Affiliate marketing: model, costs, traps

Affiliate marketing looks like the perfect model: partners advertise your product and you pay only when a sale occurs. The risk appears to sit entirely with the partner.

What the model actually costs

The commission is only one part. A realistic reckoning per sale includes the partner commission, typically 5 to 12 per cent for goods; the network fee, usually 20 to 30 per cent of that commission; a monthly network minimum, often £100 to £500; and your own management time, which is the item most often forgotten.

At an 8 per cent commission and a 25 per cent network fee, the effective cost is 10 per cent of revenue, before your own time.

The three partner types

The second and third types are the problem. A voucher site is found by someone who has already decided to buy and is looking for a code. The purchase was going to happen. You now pay a commission plus give away a discount.

How to see through it

Look at the time between click and purchase. Under two minutes almost always means the person came from your site, went to a voucher page and came back. That is not acquisition.

Also check the split by partner. If two voucher sites account for 60 per cent of your affiliate revenue, the programme is not a growth channel, it is a discount channel with a fee attached.

Setting it up properly

1. Publish clear terms, including which methods are forbidden: bidding on your brand name, cashback without added value, unsolicited email.
2. Differentiate commission, higher for new customers, lower or zero for returning ones.
3. Exclude brand keywords, otherwise partners buy your own name and bill you for it.
4. Set a cookie duration you can justify, 30 days is usual, 90 is generous and expensive.
5. Approve new partners manually for the first year.

The legal side

Affiliate links are advertising and must be labelled by the publishing partner. If they fail to do so, in many markets you as the advertiser can also be pursued. Put the labelling obligation in your programme terms and check compliance at your largest partners twice a year.