Affiliate Marketing

In today’s digital world, which is full of millions of apps and websites, companies are constantly trying to gain new customers while keeping their customer acquisition cost(s) in check — A tough ask, especially if your business is bootstrapped or tech based. While there are many ways to drive new users such as word of mouth marketing, going viral, ads and so forth, affiliate marketing is a tried and tested method used by many businesses.

Not to be confused with referral marketing. The difference between the two is a fine line, referral marketing is when your own users are recommending your business to people who they know, usually for some form of a discount on their next purchase and not cash. On the other hand, affiliate marketing is when people who are not associated with your business are promoting your product/service to people who they do not know, and thereby generating new users. Affiliate marketers usually get an upfront fee for each new user they generate or conversion or per lead.

How does it work

Affiliate marketing programs can be executed in many ways, both offline and online. They can be both large scale and small scale, with existing solutions to help manage large scale programs. Here is an online small scale example: Say you own a specialty store that creates handicrafts and are looking to generate new customers and are interested in affiliate marketing. You would first create a new section on your website known as “Affiliate”, people would then login, where they would be able to generate a unique identifier such as ‘Handicraft100’. Think of all the youtubers who promote content and ask you to use their discount code. That person would then go around asking people to buy something from you using their code, ‘Handicraft100’. For every user that purchases something using that code, the youtuber would get a small cut, or an upfront fee.

Keep in mind some businesses mark-up the selling price ( to recover the cost of the affiliate ) and then provide a discount, this tricks users into thinking that by using the affiliates code they are getting a cheaper price, but in reality the price was always the same if not greater.

This a very basic example, Affiliate marketing can be further complicated when you use multiple levels by including gamification or multi level marketing. While usually associated with fraudulent ponzi schemes, Gamified affiliate marketing programs can increase your user base ten fold while keeping your customer acquisition costs in check.

Pros:

• Usually automated via third party integrations
• Increase brand awareness
• Increases sales and revenue
• Low upfront monetary investment

Cons:

• Can hurt cash flows at scale.
• Lack of control over content made by third parties
• Can take time to recruit enough affiliates
• High affiliate churn rate
• Differential pricing
• Can be associated with Ponzi schemes or other negative connotations

The bottom line is that your affiliate program all depends on the terms you provide to your network and their incentivization. With the right terms such as payments only on actual conversion and not per lead, and with the right type of incentivization, such as a fair cut cut of the order value, an affiliate marketing program can be a viable, if not a good option to help grow your business.