Tracking Your Success:
How to Measure Your Affiliate Network Return on Investment (ROI)

Setting up an affiliate program should be simple. You plug into the software, sign up tons of affiliates, and wait for the cash to roll in. Or at least that is how it is presented at many Web Sites.

The key to remember is that you are setting up a sales force, and that affiliate programs are tracking mechanisms for your advertising. What is important is to focus on how to empower your affiliates to generate more leads, sales, and spread the word. Affiliates bring numerous values to your business which often go unrecognized; enabling your affiliates to succeed is crucial to your success.

It is also important to minimize your administration of your network. Software is just the first step; the really important challenge is to keep your affiliate network humming with sales by checking into what kind of traffic is being generated, who is making sales, and how to get the most value out of your network.

To better understand how to maximize the value of your affiliate network, this ROI model will outline the Assets and Liabilities to give you an idea of where you should be placing your money. Start up costs are nothing compared to the monthly maintenance and development.

The costs of running an affiliate network should be considered only part of an overall marketing budget. Search engine placements, opt-in email list building, and even banner ads are still important components of any business.

Smaller affiliate programs can be set up and running within a week, with just a few people maintaining them. The real tricks come when the software has to handle many, complex transactions; this is where a third party service bureau like Be Free provides a better solution. Most of the problems happen with the more complicated tracking systems, while smaller businesses can often set up a simple system in a few days and really do little to maintain it. After all, if it is a script that does one thing and is installed properly, a small business can focus on their affiliate support and customer service.

Yet if you can reduce your costs of marketing and advertising through your affiliate network, you can greatly reduce your reliance on other forms of Internet marketing. Again this depends on the type of product or service you are selling, and if you set up a clickthrough, revenue sharing, or straight CPM model, or as many businesses do, a hybrid combination of all the available tools.

The real value of an affiliate network is when you can focus your costs on maintenance, administration, customer service, order fulfillment, tracking, returns, and affiliate development. The reduction in marketing costs should also be reflected in a reduced administrative costs when your company can focus on support instead of marketing.

Start-Up Costs

Setting up an affiliate network depends on your demands and the investment you can make in creating this network. For small businesses, you can get in for as little as $250. Even the higher end packages are not that expensive, although they do not list their pricing.

Still, it is not close to lofty figures Web developers get for complex Web Sites, because basically you are buying tracking software. The more sophisticated the tracking, and the more demanding your needs, the higher the cost. For more complex networks, a third party service bureau like Be Free or ClickTrade incurs more cost in terms of setup and percentage of revenue paid out to the service bureau per transaction, or whatever measurement is used for the affiliate network.

The return on investment is huge because these companies handle the technical headaches and manage the system to insure that it is working well. For smaller businesses, the goal is to buy the software and have it set up and working on your server.

Remember the basic rule; the more complicated your network is, the more ways it can break down. For higher end solutions, these third party services have arisen to keep up with the demand. Small businesses and entry level programs are usually simple and work from first installation.

Consider the following costs:

Software setup and installation

1. Do it yourself; many of the technically minded can handle this well. Just be sure you can spare the time, because what you save in money you pay for in hours. Here's some scripts you can try:

   Matt Wright's Script Archives

2. $500 and less solutions: These are the entry level, where the company installs the scripts for you on your server. These start at $250 and most good packages are around $500, $700 or so with installation.

3. High End Solutions: For those who need the best and can pay a little bit more for start up, and often grant a per transaction fee, there are Affiliate service bureaus and networks like Be Free, ClickTrade, and LinkShare.

4. Server Fees and Transaction Costs: Naturally you have to pay your server fees, possibly fees to where your affiliate software is hosted (if it's on another server), plus various transaction costs for processing credit card orders online, or paying a per transaction fee to a higher end company. Contact the companies to find out what percentage they will charge for you.

5. Ongoing maintenance fees: Your network will need to be taken care of to protect against glitches in code, security threats, fraud, and simply to keep it working efficiently. Make sure you back up your online network and set aside time and money to keep your network running at peak efficiency.

