How to Use Affiliate Marketing to Scale Your Ecommerce Business

For most of you out there reading this, the term “affiliate marketing” probably isn’t all that new.

In fact, we’d be willing to bet that many of you currently participate in your favorite brands’ affiliate programs—or, at least, have done so in the past.

Now, however, the shoe is on the other foot. As the owner of an eCommerce business, you’re now in the position to actually create and administer an affiliate program of your own. As we’ll discuss throughout this article, implementing an affiliate program into your own business can benefit your company in a variety of ways.

Before we get too far, though, let’s back up a bit for those who are completely unfamiliar with the concept of affiliate marketing.

In a hurry? Jump into a specific section:

  • What is Affiliate Marketing?
  • The Main Benefits of Affiliate Marketing
  • How to Develop Your eCommerce Company’s Affiliate Marketing Program

What is Affiliate Marketing?

In the simplest of terms, affiliate marketing is the process of paying a commission to customers whenever they bring in new customers to your business. It’s a win/win/win scenario: You earn a new customer, your referring customer (affiliate) gets paid, and your new customer gets introduced to your services.

Again, this isn’t exactly a recent invention; in truth, the core concept of affiliate marketing actually goes back to the pre-Internet days. In some way or another, businesses have always sought to leverage their existing audience in order to spur growth—going as far as to compensate customers whose referrals lead to further customer acquisition for the company in question.

(As a rather simple example, think of the new restaurateur in town offering current customers 10% off their next meal for every new patron that comes in and says “I heard great things about this place from my friend, Steve.”)

Now, while the core concept of affiliate marketing hasn’t changed all that much, a lot more goes into developing a successful affiliate program nowadays. Simply telling your customers to “tell your friends about us!” just won’t work by today’s standards.

Rather, there’s a lot to consider when digging into affiliate marketing, such as:

  • Defining your ideal affiliates
  • How to best engage with your affiliates
  • Determining the optimal commission percentage to pay successful affiliates
  • Assessing the performance of your affiliates (as well as that of your affiliate program overall)

We’ll get to all of these points (and more!) in a bit.

Before we dive in, though, let’s discuss the many ways an affiliate program can benefit your eCommerce business in the first place.

A Few Quick Notes on Affiliate Marketing vs. Referral Marketing

Throughout this article, we’re going to be using terms such as “refer,” “referring,” and “referred customer” when talking about the relationship between your affiliates and their target audience members.

However, don’t let this confuse you into thinking affiliate marketing and referral marketing are synonymous. While the end goal for each is the same (that is, having your current customers bring others from their network on board), there are a number of differences between the two tactics:

  • Referral marketers typically focus on referring brands to their those in their close and more intimate network, while affiliate marketers usually market to their professional network or their own following/audience.
  • Referral marketing is a more intentional and focused process, while affiliate marketing is often rather passive, with affiliates using a “wide net” approach to generating referrals.
  • Referral marketers are often reimbursed with discounts, coupons, or freebies in order to enhance engagement with the brand in question. Affiliate marketers, on the other hand, are paid a percentage commission for each sale they influence.

Going along with all this, the main difference between affiliate marketing and referral marketing is that affiliates see the process as a business, and use it as a way to make passive income (whereas referral marketing focuses on generating more “off the cuff” referrals from customers who simply like your brand).

This is not to say that affiliate referrals are less authentic or organic than those who participate in referral marketing, or anything like that. As we’ll get to, authenticity is one of the key factors as to whether or not your affiliates are able to successfully bring in new customers to your company.

Now that we’ve explained what affiliate marketing is, let’s discuss the many ways an affiliate program can benefit your eCommerce business in the first place.

The Main Benefits of Affiliate Marketing

Again, the surface-level benefit of affiliate marketing is pretty obvious:

The more referrals your affiliates make, the more customers you’ll acquire.

