I've been looking at various affiliate programs on the Internet and having run the largest affiliate program in the world, I feel that overall, affiliate programs are lacking some critical components that every affiliate program should have. Let's take a look at some of these important affiliate program features.
1. One of the most important components of any affiliate program is the relationship between the merchant (site with an affiliate program) and the publisher (site that drives traffic to the merchant).
Typically, publishers know what merchants' products appear on their sites. Unfortnately, the same does not typically apply in reverse. Merchants frequently do not have any idea who their affiliates are, how much each one sells and how each of the affiliates is driving business to the merchant. If one of the publishers suddenly stops driving traffic to the merchant, the merchant has no means to call the publisher and address the problem they may be having. In the current day and age, if your affiliate program does not give you means to establish a direct relationship with the affiliate, you need to take a look at other affiliage technologies.
2. Each merchant needs to have a clear way to understand how elastic their affiliates are.
Elasticity is the measure of how a group of publishers will respond to either increasing or decreasing of fees they are paid. Every merchant will typically have affiliate that drive traffic to them in different ways. Affiliates that drive traffic in a similar way would be typically be described by the merchant as an affiliate segment. Each affiliate segment would respond differently to changes in fees by a merchant. Let's take a look at two sample segments of affiliates and how one is more elastic than the other:
Redirectors are typically affiliates that purchase inventory, typically from Google AdWords or AdSense (they could purchase this inventory elsewhere as well) where they display only one merchant's offer. They hope that they will make more from the merchant's commissions when their customers purchase merchant's products than they will spend on bringing those customers to the merchant's site. Redirectors frequently do not even need to have their own web site to generate business. Redirectrs have to have a way to measure which campaign makes money and which campaign loses money for them; they would then quickly need to abandon money-losing campaigns while focusing on purchasing more profitable inventory. Typically, redirectors respond very well to any increase in fees that a merchant would pay them. Higher fees allows them to purchase keywords that would otherwise be unprofitable. If a merchant were to pay redirectors a higher amount, redirectors would typically sell more of the merchant's products -- a win/win scenario. Redirectors are therefore considered to be an elastic affiliate.
Bloggers, on the other hand are typically considered to be inelastic. Bloggers typically participate in affiliate programs of merchants who sell products that are aligned with the content of the blog. Blogs about electronic products would do very well displaying products from electronics merchants and are likely to do poorly promoting financial products. Of all the merchants in their space, certainly, bloggers would like to promote the merchant that pays them the most. However, there is so much that typically goes into the commission (such as click-through-rate and conversion) that bloggers are more likely to stay with the merchant that they trust to pay them consistently and that is a recognized brand than the one that pays them a bit more. Thus, if a merchant were to offer additional fees to the blogging affiliate segment, it is not likely to result in additional sales.
3. Merchants need to provide tracking id's to their affiliates.
Because certain affiliates are sophisticated enough to measure various campaigns separately (and these affiliates are likely to be the most successful), each merchant needs to offer tracking id's to the affiliates. Each tracking id would then need to have its own section in the report that the merchant provides to the affiliate. Each tracking id has to report impressions (if applicable), clicks, conversions, and resulting fees. This report will allow affiliates to understand which of their campaigns is working and where to allocate their expenses.
4. Merchants need to be able to offer ladder commission structures for affiliates based on volume of leads.
Not all affiliates are the same. It is likely that every affiliate program will follow the 95-5 rule: 5% of affiliates will generate 95% of the sales. The most successful merchants will figure out a way to reward those affiliates that generate the most sales. At the same time, each of the smaller affiliates should have a realistic goal to shoot for. This goal, if met, should result is higher fees, going back retroactively. This is a great incentive for affiliates and bonds them closer with the merchant. eBay Affiliate Program and Amazon Associates Affiliate Program have done a good job at their compensation tiers.
5. Merchants need to be able to compensate different affiliates with different commission structures.
Some affiliates are just better at negotiating. Some affiliates are able to drive so much traffic and sales to a merchant that this business needs to be fought for and won by the merchant. As a result, merchants' affiliate programs must have a way for the merchant to find and sufficiently compensate those affiliates that can really contribute to sales. At the same time, those affiliates that are not as good at negotiating, even if they do drive as large or even larger sale volumes, should not receive as an attractive compensation structure. This commission "gap" will allow the merchant to fund those hard-to-please affiliates and keep them happy bringing signficant sales to the merchant.
6. Affiliates should have direct links to the merchant.
Once a merchant finds a number of different affiliates, the merchant should do everything to signficantly leverage those affiliate links. One way to leverage these links is to obtain the best possible Google PageRank. An excellent PageRank has potential to generate a tremendous amount of search traffic, all of which is free. If your affiliate program creates links that redirect through their site, you will not get the same PageRank benefit; and it could result is tremendous loss of sales. The right way to track affiliate clicks is via the tag on the URL going directly to the merchant instead of a redirect. Better yet, affiliate clicks should be tracked via the Referrer field for those affiliates that have a consistent domain from which they generate traffic.
7. All affiliate programs should generate 2nd-tier commissions.
2nd-tier commissions reward affiliates for finding other affiliates. There are many affiliates who are simply not in the community of potential consumers but instead, are in the community of other affiliates. Typically, those sites that offer 2nd-tier programs will pay 10% of all 1st-tier affiliate revenues to those 2nd-tier affiliates who have found the 1st-tier affiliates. Thuis will allow more excitement, more discussion, more promotion of your affiliate program. Everything your program can do to allow you to get above the Internet "noise level" is important. 2nd-tier affiliate programs will get your program beyond the 1st-only-tier programs.
Gene Kavner, Former World-Wide Director, Amazon Associates Affiliate Program, 2005-2006.