Ongoing Costs

The most important ongoing costs will be maintaining your network, delivering your products and services, customer service, and affiliate support. Remember that your marketing should be leading the effort, emailing and encouraging your affiliates to succeed with the tools they need.

With the multitude of products and services, plus the number of affiliates different networks require, it is impossible to give a standard cost. The following is an overview; these programs can be run by a few people, or manned by a staff. The real key is in how many affiliates you sign up and how many sales you make.

Here's an example of the ongoing maintenance of an affiliate program to consider and budget for in your investment. Whether it is time or money, you will have to cover as much of this as makes sense. Don't expect to do everything, but pay attention to details.

Production of Affiliate Marketing Materials

Your marketing materials are the core of your business; if you leave it up to your affiliates, they will likely not do it as well as you can.

The logic is simple; if you are selling someone else's products, you need their marketing and advertising materials. Think of a retail store; point of purchase displays are central to selling. Control your marketing and content by giving your affiliates all the approved tools to work with.

Here's some of the things you should consider:

1. Ad Copy

   In journalism and direct mail, your headline and sentence are the most important parts of your offer. If you read the ad copy online, you discover why people are failing. They think that fancy graphics, Java, spinning animations, and other gadgets impress people. Give people a simple, direct message that they can understand, outlining exactly what your product or service is important to them, is more important than any trick you have.

   Remember to also check your ad copy, any copy you write, with Word's Grammar Checker (look under the Tools menu; this is the kind of advice your grade school teacher used to give, but there is value). Keep clicking through until you get to the end of your writing; up will pop a box giving the "Flesch" Reading Level. This tells you the grade level you are writing at. If you write at greater than an 8th grade level, simplify your language. Write short sentences, two to three sentence paragraphs, use bullets and numbers, and keep it moving.

   What's amazing is most people think you have to sound over intelligent to impress the well educated audience on the Internet. Nothing could be further from the truth; the more educated they are, the more impressed they will be when you quickly and simply get to the pointÉdon't waste their time.

   Don't believe me? A friend of mine worked with George Lucas -- yes the George Lucas -- and she told me he never read anything, he scanned the bullets and headlines. Power scanning is a rule of our society, and your ad copy should understand this and compel your visitors to work with you. The more educated they are, the more valuable their time. Respect it and pay attention to your ad copy to boost your sales.

2. Banner Ads

   Create a series of banner ads, maybe 4-5, and update them frequently if they are not working. Some banner ads can be used again and again; Cory Rudl's Internet Marketing Center banner ads have rarely changed, because they do work.

   Be cautious with banner ads though. There is a tendency in affiliate programs to just create banner ads and neglect everything else. Banner ads generate a 2% response usually, sometimes greater but they are still unreliable. Don't just create a banner ad and let people post it; invite them to promote your business better.

3. Text ads, endorsements, ezine/email ads, classified ads, and sales letters

   This is one of the best ways to market; write a headline and a few sentences giving a free offer or compelling reason to visit your site. An endorsement from an affiliate with a trusted list is incredibly valuable; the trust this person has generated is extended to your products, so the target customers meet you via a recommendation.

   Ezine/email ads are also a good way to generate leads for your affiliate programs. Be sure to test which lists will trade your ads, and build up your own ezine list to exchange as well. Finally, pay attention to the sales letters that greet your visitors. You should direct people to a specific page in your Web Site with a specific offer. Try not to send them to the home page of a catalog and give them thousands of choices. Give them just a few good choices and keep them focused.

   One final component is your follow up; using systems like Aweber (http://www.aweber.com), you are able to create an automated email follow up to any inquiries. This automation can dramatically decrease your overhead and create a valuable system that will put your email on autopilot. The system simply responds with your messages at time intervals you set. It is a must for any affiliate inquiries, and can also be used to generate email inquiries from other Web Sites by putting a tracking code that is submitted with the inquiry.

4. Free reports

   An excellent way to empower your affiliates is to give them a special Web Page/report to post at their site, or direct their ezine traffic to learn about what you offer. A good free report is better than a banner ad or a simple picture; it can describe a benefit and should lead them to your site. Free reports look almost like a sponsored page at another site, as well as giving the Web Site owner extra content.

