also need an affiliate program manager. They can be one of your staff members, you can hire an affiliate manager, or you can outsource to a professional. Whether you go with an in-house or an outsourced solution, Ryan Hindes’ Guidebook on How to Be an Effective Affiliate Manager in 2019 should come in handy!
Putting a staff member in charge of your affiliate program may work in the beginning, if you are a small business joining an affiliate network. You would pay less and work with someone you already know and trust. However, there is no guarantee your employee will learn and do everything right, so working with them may not benefit your program.
Hiring an experienced affiliate program manager could be a worthwhile alternative but will cost more and bring about additional hassles for your HR department.
If your plans are to consistently and continuously grow your program and recruit and activate more affiliates, you should seriously consider outsourcing to an agency.
Professional affiliate program management services cost more, but they come with guaranteed access to a huge package of benefits. Depending on whom you outsource to, you could get:
- Access to the newest and most effective tools and techniques
- Extensive experience in online marketing and affiliate marketing, not only as a program manager but also as a publisher and merchant
- Close knowledge of all the major affiliate networks and platforms
- Excellent reputation and extensive resources for running successful marketing campaigns
This post on affiliate manager compensation (as well as ways to pay your affiliate managers) is a must-read on the subject.
Additionally, as your affiliate marketing program thrives, an important part of its ongoing costs will be tied to affiliate payouts and network fees.
As mentioned above, affiliate networks charge around 30% of the commissions you pay to your network-based affiliates. It is entirely up to you to review and compare networks and identify the best ones for your program.
As for affiliates, you should reward them according to their performance, namely to the customer actions they generate (hence the Cost-Per-Action name). As Geno Prussakov explained in his Affiliate Management: An Hour a Day, there are
Four Main Affiliate Compensation Models
- Pay per Sale or Cost per Sale (PPS or CPS) – You pay a commission to your affiliates for every sale they generate, just as you would pay a commission to a sales representative.
- Pay per Lead or Cost per Lead (PPL or CPL) – You pay a commission to your affiliates for every user they convince to register on your website, even though that user does not become a paying customer. It becomes your job to convert them.
- Pay per Click or Cost per Click (PPC or CPC) – You reward your affiliates for the traffic they send to your website. However, since there are many fraudulent ways to send traffic to a website, you should only consider this payment model if you have effective means to monitor traffic quality and conversion. Otherwise, choose from the previous two options instead.
- Pay per Call (PPCall) – You reward your affiliates for every inbound call they generate. One way of tracking your affiliates’ performance would be to assign them different phone numbers, through a platform like Invoca.
Of course, depending on the specifics of your business, you could reward other actions as well, through payment models like pay per view, impression, download, installs, etc.
An effective method to boost sales and motivate affiliates is to combine several payment models. This means setting a commission for every action you wish to reward. If you have a competent affiliate program manager, they will be able to recommend and implement the best solution for your particular needs.
If you decide to adopt a pay-per-sale payment model, you will want to pay special attention to how you define qualifying sales and how you treat voids and reversals. In other words, you have to decide whether to pay your affiliate’s commission if the payment authorization on a sale they generated fails or the buyer cancels the order or requests a refund. Duplicate orders are another scenario to consider.
If your plan is to reward affiliates on completed, final sales only, you or your affiliate program manager should carefully explain that in the program’s description. You should also set a lock-in period or lock date.
It is a period you give yourself to review and decide whether to reward the transactions your affiliates generated. It can be of 10, 15, 30, or even 60 days. The main aspects to keep in mind when setting this period are your trial offers and/or money back guarantees.
Sales reversals usually have less, if anything, to do with the affiliate’s performance and more to do with the customer behavior. Therefore, you may want to consider adopting a Non-Reversal Policy.
It may bring about slightly higher costs, but it will get you more affiliates and help motivate the ones you already have.
Final Thoughts on the Costs of Running an Affiliate Marketing Program
No matter how you decide to run your affiliate marketing program and how much money you are willing to invest, your success will depend on the quality of the products (or services) that you offer and competitiveness of your prices.
If you offer poor quality products or services, the word will eventually get out, and no one will want to promote them. Additionally, if your product isn’t priced competitively, it will have a negative affect on your website’s conversion rate, which, in turn, will cause low affiliate EPC too. Therefore, before investing in an affiliate marketing program, make sure you have valuable products and services to sell, excellent customer service to support them, and attractive prices.
Then, to receive answers to all your questions and guidance as you navigate the uneasy waters of affiliate marketing, consider turning to specialized services. They may cost a little more upfront, but they will get you huge savings and returns on investment in the long run.
Through AM Navigator, Geno Prussakov and his team have been offering affiliate marketing consulting and management services successfully for years. You too can benefit from their extensive experience in affiliate program setup, management, and auditing and you can even arrange for one-on-one training for you, your affiliate marketing manager, or your affiliates. Contact us if you need help. No email remains unanswered.