Affiliate marketing is an area we often see early stage brands hesitating to jump into. Whether it's because it sounds spammy or outdated or they think it's basically LTK stores for influencers, I can tell you one thing: for DTC brands and omnichannel brands, affiliate marketing remains not just relevant - but lucrative.
According to global ecommerce reports, affiliate sales represent 16% of global ecommerce revenue, at only 9% of digital marketing spend. As of late last year, it was reported that 81% of marketers take advantage of the power of affiliate marketing.
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Not only that, because it's generally pay-for-performance, affiliate marketing has a different impact on your contribution margin than things like digital advertising.
Long story short? You pay when sales are made. You don't when they're not.
- What is affiliate marketing?
- What types of brands thrive in affiliate marketing?
- The perks of affiliate marketing
- The challenges of affiliate marketing
- Why startups should do affiliate marketing
So what is affiliate marketing anyway?
As you might deduce from the word itself, affiliate marketing is when a third party agrees to market your product or service for a portion or percentage of each sale they make through their efforts. Affiliate marketing is a form of online advertising that rewards the affiliate for driving transactions.
Think of it as a sales commission for the digital age.
It's a wonderfully symbiotic relationship that benefits not just your brand (and bottom line), but the affiliate too. Many affiliate marketers earn a full-time or side hustle income by promoting other people’s stuff. Pretty useful, right?
Just for clarity on the players we're talking about.
- Advertisers: These comprise the people who want to sell stuff and are happy to pay a commission to do so, i.e. brands and retailers.
- Publishers: These are the content creators of the affiliate world. From couponing sites to cash back sites, from influencers to bloggers, anybody trying to monetize their content and audience falls into the publisher category.
- Consumers: These are the peeps getting the ads.
- Networks: These are the ones that often young brands aren't as familiar with - you may have heard of running affiliate directly, or using tools like Refersion to do so. The perk with the networks is that they consolidate tons of publishers in one place, enabling you to manage things holistically rather than individually building your own network of affiliates. Again: resources are tight, let's use what exists.
The biggest affiliate marketing categories
Experts anticipate the affiliate marketing industry to grow from $13B this year to $15.7B in 2024. Amazon Associates has the world's biggest affiliate program, with 20% market share - no surprise if you are getting served any content whatsoever on social platforms - with companies like Share-A-Sale, LTK, and Rakuten Affiliate being among the other players.
Unsurprisingly, retail makes up the biggest sector of affiliates. According to a study by AM Navigator, fashion is the most active category in terms of brand participation in affiliate programs.
The perks of affiliate marketing
If you think it sounds too good to be true, it is not. While you might not be able to build an empire overnight with all the extra sales, there is nominal risk attached to starting an affiliate marketing program.
Pay once a sale is made
While different affiliate programs may have different setup fees or infrastructure costs, the reason affiliate marketing is so lucrative is because it's entirely based on being a pay-for-performance model. You do not pay commissions until a sale is made. By trusting that your affiliates will bring in sales, you hold onto your much-needed cash until each sale is processed. Most affiliate programmes often payout on a monthly basis, giving you a little bit more leverage on your capital.
You can scale hard with no up front costs
Time to do a few basic sums. If one affiliate is bringing in an average of five sales each month, then five affiliates could potentially be giving you 25 sales each month. Imagine what happens if you can get your affiliates up to 100 or more?
When it comes to pushing scale aggressively, oftentimes we think the only way to do so is by getting in front of more eyes on a paid performance basis. When you're operating in affiliate networks that offer reach-based campaigns through their portfolio of publishers, you can drive cold reach without having to cash flow it.
Tag onto their hard work
By leveraging affiliates in your marketing strategy, you can free up some time additional time and expose your brand to untapped markets. With an ever-increasing number of consumers shopping globally, there is – quite literally – a whole world of potential customers out there.
Affiliates may focus on specific market niches in their efforts, such as book clubs, video game player associations, auto clubs, and the list goes on. Whatever your brand or business, there is a niche market with customers for you.
Are there any challenges to affiliate marketing?
