In February 2014, the affiliate channel accounted for only 7% of e-commerce transactions — down from 9% in February 2013, and a drop in the bucket compared to major e-commerce traffic sources like organic search (24%), paid search (19%), and email (18%).
The above figures come from The Custora Pulse, a free US e-commerce industry benchmark, aggregating transaction and customer data from over 100 US e-commerce retailers, developed and updated by e-commerce marketing analytics company Custora (disclosure: my employer).
But don’t go feeling bad for affiliate marketers just yet. According to Custora’s E-Commerce Customer Acquisition Snapshot — which analyzed data from 72 million customers from 86 US retailers across 14 industries — the Customer Lifetime Value (CLV) of new customers acquired from affiliates is, on average, 8% higher than that of customers acquired from other channels.
Of course, this number varies quite a bit by retailer, vertical, and specific affiliate. But it also suggests that there’s a juicy prize out there for marketers that can effectively manage their affiliate networks.
So, what’s the secret to affiliate success?
1. Identify The Split Of New Vs. Existing Customers
In many cases, retailers will pay a single commission rate on affiliate sales, whether or not the customer in question is a first-time shopper.
But here’s the thing: as a marketer, you prefer not to have your existing customers buying your products from affiliates. That’s the equivalent of paying a tax (typically between 5% and 15%) on every repeat purchase.
The primary reason that affiliate networks are so powerful is that they can help you expand your reach, venturing into new markets and finding customers that may not otherwise have been aware of your brand or product offerings.
Wouldn’t it be better if you could win back current customers through less expensive channels, like email or owned social media?
So, beware of affiliates who are generating traffic primarily from returning customers. At worst, these may represent reseller scams. At best, these partners are unlikely to be creating much incremental value — they may simply be skimming existing demand from customers that already know what they want, and are just doing some last-minute deal-hunting.
2) Identify The Split Of New Vs. Existing Customers
The affiliate channel is interesting because, unlike other online marketing vehicles (such as paid search and display), it is almost always run on a strictly pay-for-performance model. If you’re paying an 8% commission on all affiliate sales, you know exactly what ROI you’re going to drive — right?
Well, it turns out that this is only the case if you’re looking at ROI on individual transactions. Think instead of your customers, and the whole future value of your relationship with them, as the return on your investment.
The fact is that some customers go on to make lots of repeat purchases and develop a long-term relationship with your brand. Others don’t. And wouldn’t you rather partner with affiliates that are helping you acquire customers that will grow your business?
So, start following the customers acquired from different publishers. You can use analytics tools like cohort analysis or predictive analytics to understand long-term trends in customer retention.
Chances are, you’ll see big differences across affiliates in terms of the type of customers they help you acquire. You should be focusing your attention on the publishers that help you find those high-value customers — the kind that will keep coming back long after their first purchase.
3) Structure Commissions That Help Advance Your Marketing Strategy
Now that you have visibility into the mix of customers that each of your publishers are bringing to your site — and understand how valuable these customers tend to be to your business in the long run — you can take action on these insights.
Marketers have a tremendous degree of flexibility in negotiating commission agreements with individual affiliates. For publishers that are sourcing low-value customers, for example, consider lowering the commission rate. For publishers that report a high percentage of “existing customer” vs. “new customer” sales, consider different commission rates for new and existing customers. And of course, never forget that you can cut underperforming publishers or those you suspect of fraud from your network altogether.
Ultimately, marketers that can harness their affiliate networks stand to gain access to pockets of valuable new customers. But it’s important to treat the affiliates channel as a strategic customer acquisition vehicle — and make sure that you’re focusing on the affiliates that help you acquire the best kind of customers.