In the interest of specificity, though, let’s get a bit more granular:

  • Affiliate marketing is effective: According to Business Insider, affiliate marketing is responsible for an average 15% of digital marketing revenueacross all industries. What’s more, revenues from affiliate marketing are expected to increase 10% year-over-year until 2021, and may overtake email marketing as the most effective digital marketing tactic by 2019.
  • Affiliate marketing leverages social proof: According to com, 95% of online consumers read online reviews, and 60% of them are directly influenced by recommendations made online (via social media posts, blogs, etc.)
  • Affiliate marketing increases overall ROI: According to Conversant, affiliate referrals lead to purchases that have a 21% higher average order value. Additionally, customers acquired via affiliates generate an average 58% more revenue than non-referred customers.

On top of all that, offering an affiliate program provides yet another way for your customers to engage further with your brand. In turn, your best customers can continue to provide value to your company even when they aren’t making purchases, themselves.

Overall, developing and maintaining an effective affiliate program can allow you to acquire new customers, expand into new markets, and scale your business more efficiently over time.

Of course, the key word in that last sentence is “effective.”

How to Develop Your eCommerce Company’s Affiliate Marketing Program

As with all things marketing, the success of your affiliate program hinges on your ability to optimize every miniscule aspect of the process.

(Or, looking at the negative side of things, you can’t expect your affiliate program to have the desired effects on your business if you leave it as a mere afterthought.)

That being said, we’re going to spend the remainder of this article digging into the most important steps to take and bases to cover as you begin developing your eCommerce company’s affiliate marketing program.

First, let’s take a look at a couple prerequisites.

1. Perfect Your Sales Pipeline Before Starting an Affiliate Program

Before you begin focusing on developing your affiliate program, you’ll want to be sure of two things.

Firstly, you need to know for certain that your current customers truly value your products, as well as your brand as a whole.

This might sound like a no-brainer (after all, you wouldn’t expect your customers to recommend a less-than-stellar product to their network, right?), but the likelihood of them doing just that increases when incentives come into play.

While incentives do play a role in the customer’s decision to become an affiliate (more on this later), your goal shouldn’t be to simply buy positive referrals for subpar products. Simply put, the more valuable your products are to your customers, the more likely your customers will be to refer your brand to others in their network.

Secondly, you should already have a fully-functional sales pipeline in place before implementing an affiliate program.

Ecommerce funnel

Reason being, your affiliate’s “job” is simply to point new prospects toward your brand and its products; it’s still your job to seal the deal. For eCommerce companies, this means offering a variety of funnel-specific content to your new leads, fleshing out your product pages in full, and streamlining your transactional processes (among many other things that go beyond the scope of this article).

To be blunt, if your products, website, and other offerings don’t live up to the hype your affiliates create for your brand, their recommendations aren’t going to matter much at all. On the other hand, if it’s immediately clear to new visitors that you absolutely do live up to everything your affiliate has built your brand up to be, you should have no problem getting them to convert.

2. Create an Affiliate Program From Scratch (Or Use a Network)

As you get started in developing your affiliate program, you have two choices as to which course to take.

You can either:

  • Create your affiliate program manually from scratch
  • Utilize an affiliate network to help you get moving

Of course, each choice comes with its own set of advantages—as well as drawbacks.

Frank & Oak Affiliate Program

As far as creating your own program from scratch, the main benefits are as follows:

  • You only need to pay your affiliates, not your affiliates and your partner network
  • You have a direct line of communication with affiliates, rather than having to go through an intermediary within the network
  • You have complete control over every aspect of your affiliate program, as opposed to having to fit the terms of a partner network

The main downside of developing your own program is that, having complete control over the program means you need to take complete control over the program. In other words, you have to seek out affiliates on your own, collect affiliate-related data on your own, ensure your affiliates are adhering to your terms on your own, and remit payment to them on your own. Needless to say, this can be an incredibly time- and resource-consuming proposition that your company may or may not have the bandwidth to take on.

Your other option, then, is to work with an affiliate network (such as ShareASaleCommission Junction, or Rakuten) to help develop your program.

Basically, the advantages and disadvantages of this option are the inverse of the above.

