Affiliate Marketing VS Product Creation

This is a huge obstacle many people face when entering the online marketing world: Should I become an affiliate marketer or should I create and sell my own product..?
Before I get started let me quickly define the two business models so that we are clear as to how money is generated with each.

• Affiliate Marketing: In this business model you will be making income by referring customers to another person’s product or service. So basically you will sign up with the vendor as an affiliate and for every sale you generate you get paid a commission.

• Product Creation: This business model is pretty self explanatory; you will be creating a product and selling it in the marketplace for 100% of the profits. In this example we will be assuming your product is an information product of some sort.

There are a lot of marketers that will say the easiest way to start making money online is affiliate marketing. Just because of the simple fact that you can choose a vendor whose product you want to promote, sign up as an affiliate, start sending traffic to your affiliate sales page and BOOM! You make money. Sounds pretty easy. You don’t have to deal with creating a product, setting up websites, dealing with customers, etc.

At the same time there are marketers that say creating your own product is easier and the more profitable of the two and allow you to be more in control of your business.
It really all depends on what your strengths and weaknesses are and what you’re looking to accomplish in your business.

Let me get some of the pros and cons of each and put things into perspective so you can have a better idea of where you want to get started.

Affiliate Marketing

It is a strong argument that affiliate marketing is the easier of the two to start with which is why it is recommended as a starting point for beginners.
Here are a few of the pros of affiliate marketing:

• Most affiliate vendors/networks are free and very easy to join. Most of the time you will answer a few basic questions, set up a username and password and get instant access to the affiliate member’s area within a few minutes.

• Marketing materials are provided. Once you set up your profile in the affiliate member’s area you will have complete access to all marketing materials needed to get you going such as banners, pre-written emails, etc. In the members area you will also be provided a unique affiliate link which will take your prospects to a complete sales page which has already been created for you. Armed with these materials all you have to focus on is getting traffic to your affiliate site.

• All websites are already created for you. As an affiliate you do not have to deal with the headaches that can come with setting up a website. The vendor has done this for you and as long as you use your affiliate link your sales and commissions will be tracked through that link and paid into your account.

• Do not have to deal with customers. We all know how difficult it can be to deal with customers but as an affiliate you do not have to worry about this problem. Once you make a sale as an affiliate all you have to worry about is cashing your check and the customer is passed on to the vendor.

As you can see being an affiliate marketer definitely has its perks. It’s quick and easy to join a vendor/network, all the marketing materials and sales pages are provided and you do not have to deal with customers. You can focus your time on generating traffic, making sales and cashing checks!

Now let’s take a look at some of the cons of affiliate marketing and how you can overcome them.

• The competition. Even though it can argued that affiliate marketing is the easiest way to make money online it can be strongly argued that it’s the most difficult due to the competition. There are hundreds of thousands of affiliate marketers you have to compete with to make a sale. At the same time many experienced marketers agree that most new affiliate marketers do not know what they’re doing since it’s such an easy business to get into.

– One of the best ways to overcome this obstacle is to educate yourself. Always be a step ahead of the competition by learning what the top affiliates are doing to give them that edge needed to make the sale.

• Profit Margins. As I mentioned before with affiliate marketing you are making a commission for referring a customer to a vendor as opposed to you being the creator of the product and earning 100% of the sale. So there can be a lot of profits you are leaving on the table by promoting someone else’s product instead of your own.

– This obstacle is really not in your control when it comes to affiliate marketing but the best thing you can do is promote a product with a higher payout of 60-80% as opposed to 25-50%. This way you will be making more income with less sales.

• Building someone else’s business. As an affiliate not only are you generating sales and profits for the vendor you are also helping them build their business instead of your own. Once you make a sale and are paid a commission that customer is now in the hands of the vendor which can continue to sell additional products and services to that customer for the lifetime of their relationship.

– The best way I know of building your own business through affiliate marketing while also sending customers to the vendor is to set up a landing page of your own that requires the prospect to input their name and email before they get access to the sales page. This way the prospect is on your customer list as well and you can now email them future offers and affiliate products directly. Now of course you will have to provide an incentive to the prospect for them to enter their email like giving away a free report, video training, audio file, etc. We will touch on this in a future report.

• Lack of control. With affiliate marketing you really don’t have much control of anything but generating sales. Should the vendor/network decide to shut down or no longer sell the product you are promoting you are left back at square one. When it comes to product creation you have a lot more control of your business and can profits but we’ll be touching on that in a few.

– Unfortunately this is a huge downside to affiliate marketing and something you really can’t prepare for. Building your email list as mentioned before is the best way to ensure that you still have an ability to make sales with your current list of customers while you set up a new campaign with a new product.

