Affiliate Management and Danger in Paying Too Little

Epigraph

John Ruskin, who is often remembered for his contributions to Victorian-era literature, philosophy, and art critique, was also quite keen on social economics. Among his numerous observations, he brilliantly drew the line under the question of cost. His concept is often called The Common Law of Business Balance and it goes like this:

“It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that’s all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done.”

Cost of Affiliate Management

Fast-forward two centuries, and imagine yourself witnessing an exploratory interaction between an online business’s Chief Marketing Officer (CMO) and an outsourced affiliate management agency (OPM). The pattern is recurring enough for us to highlight how these discussions frequently go. The CMO asks for an affiliate marketing proposal and the OPM submits one. Both hop on a follow-up call to discuss the proposal and align the (prospective) client’s expectations with the agency’s realistic deliverables. Once the affiliate management firm furnishes the business with a 12-months forecast, they hop on another phone call. The gist of this second conversation goes something like this:

Business: Thank you for your forecast. However, at your current projections, we can only justify paying one-third of what you’re asking for your services.

Agency: I hear you say that our rates don’t make economic sense to you. Could you please walk me through the rationale behind this conclusion?

The business then walks the agency through the numbers. They expose their profit margins, factoring in the cost of goods, the compensation to their affiliate partners, and the tracking solution‘s fee, and demonstrate how they would be in the red during the first couple of months.

Agency: I hear your concern. But most often it does take a month or two for any affiliate program to ramp up. Seldomly do businesses break even from the get-go.

Business: But there are other agencies that would manage my affiliate program for one-third of what you’re asking!

The business has a fair point. There are, indeed, less expensive options than working with the world’s top affiliate management agencies. If you’re considering those options, make sure to ask your prospective affiliate manager the following questions:

  • How many other affiliate programs (besides mine) will the same affiliate manager be steering?
  • What’s the experience that my affiliate manager would have?
  • What’s the expertise and prior track record of success in my field?
  • What exactly will my affiliate manager be handling for me? [Hint: the right answer is in our post on affiliate manager responsibilities and in the one on the optimal time allocation for each]
  • …and, of course, don’t forget to ask for a forecast.

If any of the answers reveal that your affiliate program may end up in the hands of someone with little experience, no verifiable success track record, or having no more than a few minutes a day to devote to it, the explanation to the low cost will be obvious. Of course, the call will always be yours. However, if you’re on a budget that’s so tight that you cannot afford quality affiliate program management, better handle it on your own than hand it over. This was precisely what I did some twenty years ago when I started my first affiliate program [full story here].

While “fair price” is somewhat of an arbitrary concept when you outsource any business process or marketing activity, “it’s unwise to pay too much” but it’s always “worse to pay too little.” In fact, “too much” is only such when your return on investment doesn’t make economic sense. And you definitely do not want to judge by the affiliate program’s performance during the first few weeks! It took one of our clients three months to break even. As of today, they are in their seventh year with us, insisting on annual renewals and initiating these year after year.

Conclusion

Whether it was Benjamin Franklin or Aldo Gucci who really said it first doesn’t matter… What matters is the key message, and that message is: “The bitterness of poor quality remains long after the sweetness of low price is forgotten.”

Don’t hesitate to contact us for your free quote and forecast.

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