By today’s standards, most top-performing affiliate networks:

  • Provide access to a pool of high-quality affiliates who understand best practices for affiliate marketing (and ensure these individuals follow the terms of your program over time)
  • Automatically collect and deliver performance statistics and metrics regarding your program’s effectiveness (and the effectiveness of individual affiliates)
  • Automate payouts to affiliates when a qualified sale is made

Of course, the main downside here is that you’ll need to pay an additional commission to your affiliate network of choice for every sale your affiliates bring in. This extra fee typically hovers around 30% of each commission paid to your affiliates. So, for example, if an affiliate generates a sale of $100, and you pay 10% to the affiliate ($10), you’ll also pay $3 (30% of the 10%) to the affiliate network, as well. While this might not sound like a lot in isolation, this amount can definitely end up eating a decent amount of your profits over time.

(You also want to factor in any potential startup costs your network of choice may require, as well.)

All this being said, your decision, here, is yours to make on your own. If you have the capacity to allocate resources to creating and maintaining your own affiliate program, you potentially stand to save a ton of money over time. However, if you’re looking not just to get your affiliate program up and running ASAP, but are also looking to grow your audience and spur sales just as quickly, the latter choice might be your best option.

3. Set Specific Goals for Your Affiliate Program

Okay, so we’ve pretty much hammered home the idea that the overarching goal of an affiliate program is to expand your customer base (and make more money in the process, of course).

But it’s essential that you take the time to nail down your goals as specifically as possible before moving any further with your affiliate program. Reason being, your specific goals will determine how you approach pretty much everything else we’ll be discussing throughout this article, including:

  • How much commission you decide to pay out
  • Who, exactly, to target as an affiliate
  • What you’ll come to expect from your affiliates in terms of performance

Furthermore, by defining your goals more specifically, it will be much easier for you to determine what’s going well within your affiliate program—as well as what might need to be revisited.

To clarify, let’s take a look at a couple examples.

Say your main goal is to spur an increase in your overall sales by 5% specifically via affiliate marketing. Generally speaking, this can happen in one of three ways:

  • Your affiliates bring in a ton of new customers
  • Your affiliates bring in a good amount of new customers who often make repeat purchases
  • Your affiliates bring in a good amount of new customers who make larger-than-average purchases

While you’d probably want to dig deeper to find out which of these scenarios applies to your company at the end of the year, you’ll be able to tell whether your affiliate program accomplished what you’d hoped just by checking this surface-level metric.

Figure out your S.M.A.R.T. Goals

Now let’s say your goal was to improve your average order value by $10 via affiliate marketing. Here, you’d want to note how many of your affiliate-spurred transactions were higher than your current AOV. This will tell you whether your affiliates are bringing in “just any old consumer,” or if they’re bringing in high-value customers that will continue to pay off in dividends for your company.

Again, your goals for your affiliate program will be unique to your company, so we won’t be offering any advice as to what these goals “should” be. What’s more important, here, is that you define these goals specifically, and use them to dig deeper into the effectiveness of your affiliate program over time.

4. Define the Terms, Conditions, and Rules for Your Affiliate Program

Your affiliate program will essentially live and die by the terms and conditions you put in place that your affiliates will be required to follow.

There are a few reasons for this:

First things first, it’s important to recognize that your affiliate pool may not necessarily be made up of top-tier marketing talent. In other words, many of them might not know the most effective ways to go about promoting your brand. So, in addition to creating content for them to deliver to their network, you also want to educate them in terms of best practices for promotion, how to avoid being “salesy” (or worse, spammy), and other such tips and tricks.

Going along with this, it’s also essential that you ensure the safety of your brand’s reputation as best you can.

Simply put: if your affiliates come off as being annoying—or downright unethical—it’s ultimately going to reflect poorly on your brand. That said, it’s vital that you have policies and procedures in place to minimize the chances of this occurring, and to deal with such instances immediately if they do.

