Step 2. Target your Affiliates

Take those Web Sites, email lists, and online communities where your customers meet and create your lists of affiliates to target via email, fax, and telemarketing (examples in Step 5). With the broad variety of sites you have to pick, it is best to begin with one specific niche, roll out your campaign, measure the results, and apply what works to the next niche in your market.

Break down your products into specific categories, determine the Web Sites to link to, and target those affiliates. Before you begin, consider in depth what you are really offering them in terms of your affiliate program.

Affiliate Value Proposition

The value proposition you offer to your affiliates differs from that of your customers. While the pricing, selection, and branding capabilities may be an advantage, to prospective affiliates the bottom line is how much they are going to make.

Your affiliate payout is critical to your success; no salesperson is motivated by low percentages, or payments that happen 4 times a year. Many programs pay quarterly, then wonder why their sales force is not motivated to sell If you cannot offer an adequate (hint: more than 10%) profit margin, or pay more often, think about how successful your program will be without these incentives. Besides your referral fee, make sure you emphasize the branding power of your company's logo at the affiliate's site and the ways affiliates can integrate these as value added services to their own sites.

Your affiliate referral fee has to provide enough incentive for them to act; be sure to focus on the average sales price of an item first to increase perceived affiliate value, because these percentages may be low. You may find that it is a good idea to set scaled, affiliate referral fees; many networks offer these different percentages on an as needed basis, and advertise one, general fee at their site. Here again you must target your affiliates differently; for those who will genuinely generate high volumes of sales, you need to stick with your scaled pricing. But for the rest who will likely never reach those lofty goals, a slightly different value proposition is suggested.

• For Tier One and high traffic Tier Two sites, your lower pricing structure can work well as outlined, because they are more likely to return repeat business. Yet for the majority of your affiliates, the reality is that they will generate just a few sales. Why not pay them very well, knowing that they will generate a few sales, and build loyalty. Structure your Tier One and high traffic Tier Two sites in terms of volumes of sales, and run out a general campaign based on a slightly different structure. Offer this as an option; most low traffic sites will take the following choice.

• For example, instead of scaling your fees based on volume (remember, this is a different structure than you make with your major affiliate partners), why not do it based on mode of advertising? Give them 5% if they link to your site or someone buys a product; give them up to 15% if they put an entire, storefront on their site, for example. You will then encourage them to put your more effective modes of advertising on their sites and not have a promise of reducing their earnings down the road, once you have mined their customer base.

• This strategy will work because statistics show that 20% of sales come from affiliates, and the rest on repeat visits. People most often buy on 3rd or 4th contact. Bank on it and build the immense promise of your affiliate network. By giving affiliates the promise of a higher referral fee, you fill the affiliate's need to earn more, while generating more leads for yourself. You will spread the word and build a lead generating funnel based on the repeat business factor. Just make sure you grab their email address.

• Finally, make sure you measure the success of each affiliate using the following formula:

  Asset Value of One Sample Affiliate

  Key 1: Leads

  Measure this in terms of your traffic; determine your clickthrough visits from other sites and how much repeat business you generate. Who is generating a consistent volume of leads for you? For those who don't, transition them to become part of your customer loyalty program.

  Key 2: Net Sales

  Rank your affiliates in terms of sales generated; what is your SellThrough ratio (visits to sales)? Compare this to the sales you generate via your email list on an ongoing basis.

  Key 3: Advertising & Marketing CPM

  Determine from your best selling affiliates what the effect on CPM is at their site. A powerful tool for rolling out your network is discovering what works and how it increases the value of their banner advertising. Make sure to use this measurement as a way to introduce the value of your affiliate network.

  Key 4: Branding

  While this is intangible, emphasize the power of co-branding with you, especially to smaller sites. Amazon's strategy of branding was very effective for the thousands of small sites who need credibility building. Your affiliates must at least carry your logo to develop brand name.

  Key 5: Affiliate as Customer

  The goal is to build your network of thousands of affiliates and mine this list to convert affiliates into customers. Encourage affiliates to buy from you, not via their program but via your customer loyalty program, and give them an initial gift certificate within a month of signing up. You may find that this area is crucial to increasing your customer acquisition by using affiliate programs as a list building device.

  Asset Value of this Affiliate Per Year

  Measure this and develop a long term value of your affiliates to target.