What is the Net Asset Value (NAV) of Your Affiliate?

The power of affiliate network is often undercut by neglect. It is amazing how many companies brag about their affiliate networks; meanwhile, a few high traffic sites generate sales, while the rest of the affiliates become mere numbers.

For example, one affiliate network owner has an easy sign up form. He doesn't care what happens after the sign up; if they complain, he tells them it is up to them to succeed. In one way, he is right; you do not need dead weight in your business.

On the other hand, these are people who are eager to sign up and get started. He leaves them alone and expects them, without motivation or direction, to sell his products. You can see why his affiliates will not succeed, because he has already planned for them to fail.

It is quite simple; your affiliates can bring so much value to your business, but you have to pay attention to them. They need more than a banner ad, they need direction. They are an asset that you can measure your success by if you take the time to track your results and do what you can to improve them.

If you don't build the value of your assets, your affiliates, your network will die of neglect. The good news is, most of your competitors are doing this. They are signing up tons of affiliates and ignoring them. Soon people will understand what you are about to read, that the real goal is to keep them your affiliates by helping them succeed. And by realizing the real value they bring to your business.

The 5 Key Profit Centers Affiliates Can Generate For You

Affiliates are more than just sites that market for you; they generate much more value for your business. In this section read the values they bring and consider the case study of one small site, and how much real value these sites bring to you. Remember these 5 Keys when you set up your network:

Key 1. Leads

Generating leads on the Internet begins by targeting high traffic sites, and niche sites with a loyal following. A Web Site with an ezine mailing list, or considerable daily traffic, is a huge asset. Affiliate programs are an excellent way to generate leads. If you determine your cost per lead, you will find that affiliate networks bring significant savings.

Example: A few years ago Edmunds.com, a Web Site with detailed information on automobiles, generated leads for Auto ByTel. This was an early affiliate, lead generating model (almost like a highly qualified clickthrough). The shopper went to the information site to find out about the car. They filled out a form at the site, a sales application, which is eventually forwarded to the local automobile dealers to start the sales process.

Edmunds used its traffic to generate leads, and charged per inquiry; because these inquiries were qualified, the price for these leads was much more than a clickthrough would get. In fact, given that the lead cost for a car dealer can easily exceed $40 a car, the cost was incredibly cheap. Edmunds not only generated leads, they became a primary builder of Auto ByTel's business.

Questions to Consider:

1. How much do you pay per lead now? If you are strictly an Internet business, count the number of inquiries (via phone, fax, and email) to your total traffic. Count how much it costs you to generate that traffic and divide this by the number of leads. This is your lead cost.

2. How many free leads do you get from your affiliates? Amazon.com generates a visit from your Web Site, but when someone goes back to Amazon.com site alone the second time, the affiliate doesn't get paid. This is a natural occurrence; it is the free lead value of their network.

Key 2. Sales

Sales are the obvious value of an affiliate; how many sales do they generate per month? Many times you may get a certain number of sales from a Web Site, but unless you are selling software, it is difficult to maintain this level. Quite simply, there is just so much traffic that goes to a Web Site. If the site is lightly visited, even having 10-20,000 visitors a month, you can quickly run out of people to sell to.

The first months will often give you your biggest returns; this will decrease over time. Exceptions to this are commodity products that are often purchased on impulse like books, music CD's, and even dating services. Products that are bought repeatedly, like airline tickets or investment related products, can also bring long, steady sales. For the rest, it is the case of a bell curve; it starts small, rises to a peak, and comes back down at the end.

One affiliate interviewed for this book shared an interesting insight; he was selling hundreds of books a month for Amazon.com. Eventually he called the distributor directly and asked if he could sell books. The distributor had no problem. Amazon.com lost a leading affiliate because they couldn't afford to pay him what he was worth. This trend has serious implications for the growth and development of your affiliate network, your sales channel.

If you don't reward your best sales people well, they will find the next best thing. Bank on it.

Questions to Consider:

1. How many sales are your affiliates generating?

2. Can you reward those who generate more with better margins?

3. Do you offer training and support for all your affiliates to give them a chance?

4. The first month an affiliate joins your network is critical. Do you make the effort to keep them active, interested, and thriving? If not, they may never make the effort.

5. Do you track your affiliate's performance monthly and seek ways to improve it, or do you just cut checks and consider it a burden? Your attitude will seep down to your affiliates.

Key 3. Advertising/Marketing: How Affiliate Networks Affect CPM

Advertising and marketing costs are directly affected by affiliate networks. The goal of Internet advertising is to get your product in front of as many consumers as possible. CPM (cost per thousand) is the advertising term for the reach, the amount of customers, your advertising appears in front of.