Lastly, you also want to have terms and conditions in place that allow you to sever ties with any “black-hat” affiliates whose sole intent is to game the system and make money off of your company. Basically, you just need to be sure there are no loopholes or anything like that within your terms of service that could leave you at a loss.

Within these terms, you also want to clearly define the commission your affiliates will earn per sale—which is what we’ll discuss in the following section.

5. Determine Your Optimal Commission Percentage

We mentioned this a bit earlier, but it bears repeating:

When determining an acceptable commission percentage, you want to find the “sweet spot” between providing a proper incentive to affiliates and maximizing your business’ ROI.

On the one hand, if your target affiliates don’t believe the commission you offer is worth working for, they’re simply not going to partner with your brand (and may look elsewhere). On the other hand, if the commission you offer is too lucrative, your affiliate payouts will eat up way too much of your profit margin.

In order to find this “sweet spot,” you’ll again need to get more granular in your approach. Essentially, this involves assessing the following metrics in comparison with one another:

  • Cost per acquisition (overall)
  • Conversion rate of customers generated via affiliates
  • Customer lifetime value

Let’s say your overall cost per acquisition is $100—which you’re, of course, looking to decrease via affiliate marketing. At the very least, though, you want to make back this $100 from your new customers as quickly as possible (preferably within the first sale). If your conversion rate for affiliate sales is 1% (which is typical), this means you’re looking to make $100 from each initial sale in order to break even—before you take into consideration affiliate fees.

American Apparel commission

In this example, then, it doesn’t seem like you’d want to offer your affiliates 10% of each sale, as you’d end up needing to make even more per sale in order to truly break even.

But this is a bit misleading, and may cause you to decrease your affiliate offer without warrant. This is why it’s important to factor in your lifetime value.

Let’s say, for argument sake, your LTV—that is, the amount of money your average customer spends with your company throughout their lifetime—is $600. Putting aside retention marketing costs for the sake of argument, this means you’re making an average of $500 per customer ($600 lifetime – $100 acquisition costs).

Taking this into consideration, you can afford to pay your affiliates 10% of a referred purchase—and perhaps even more.

Once more, though, the final decision as to how much to pay out in commission is up to you (and should be based on your business goals for your affiliate program). Still, it’s better to consider the factors mentioned above before making this decision, as it will better enable you to find the middle ground we spoke about earlier.

6. Identify Your Golden Affiliates (And Find More of Them)

Now, even with the proper terms and conditions in place—and even with proper guidance—not all of your affiliates are going to be as effective as you’d like them to be.

Some won’t have the reach needed to bring in a large group of customers.

Others may not be all that dedicated to advocating for your brand.

And more than a few of your affiliates will likely try to make a quick hit via your products and then disappear.

Needless to say, these less-than-ideal affiliates can end up costing your company potential earnings—and could potentially harm your brand’s reputation, as well.

This is why you need to actively seek out (and try to attract) customers who have great potential in terms of working as an affiliate.

Daniel Wellington micro-influencer strateg

In other words, you’ll want to become laser-focused on bringing aboard customers who:

  • Truly love everything about your brand
  • Are dedicated to promoting your products authentically and organically
  • Belong to networks and communities full of other consumers who fit your target personas

The first place you’ll want to look—whether you’re creating your affiliate program in-house or through a network—is your current customer base.

Chances are, a decent amount of your customers are already at the point where they’d be more than happy to recommend your brand to their friends, family, and peers. Even better: You likely already have a line of communication with them, via social media, your mailing list, and/or your website.

However, even the most satisfied consumers won’t just take it upon themselves to make such referrals out of the blue. You’re going to need to give them a bit of a nudge.

First of all, you need to be sure your raving fans know your affiliate program exists in the first place. Again, this means promoting it often on your various marketing channels—specifically, the ones in which you and your audience can directly communicate and engage with one another.

When promoting your affiliate program, it’s crucial that you make crystal clear what your customers stand to gain from it. As we said above, even your most rabid fans aren’t going to take time from their busy lives to sing your praises—unless you offer them something of value in return. So, rather than framing your program’s promotional content around how it will help your brand, frame it around what your participants will get out of it.