There are just as many cons as pros with affiliate marketing but none of these reasons should stop you from getting started if it’s a business you wish to pursue. One important thing that you want to keep in mind is to take time to invest in your education and skill sets to put yourself ahead of the curve. By doing this you set yourself apart from the competition and a step ahead to making the sale.

If you are interested in learning more about affiliate marketing and jump starting your way to success visit my author resource box.

Now, just for a second picture yourself being the product creator and having an army of affiliates promoting your products as we move into the pros and cons of Creating and selling your own product.

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How to Set Up an Affiliate Marketing Program – Small Business Guide

If you are not currently doing affiliate marketing then you are really missing a trick.

Affiliate marketing evolved from the simple concept that if another website sends you a visitor and that person becomes a customer of yours then you should say thanks to the other website by giving them a small piece of the pie.

Affiliate marketing has now become a lot more complex but the basics are still the same. You want as many sites as possible to be shouting about you to their visitors so that they come and see your wares, and then in return you pay a suitable reward to that site based on your business profitability and margins.

In this article I will go through a few of the things that a newcomer should consider when setting up an affiliate marketing programme:

1) The best commission/reward structure for your business

2) The best network/s to work with based on their affiliate base e.g. the kinds of affiliates that are with them and that they tend to attract.

3) How to get visibility on the key affiliates websites and with the affiliate network.

4) Working on new promotions and incentive schemes to motivate affiliates to promote you rather than your competitors.

Deciding on an affiliate reward structure for your business The first thing to look at is your new customer recruitment costs, e.g. If over one month you spend £5000 on marketing and you recruit 100 new customers then your new customer recruitment cost is £50. Cross reference this with your customer lifetime value(if you know it) to work out how much commission you can pay your affiliates.

A Basic explanation of how you could calculate this is as follows: The customer lifetime value will be the average top line profit that each customer brings you over their lifetime.

To calculate a customers life time value the best way maybe to take a group of customers that you recruited within a months date range and to track their spend over a few years, you will lose some of these customers, but others you will maintain so you need to have a good sample size for the calculation to be worthy.

e.g.

1000 customers recruited in June 2008.

Over the following 2 years they spent an accumulative 1,000,000GBP therefore you have a customer lifetime value of 1000GBP
BUT
Cost of goods sold were 700,000GBP
Business fixed costs were 100,000GBP
Variable business costs were 80,000GBP
Therefore a total profit for these 1000 customers of 120,000GBP over 2 years, and a per customer profit of 120GBP/customer.

This is obviously a very rough fag packet example but it is worth doing this exercise so that you can then determine the profitability of all of your marketing channels through looking at what their cost per new business customer acquired is and comparing it to the customer lifetime value.

Anyway, to keep from steering too wide form the point of the post… From this figure you can then determine how much you are willing to spend per customer on your affiliate marketing.

You now know that if you spend 120GBP per customer acquisition then you will break even on that customer so if you build in that you want to make 50% profit and spend 50% of the customer value then you can spend 60GBP per customer acquired.

Now, if you work out the average number of orders of those 1000 customers over the 2 years then you will know your average order size through dividing total revenue by total orders.

Say for example that the average number of orders was 4 then you will have an average order size of 250GBP.

So based on this if you can spend 60GBP per new customer order then your commission level for “new” customers can be just under 25%.

However, not all orders are from “new” customers so you could do one of 2 things:

1) Decide to average out commission across all sales by saying that every 1 in 4 customers is new therefore you can pay 6% commission overall

2) Decide to have a higher level of commission on new business orders and a lower level on other orders e.g. 10% and 5% respectively (although you will need to have the backend website functionality available to track different customer segments).

As well as the cost to the end affiliate you will need to figure in a network cost. As a basic guide this is about 25-35% of the commission paid to the affiliates. Therefore if you pay affiliates £1000/month then you will also need to pay your network a fee of around £300/month so this needs to be factored in when determining commission levels.

Always set your commission levels slightly lower than you can afford so that you have the option of increasing commissions for seasonal promotions and for giving high performing affiliates added incentives etc.

What is the best affiliate network for me? The amount that the affiliate networks are willing to disclose to you will depend on your skills as a negotiator and also the potential size of your business for the affiliate networks.

Approach all of the big networks – Tradedoubler, Buyat, Linkshare, Commission Junction, Affiliate Future and Clickbank, explain that you are going to be setting up an affiliate marketing program and that you want as much information as possible on why you should go with them.

