Where Do You Go After Banner Ads:
Measuring the Impact of Affiliate Programs: The Real Goal Is Increasing CPM, Not Replacing It

How do you build reach quickly with little investment on the Internet? Art.com, recently bought for close to $200 million by Getty Images, draws about 60% of its income from affiliate programs.

Art.com is part of a quiet revolution on the Internet aimed at raising CPM at Web Sites. Everyone from Dell to Priceline are trying to reduce their customer acquisition costs with affiliate programs.

Affiliate programs are at the forefront of performance-based Internet marketing that increases CPM. Instead of paying for the ad, you pay for the results generated like sales and clickthroughs.

Affiliate programs are simple; virtually anyone with a Web Site or ezine can market another company's products or services to their existing traffic. The Web Site markets and the vendor fulfills the sale. The most famous example is Amazon.com, which pays other Web Sites per book sold; other programs pay per clickthrough, per lead, or on a hybrid model mixing actual sales with minimum advertising buys.

By reducing the cost of advertising, affiliate networks are working. Here's how:

• ActiveAffiliates: About 50% who sign up actually post ads. Many programs allow affiliates to buy through their links as well, forming buyer's clubs to increase sales.

• Sales: Between 1-33% of affiliates will make sales in most programs.

• Total Sales From Affiliate Programs: Estimates range up to 60% of total sales.

• Cost Savings: Affiliate programs can lower customer acquisition costs by gaining access to existing traffic and paying for advertising based on results.

Why is this powerful marketing tool such a secret? Many successful companies keep the statistics private to protect their best sellers. Here's what the best affiliate programs do to succeed.

Affiliate Programs: What Works

In Context Marketing: Art.com

Art.com created single product Web Pages and storefronts for insertion in other Web Sites. Art.com becomes part of the Web Site, instead of an outside advertiser. In March 1999, Art.com founder Bill Lederer shared the results; $20 million in sales. About 60% of that comes from his affiliate network.

Advertorials/Endorsements: ActiveMarketplace.com

ActiveMarketplace.com sent one email to a influential affiliate prospect; he read the book, "Winning the Affiliate Game", liked it, and endorsed the training to his ezine list of 6,000. The results: 227 sales X $67= $15,209 in sales within 3 weeks , at an 8% visitor to sales ratio (sellthrough rate). His CPM was higher than a banner ad would have generated. Remember, this was just one affiliate.

Niche Distributor Networks: Outpost.com

Outpost.com created a Macintosh affiliate storefront and tapped into a distributor network for a supposedly small, niche market. In February 1999, Outpost.com revealed the most successful affiliates in its network. Five of the 7 sites, generating $15,000 in gross sales each, were low traffic, Macintosh focused, Web Sites.

Lead Products: Register.com

Register.com offers free domain name registration services and gets paid a commission by Network Solutions for the "free" referral. The affiliate product is a lead item for Web hosting and e-business services. Register.com then emails the domain name owner to offer all the services anyone with a domain name would need. The power is in the lead product.

Affiliate Programs: What Doesn't Work

Same Old Banner Ads

Affiliate programs are a way to increase CPM and fill dead ad space with results-based advertising. But affiliate programs who fail to use direct response banner ads suffer the same fate as any banner ad. The key is in improving the creative and putting in a simple call to action for one product.

Low Margin Products

Imagine going out in the brick and mortar world and inviting someone to sell your $200 product and paying them a $1. Affiliates are the sales force, an asset; many companies pay pitiful margins, rarely write checks, and then wonder why their affiliate program is flopping.

Counting Affiliates Like Hits

Many programs brag about the thousands of affiliates they have. Meanwhile they do nothing to with them. Having lots of affiliates is good, but having plenty of good selling affiliates is even better.

No Guidance, No Training, No Activity

After you sign up with many affiliate programs, you never hear from them again. Sales training is critical to success. Without training, affiliates will do whatever they want, wasting time and money.

Shopping Cart Mania: Buy 1,000 Products Please!

Some affiliate programs drive people to a shopping cart filled with thousands of items. The overwhelming volume of choices undermines sales.

Amazon.com's success came from recommended, single products. The endorsement of a Web Site, and driving the consumer to a single purchase decision, is still one of the best methods of selling in affiliate programs.

Affiliate programs are reshaping banner ad space and Internet merchandising. Getting people to buy the first time is the real key, then you can send them to your shopping cart. If done correctly, a company can reduce marketing costs, test quickly, and set up a vast network of affiliated sites for little investment.

Art.com is the first proof of this system and how effective it can be.