   Don't make it just a sales letter, but mix in some content and make it worthwhile. Post these at sites, and allow others to pass your article on. You can also include your banner ads on this page to make the offer compelling.

5. Special search engine pages for your product, each with a link to your site

   This is the most under-utilized tool in the market and one that can yield immediate benefits. Portal pages, or entry pages, to a Web Site are becoming favored by search engines as long as they don't massively repeat words or manipulate the search engines.

   Why not create special search engine pages for your affiliates to post at their Web Site and submit to the search engines? It will help them succeed and will help you generate more traffic, plus it will have links to your site via the affiliate program to possibly improve your ratings in certain search engines. If you do it, you can minimize the risk of your affiliates doing it the wrong way. For many products, this could be an effective tool and put your company near the top of the major search engines.

Ongoing Costs of Your Associate Network

Administration of your network is one of the most demanding chores of an affiliate network. Do not expect to write a Web page and have people never contacting you. Requests will come in, browsers will have different views of your page, and the Internet will provide glitches that may have nothing to do with your efforts.

Administration issues are crucial to your success; many programs have broken down and lost orders, not responded to emails, and some haven't even paid their affiliates. One program failed to pay an affiliate over $1500 for a period of 3 months.

This kind of behavior is not only wrong, it can be illegal depending on the country and/or state you are in. Just be sure to pay your affiliates on time, answer inquiries, and if something goes wrong, fix it and don't make excuses.

Here are some of the administrative costs to count on:

1. Getting Associates Approval and Verification

   Many programs will allow any affiliate to sign up. They just fill in a form and get an automatically generated code. It is still a good practice to visit your affiliate's sites and make sure they are presenting your materials the way you want. You should also make sure that if you don't want certain types of Web Sites offering your products, like Adult Sites, that you visit just to see what they do.

   Some affiliate programs take an application, verify who the site is and that it meets the qualifications, before allowing them to affiliate. This may seem to slow down the process but if your goal is just to sign up hordes of affiliates, then avoid this. If you want to qualify your salespeople and take an extra day or two, include verification. This is best done with an actual visit to a Web Site and contact, making it more time consuming. But you will know who is working with you.

2. Tracking/ reporting sales and Commission Statistics

   Tracking software is often built into your affiliate system. You should have reports on how many visitors were sent and where your sales came from; many packages offer complete statistical reporting for you and for each individual affiliates. Emails are often sent out with each order, and commissions are reported on monthly.

   At the end of each month you must tally the commissions, count your returns (Do you have a policy to cover returns of products and any credit card fraud that might happen? These amounts should be deducted from the payment to an affiliate if they occur, and the affiliate should know how many were incurred) and deduct them from payments, and prepare to issue checks. This may seem simple, but with bigger networks you may run into the problem of writing many, smaller checks. Most affiliate networks set a minimum amount, or threshold, to be reached before issuing a check. Part of your end of the month routines is to tally your commissions, rank the results of your leading affiliates, and here is where you can determine who needs more assistance and who are your best salespeople.

3. Issuing payments

   Writing your checks and issuing payment is the final step, and should be done at a certain time of the month. Give yourself a few days after the beginning of the month to issue checks and let your affiliates now. Be sure that you have agreed to disperse your funds in the currency of your own country; remember that some of your affiliates may live in other countries. If you mail them a check, it may take a long time to arrive. Try to find a good arrangement with them, and notify them by email of what you are sending.

4. Legal issues

   For specific questions affecting your affiliate network in your state or country, consult an attorney. Be sure to get Federal Tax ID numbers for affiliates who generate more than $600 in earnings (or whatever the current Federal Tax Level is) and give them a 1099 form (for those outside the U.S., consult your own tax requirements for paying independent contractors).

   Be certain that your affiliates are considered independent contractors and not employees of your company. Also check into state usage and tax laws; doing business on the Internet can be confusing. Affiliate networks branch your business into many states; most affiliate networks put a disclaimer in their agreement to make sure that the affiliate is responsible for any local tax laws. As always, ask an attorney if you have any questions.

