The main idea & How it works
The idea is practically very simple; an affiliate network is sort of a free (or not so free…) market, with 2 opposite sides. On one side, there are the advertisers – the product/ website owners that want to recruit affiliates, generate traffic via this specific revenue stream and increase activity and sales.
On the opposite side, there are the publishers, the website owners, the affiliates. These need to choose between all the attractive offers the best ones for them (highest rates, a product they can promote niche-wise, and so on).
There are quit a few pros and cons to each side when using this solution. Below are the main reasons to use that solution, from both sides’ point of view, in order to explain why the industry has reached this point:
Advertisers:
Recruiting affiliates on your own is an expensive, time consuming work.
Pros: Using an affiliate network lets you choose your affiliates in one place, after they have been (supposedly so) pre-filtered and verified.
You do not have to spend money advertising your product to affiliates, you do not have to contact them, they are all there waiting for you…
Cons: There are other there just like you, and your offer needs to be competitive at least, in order for the affiliates to consider your program.
The logistical work regarding the payments and monitoring each and every affiliate is agonizing and very hard to keep up with. Fraud detection/prevention is a must, as credit card theft and mischief is very common over the net.
Pros: All payment cycles run through the network. You pay one big bill at the end of the month, and the network spread the commissions to the related affiliates accordingly.
Any fraud you have detected later on, will be deducted from the network’s next payment or so – and you do not have to deal with a small entity at a time.
Cons: The network takes its fee from each and every transaction made to the affiliates. This is not always a bad thing. You need to know your product well enough to figure what the effective cost is.
For example: if it costs you $30 to generate a sale, and a product revenue of $49, on your own – you’d rather give a CPA of $20 to the affiliate + 30% (the common rate +-) to the network. As a result, your profit grows from:
$49-$30 = $19
To:
$49-($20+$6.66) = $22.34
In plain numbers, that’s only $3.34.
In other words, that’s 17.6%!!!
Affiliate networks will become “just another revenue stream” usually when your staff grows and you put emphasis on developing an in-house advertising team. Until then, this is an important one-of-the-first-steps to market your product.
Quantity – assuming you are a normal advertiser, by definition the affiliate networks will always be one step ahead of you, recruiting new affiliates, and lots of them.
Affiliates tend to sign up to these networks as a first step when looking for a revenue stream of there own, and by doing that they sort of come to you, rather than you approaching them (that is, eventually, sort of a leverage if you’d be negotiating terms with them one day).
Affiliates:
Searching the niche – as mentioned before, the professional affiliates do not create a site and then look for a way to monetize it. They find a niche first, and then build the site accordingly. In the networks, it is easy to search for the right niche, once you have all the offers spread out for you.
Pros: easier search for niche, definite client base once you are up and running.
Cons: nowadays it is said that “the right way” of doing things, affiliate-wise, is creating the site first, assuming it is done for a personal interest and needs, and then (again, not necessarily true) your content is better, the site looks more appealing to the users, and promotions are better too… this is the industries “back to the basics” attitude, which with all due respect – the better affiliates do not share…
Payments – one large check in the end of the month will always be better then few small ones for an affiliate… assuming that an affiliate is a rather small entity, this spares the fuss of dealing with lots paperwork, and also – even more important – you do not have to worry about getting paid. The network presumably does not keep in it non-paying advertisers, and other trouble maker…
Pros: the obvious – no worries about payments, hardly any logistics.
Cons: being aware to it or not, a direct contact with the product owner/ website would get you ~30% higher rate than you got within the network. 99% of the more experienced and successful affiliates would tell you: “don’t be greedy…” - the hustle free environment on that aspect is worth it.
Technology - ad serving, tracking, optimizing – it is usually all there for the affiliate. Prior statistics, success probabilities and so on… easy to dig into a product’s history before they choose to promote it.
Pros: safer work, lower chances of doing a lot of work for nothing. They have presumably objective data prior to your decision.
Cons: those statistics are based on other affiliates’ work.
What if they were not that good?
Is it worth it?
Again, there is no absolute answer. You should make your decision upon the size of your business, the amount of time consumption you can allow this side of the operation, and the energy you wish to devote for it.
If you lack the time and energy – go for the network service.
If you are operating a big business – use it as an optional revenue stream.
Platforms
A detailed list of affiliate networks + a brief description of each is available here, under Appendix 2 in the Online Advertising 101 Ebook