The example from ThinkGeek makes the value proposition crystal clear:

Finally, you also want to clarify the aforementioned terms and conditions of the program immediately. This will allow you to set expectations from the get go, so your affiliates can quickly get the ball rolling—and do so in an ethical manner.

Now, in addition to your current customers, you also have the option of partnering with micro-influencers, as well. Again, if you’re working with an affiliate network, you should have a number of such individuals at your disposal.

Getting micro-influencers on board with your affiliate program is beneficial for two main reasons:

First, these individuals already have a strong following that actively looks to them for product and brand recommendations. Additionally, the very nature of micro-influencers is that their audience is typically very specific; that is, the majority of their audience will almost certainly align perfectly with your target personas.

It’s also worth noting that, by getting micro-influencers on board with your affiliate program, you’re essentially getting the benefit of working with these influencers without having to pay them up front. Since your affiliate program’s payout is based on performance, you don’t have to feel like you’re “gambling” when partnering with a specific micro-influencer.

(On the other hand, if you notice a micro-influencer is bringing in a ton of business via affiliate marketing, you might want to reach out to deepen your partnership a bit in the future.)

Before moving on, we’d like to reiterate once more the importance of generating authentic recommendations from your affiliates, no matter who they are. While you are technically paying your affiliates to make these recommendations, you don’t want the payment to be the only reason they’re making the referral in the first place.

7. Track the Performance of Your Affiliates (And Tweak if Need Be)

Once you have your affiliate program up and running and have started to see a steady flow of referred customers coming in, you do not want to let it the program slip to the backburner.

Rather, as is the case with any marketing initiative, you’ll want to keep a close eye on exactly what’s going well within your affiliate program—as well as where you might be able to improve.

Perhaps the best course of action, here, is to assess the performance of your affiliates—both in terms of individual participants as well as entire customer segments. As we said earlier, some customers will perform way above average in terms of making successful referrals, while others might not bring in all that much business to your company.

As far as specific metrics go, you’ll want to analyze, assess, and compare the following among your customer segments:

  • Referral clicks
  • Referral sales
  • Referral conversion rate
  • Return on ad spend

Now, this doesn’t mean you should bar your low-performing affiliates from your program (after all, it doesn’t cost you much to keep them on if they aren’t performing all that well). Instead, you’ll simply want to focus on attracting more individuals from the segments that do perform well as affiliates.

(As a simple example, you might notice your younger customers are more apt to make referrals than your older customers; in turn, you’d want to tailor your affiliate-related marketing content to this younger crowd, in the hopes of engaging with even more like-minded individuals within your customer base.)

If you find that your affiliate program simply isn’t as effective as you’d hoped across the board, you don’t want to simply scrap it altogether. Rather, you’ll want to dig a bit deeper into the various aspects of your program to figure out where things are going off track.

A few examples of things to consider include:

  • Whether the content you provide your affiliates is effective or not
  • Whether your incentives are valuable enough to get your affiliates on board
  • Whether your products are worth recommending in the first place

Depending on where the issue lies, you may need to merely make a few simple tweaks and changes—or you may need to go back to the drawing board completely.

Again, though:

You should stick with your affiliate program, as it will inevitably evolve over time. Simply put, the more you learn about running such a program, the more effective it will be in the long run—and the better off your business will be because of it.

Wrapping Up

As we said earlier, affiliate marketing is quickly becoming the most effective form of digital marketing available.

That being the case, if you haven’t yet considered implementing an affiliate program within your own organization, you’re almost certainly missing out on some major opportunities for growth. And, even if you have begun developing an affiliate program, there’s a pretty good chance you could improve your efforts in at least a couple ways.

Hopefully, this article has given you enough info either to get started with your affiliate program, or to allow you to take a closer look at how your current program could be more effective.

Also read: Different Ways to Ensure Security for Your Ecommerce Business