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Customer Acquisition: The Real Secret is the Margin
Acquiring customers should be the focus of your affiliate program. Now look
around the Internet at some of the crazy margins being offered affiliates:
- Dell, 1% margins
- Travelocity, $1 per ticket sold
- Amazon, 5-15% per book...most often 5%.
These kind of tip money affiliate programs are better for branding than sales.
Which is likely the purpose of all three. Dell, Travelocity, and Amazon have such
powerful brands and market share that their affiliate programs are merely ways to
spread the logo a bit farther.
Not many companies can live with affiliate programs driven by branding; branding
is the job of banner ads. Lead generating and traffic are the job of clickthrough
marketing. And for generating sales, you have revenue share.
If your affiliate program aims to create sales, the margin should be part of your
customer acquisition cost. Pricing a lead product or loss leader to drive your
affiliate program should lead to higher margins for affiliates, and more sales for
your company if you bank on the repeat buy.
Your Lead Product
Marlon Sanders of HigherResponse.com uses his introductory product to build
rapport with his new customers, while rewarding his affiliates more than 50% margins.
Digitally delivering the product, Marlon delivers virtually all of his profit to his
affiliates.
The result has been robust sales, with a healthy back end product which grows from
the initial purchase. If Marlon had no back end, this effort would be worthless.
But his integration of affiliate programs into his lead product system leads to
profitable affiliates and more sales for his higher priced product.
By empowering your affiliates to sell more, you can incorporate your customer
acquisition costs into your margin. Create the sale to create a buying customer;
your repeat business is what you bank on, your long term revenue per customer.
If you don't know the Revenue Per Customer during their lifetime, start
researching. Many argue that no one knows this figure, except companies that figure
this into their equations from the beginning. If you don't plan for it, you'll never
get it.
If you are selling the majority of products to people who will really buy only
once, you have a very tough business to keep going. Repeat business is the key.
For an example from the affiliate's perspective, Register.com is a business built
on a simple, "free" lead product; registration of domain names with Network
Solutions. Register your domain and you get taken through the process; the only fee
you pay is to Network Solutions for the domain name you choose.
Register.com uses that affiliate program to acquire customers; what better
targets for Web hosting and related e-commerce services than someone who just bought
a domain?
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