Affiliate networks should increase the value of advertising space on the Internet. This is not hard, since in reality few sites really sell any advertising (in a recent report, only about 1700 sites actively sought advertising out of the multi-million Web Sites online). To sell advertising month by month is a full time job, and few companies place month by month advertising on any site.

The wealth of dead advertising space makes negotiating advertising pricing a wise choice; it also makes affiliate programs a good, long term solution for both parties. If you can generate continual sales from a Web Site, it only makes sense for the affiliate to keep you on the site.

But if you don't generate sales, they will do nothing for you. Affiliates should only choose those programs that bring them in money. For example, Brian Clark of RankThis, a search engine ranking site, offers a piece of software to improve your positioning, He gets almost $37 CPM for selling that software; if he were to sell the banner ads alone, he would be lucky to get $15 CPM.

Remember this CPM factor in the case study below; if you count the thousands of impressions your affiliate programs generates, even the clickthroughs, you will realize how valuable good affiliates can beÉand we don't just mean the big sites generating traffic, but the thousands of niche sites spreading the word about your business daily.

Questions to Consider:

1. . Are you increasing the CPM of the affiliate's site?

2. Is your CPM in terms of visits generated to your site good in comparison to the costs of actually buying advertising?

3. Would your marketing costs be better served by clickthrough, affiliate networks, or traditional marketing?

4. Can you incorporate any off-line resources into your affiliate program? For example, one Web Site has an ezine list of tens of thousands. But only 10% of them live near one of this chain's many stores, so offers to the list rarely result in visits to the actual stores. Why shouldn't the company makes its heavily trafficked, "real world" stores affiliates by setting up a computer and registering people for Internet offers? The real value is in understanding how to best serve your target customer base; an affiliate in the real world who generates sales and orders via the Web Site is as valuable as an online affiliate.

Key 4. Branding

Branding is difficult to measure, which is why advertising agencies love to sell it. It almost becomes an excuse, an intangible that many people readily accept. Online branding is difficult, but there are a few brands emerging. Amazon.com is a great case study of a brand developed through affiliate networks.

Brand identity demands mass exposure, which is a great reason to sign up many affiliates. Administration costs should be measured against this over time. Amazon.com obviously benefits from administering its huge network of affiliates.

Since it benefits the Web Site owner to sell books, and to get perceived credibility for offering this well known bookstore's offerings, they have signed over 100,000 affiliates up. Results are not as important as convenience and credibility. More importantly, Amazon.com developed a whole brand through this strategy.

Questions to Consider:

1. Will the branding of your business help people remember your company's name? Be sure to use a good logo or memorable text graphic to instill your company's name in their memories.

2. Will the branding of your business enhance the credibility of other Web Sites in your network?

3. Can you insist that affiliates choose your brand over your competitors by competing on profit margins, training, and developing good will? Helping your affiliates is the best way to help your brand through positive, word of mouth advertising.

Key 5. Affiliates as Customers

The final key is one most overlooked by many affiliate networks. If someone signs up to sell your products at their Web Site, it is likely that they approve of what you offerÉor they are just looking to make money. Either way, this salesperson is likely your best customer.

So why do so many affiliate networks fight the natural urge of affiliates to buy through their own network? For example, if you buy a book through your Amazon.com affiliate network, it is literally against their policy and if they catch you, they can revoke your right to sell books.

Perhaps that makes sense, if you look at the affiliate strictly as a salesperson. Life shows us that only 20% of these people will do the selling, and these are the folks most unlikely to engage in this kind of trickery. Making money does give you a form of loyalty.

For the other 80%, this behavior is one of the only ways for them to make it a viable enterprise. By saving money, they benefit from being an affiliate. What is forming is an evolution from seeing affiliates just as salespeople, and realizing they are really fans of your business.

Does that mean Amazon.com should pay them 15% off of qualified books? Perhaps not, but it wouldn't be a bad idea to set up a special buying deal for affiliates so they could get something like 5-10% off qualifying purchases. Why not encourage them not only to sell, but to buy from you?

Questions to Consider:

1. Are you realizing the full value of your affiliate network by simply looking at them as salespeople?

2. Can you encourage them to buy through you, for their friends, for their network?

3. Why fight a natural human behavior to save money, especially online, when you could encourage this buying behavior into repeat business? If they don't sell for you, at least they can save money by buying books from you.

4. Customer loyalty programs will be a natural outgrowth of affiliate networks. Why not start now by allowing your affiliates to save money with you, as well as make money?

Finally, having explored the 5 Keys to affiliate networks, let me share a personal viewpoint from having been an affiliate for Amazon.com for over two years. While not a money maker (and I've actually never bought a book through my affiliation), it has shown me the true value that affiliate networks can bring.

This is the story of a small affiliate, likely a typical affiliate, who has a Web Site that generates good traffic, but has no time to turn it into a thriving business. Affiliate networks are the only opportunity in this situation.