5. Security and Protection

   If you are setting up an affiliate network, be sure to protect your software and reporting mechanisms. Don't let your affiliates information be easily dispersed either; some networks that have failed to protect their scripts have left themselves prone to intense explorations by their competitors to see what sorts of sales their affiliates are actually generating. Security for your ordering systems is a must, as always; if you are processing credit card transactions online, this will bring added cost to your efforts.

6. Sales Tracking and Training, Keeping your sales force fresh

   As you use your reporting statistics, be sure to review them periodically and rank your best salespeople. Phone them up and thank them for working with you; try to give them all the tools they need to succeed. Ongoing training is also a good idea; you could offer Internet marketing books to your network, or even better affiliate training systems. Pay someone to adapt their system to your network and create a natural funnel for added income which empowers your sales force to sell.

   Use the example set by a company called Mining Company (http://www.miningco.com). They have editors of special Web Site sections that comprise their site. Each specialist generates traffic for their specific subject. They get paid for the advertising impressions they generate; the more traffic they generate, the more the editor gets paid.

   Mining Co. makes it a point to contact their editors and gives them training to improve their results. You should apply the same procedure to your affiliate network, and perhaps create an additional revenue stream for yourself with the training materials they need to succeed.

7. Support: Set An Example for Your Affiliates That They Share With Your Customers

   Be prepared to get plenty of emails with questions, confusion, and technical naivetŽ. If you think you will create an instructional page and never hear from them again, think again. Even if you write it down, people want support. Give them access via telephone, email, and fax. Don't make it hard for your affiliates to contact you.

   Set a good impression, style, and quality of service that you provide to your affiliates. Your example will filter down to your customers. A good affiliate network emulates the people running it; teach by example and give them a good example to follow.

Customer Service Costs

The final cost to consider is how much your costs are to take orders and deliver what you offer to your customers. This customer service element is critical, because your affiliates should be the marketing arm that frees you to pay attention to your customers.

A good suggestion is to include a telemarketing component to your customer service. In today's business world, customer service is marketing. Getting repeat business depends on you treating your customers as a privileged asset. Call them and thank them for ordering; process their returns and complaints quickly and courteously.

Here are the costs to consider for your investment:

1. Order Taking

   Let your customers order any way they are comfortable with, and be sure to take credit cards. Give them the option to phone an 800 number, fax, pay by check, by multiple credit cards, and by any other means possible. Be sure that if they do order somewhere other than online that you find a way to get the affiliate that referred them to your Web Site. If you phone them or email after they order quickly, you will find that most people know where they heard about you. Secured online ordering is a must; this is where your best tracking is done and after all, you want to get your customers comfortable with ordering online. That is the most cost effective consumer behavior you can encourage

2. Fulfillment

   How will you get your orders to your customer quickly? Immediate attention and delivery creates a powerful impact. If you have to ship a physical product, make sure you get it out the door as soon as possible. Do not let weeks pass by, like many mail orders companies do. With the Internet, you don't have the excuse of the postal system to cause delays, even if you ship through the postal service.

   Internet visitors want it now and they don't want excuses. Make sure you can upscale your business to handle the influx of orders.

3. Returns and problems

   There is an old saying in business; if you don't get returns and complaints, you are not selling enough. That doesn't mean you sell bad products or services (if you do, huge returns should indicate that you stop selling it!), but that you count a percentage of your business as returns. Create a system to handle returns, complaints, and inquiries so that you can quickly follow up with your customers. The worst thing you can do is ignore the problems, or delay the return. Give them everything as quickly as possible and move on.

   Also remember that if you ship via the Internet or mail, the U.S. has an implicit 30 day guarantee. It protects consumers from getting ripped off; even if you don't know it, you are offering at least a 30 day guarantee. So why not put it on your marketing materials and make sure that you build up reassurance. If you treat one customer poorly, it can spoil your entire business, so treat them with respect and don't play games with returns, complaints, or problems. Your Return on Investment is a measurement of your sales generated, your costs in starting up and maintaining your Web Site, and the development of your long term assets, your affiliate network that generates ongoing sales for your company. Be sure to check out these costs and keep a tab on improving your business.