Ask them:

How many affiliates drove a sale for them last month?
So that you can compare their size and reach with others
How many affiliates are promoting merchants in your industry?
So that you can see their reach in your vertical
How much revenue did they drive for your entire industry last month?
To judge the level of bottom line success in your vertical. You should also look (if possible) at the % breakdown of the revenue by affiliate e.g. what % of revenue is made up by the top 5 affiliates? Is there a lot of long tail/small affiliate opportunity?
How many new affiliates did they recruit last month?
To judge how actively they are growing and how proactive they are.
How many new merchants did they recruit last month?
Ditto, are they an arrogant and lazy network?
How many merchants from your industry are with them? (good to go with the bulk as there will be a good affiiate base ready to promote you if they are already promoting your competitors).
Who are the biggest 5 affiliates working with them?
Who are the biggest 5 affiliates with them for your industry?
How much commission will they charge on sales?
Can they run multiple commission rates?
Can they do lead generation on a fee per lead basis?
What does their management fee include? How much support and help can you expect from them with affiliate recruitment/reporting/problem shooting/industry updates?
What technology do they offer that is unique to them?
If you can get a fair bit of detail on all of these questions then you should be in a good position to approach the negotiating stage and play them off against each other. Obviously the amount of leverage you have and how far you can go will largely depend on the size of your business and what kind of revenue you will bring the affiliate networks. Make the networks excited about your marketing and growth plans. Explain your past performance and what your plans are for the next year – if they see you as an expanding and growing brand then they will stretch further to meet your needs.

By the time you have got to this stage you will have your preferences, go with the data, the best deal and your gut feel. If you like and get on with the people on a genuine level and trust that they will take your business seriously and will spend time promoting you then go with them, but only if the commercials and their business proposition stack up too. Getting visibility with the key affiliates for your market Once you have your account set up and you are ready to go the first thing to do is to put together a target list of affiliates that you want promoting you. Rank the affiliates on the list by potential and then work with the networks on getting the best real estate possible on the affiliates sites.

Get the affiliate network to give you a list of every affiliate who has driven a sale for any competitor of yours (that is in their network) within the past 6 months. Ask the affiliate network to rank the affiliates in order of revenue driven (obviously without the sensitive data) if they mess up and give you the sensitive data (unlikely) then all the better. Put together a promotional plan for the first 3 months and make sure that your offers blow the competition out of the water. Affiliates are businesses in their own right so are just interested in promoting the merchant who can earn them the most cash, so if you give them a better % commission and your conversion rate is as good as your competitors or better then you will quickly win them over. Check out the top affiliates EPC (earnings per click). You then need to work out how you can give them the opportunity to earn over this with you – basically calculate: (site conversion rate x (commission rate per sale X Average order size).

Ensure that the affiliate network have agreed to give you featured merchant status for the first month and that you are featured all over their website/blog/twitter/facebook etc and emails.

Email all of the other affiliates straight away introducing yourself as their support at your company, explain your proposition, affiliate program terms (commission rate etc) and explain that you have an unbeatable offer for the first month that is going to have sky high conversion rates.

Save some fat in the promotional spend plan for the top affiliates so that you can offer them something special for a great location on their site.

Once you have the top 10 on board and are recruiting the long tail through the email then get on the phone and work your way down the list getting more and more affiliates on board, there will be many that you cannot get hold of and/or who do not reply; do not be disheartened as this is normal, affiliates are busy people. Just try to think of good ways to grab their attention and leverage all contacts at the network to aid you in getting in contact with the affiliates.

Keep in close contact with the network – let them know that you will make them work for their commission, be thankful and complimentary when they are good but beware of them being more lazy after the initial flurry – you need to hold the pace for at least the first 3 months and then it should start to get easier as you have some secure relationships that do not need too much maintenance. This applies to both affiliates and the networks.

New affiliate promotions to get the affiliates promoting you instead of your competitors This is obviously a tricky one with no clear right/wrong way. There are a few rules that I would stick to though:

Keep things fairly simple – as mentioned above affiliates are busy so if you come up with a highly complex (however fun) promotional idea they may just switch off before you sell it in to them.
Keep things fresh – do not just dole out the same old promos every month to the affiliates, there will be no real incentive for them to keep promoting you and trying new things for you if they already know how it will perform on their site.

If possible base your promotions for the top affiliates around their site and what works well for them e.g. if you sell T-shirts and cushions and one site is flying on the cushions then give them special offers around cushions.

Use the data you have after each promo – see what works for who and try to understand their site use profile so that you can meet their needs.
Show your face at affiliate events, make friends in the industry, do people favours and just generally enjoy yourself as if people see you being fun and positive socially then it will impact the business relationship you have with them.

If anyone has anything that they think could be added to this post then just let me know and I will add it in. All the best with your affiliate marketing!

Joel Chudleigh is Director of Deep Foot Prints Online Marketing Ltd which is a UK based Online Marketing Consultancy which focuses on helping small and medium sized businesses to excel in the online space. I focus on affiliate marketing so am keen to share my experiences in this space with others so use EzineArticles for this purpose. If you w

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