Sure, nothing is perfect. People get nervous about affiliate because it looks junky or they feel precious about their brands. My belief is that opening sales opportunities is never a bad thing when you're trying to grow you brand - all press is good press. That said, there are a few things to understand and think about before you get this show on the road.
Variability in performance
Some affiliates may not bring in any sales or lose interest in your product when the next best thing comes around. You can mitigate this risk by screening your potential affiliates and choosing them carefully.
To be honest, though, I'm of the more the merrier mindset - and I generally wouldn't recommend wasting non-revenue-producing time on the screening whether or not candidates will be high producers. Why? Even if an affiliate brings in just one sale a year... it doesn't take any extra work to have them in your program. Get a thousand of those one-a-year people, at an AOV of $100, and you've got an extra $10K in the bank, for the cost of a simple commission (at 5%, just $50).
On the other side of things, if you monitor your program, you can offer much better commission rates for affiliates who perform well for your brand. Once you've established a working relationship with higher impact affiliates, you may consider increasing commission rates. While this results in a lower margin per sale, for the affiliates who do this full-time, your increased commission will be a driving force to increase the traffic they drive to your site - more posts, more stories, more Tiktoks - in order to boost the number of sales they bring in.
If it sounds like a daunting technical process to get started with affiliate marketing, you're right that it's not a one click process. Nonetheless, I'm going to stop you right there.
All of the major networks are designed with self-service and managed service programs to get you off the ground. These platforms are specifically designed to support retail brands, so if you're using a standard tool like Shopify, it's likely going to be smooth sailing.
But, yes, there will be some technical effort involved.
Letting go of some control
If you are a bit of a control freak, you might need to learn to let go a little bit. This is actually the worry I run into most with early stage founders - they think that people will assume they paid to be associated with what they perceive to be a pretty mediocre looking blog or the like.
Here's the straight goods: you won’t be able to dictate every single site your product is associated with - especially if you opt to run an open-to-all affiliate program (which, again, is what I would personally recommend). On the other side, if you're willing to invest that time, monitoring affiliates and strategically booting out those who are not at all the yin to your yang should help ease some of those worries.
Why should startups use affiliate marketing?
Great news that everybody in the world is successfully using affiliate, amirite? And yet some things that work for the big guys aren't entirely suited to early stage brands, where capital efficiency is literally make-or-break (and keeping those dollars in the bank for the longest amount of time possible is the holy grail).
Bonus Reach Points
There are a lot of tools you can use to generate reach. As an early stage brand, you're likely obsessed with capital efficiency and trying to focus on the methods that will generate reach at the lowest cost. This is why you love things like social and email and like-brand partnerships - you just post, send, share, whatever - and eventually it converts.
Affiliate is similar in this way - there aren't up front costs - except it's opening up not just your own interested audience. It's tacking onto a bajillion creators' and publishers' own interested audiences, delivering free cold eyeballs and traffic. Even if it only generates a click to site or an email signup with no immediate sale inside the affiliate attributable revenue window... that person is still sitting inside your retargeting pixels in every ad platform you use, and ready to be targeted with your email automation and campaigns for the rest of their subscribed lives.
Reach with no hard costs? I'll take it every day of the week.
A Supercharged Sales Force
Listen, as an early stage brand, it's unlikely that you have a comprehensive sales force on staff. If you did, you'd be happy to pay them a commission, right? And if you could get them all over the world without having to vet, hire, get on payroll, assume admin burden for, and so on... you'd do it right?
Consider affiliate your superpowered sales force, that requires no admin and only asks for payment when they bring you those sweet dollar bills.
Cash Flow Positive Marketing
Not only is there negligible setup cost involved with most affiliate platforms, making them almost entirely pay-for-performance, you are typically paying the affiliate network 30 days after the sale as opposed to in advance, as with other channels like digital advertising.
As an early stage brand, you know that cash is queen. Pretty much everything in digital is paid in advance - and yet affiliate, a channel that will likely show one of the highest conversion rate in your Google Analytics, calls for its commission payment 30 days after the revenue is in your bank account.
Dare I say that's the ultimate startup joy?