Are Your Affiliates Costing You More than You Think?
Have you ever been surfing through an affiliate network like CJ or Linkshare and found yourself wondering, “Seven and a half percent commission. How did they come up with that number?”
One would think that a merchant knows their margins so they simply look at what they can afford to pay and what competitive merchants with affiliate programmes are offering and they come up with a percentage that makes sense.
Makes sense, right?
Of course it does. However, until recently I had a different approach. As the economy is tight these days, it is always appealing to lower your costs of a sale whenever and wherever possible and your affiliate channel is no different.
One way to determine the commission you can pay out is by comparing your cost of sale against different channels. Normally the easiest channels to compare are PPC and affiliate commissions. If you have a very limited budget and you have to choose between the two, it is easy to compare the cost of making a sale through PPC vs. affiliate marketing and choose the one that makes the most profit.
Of course, it is never as easy as that. There are hidden costs with both approaches that need to be considered but as I discovered the other day, the challenge is even greater than that.
For most sophisticated websites, the sale is not made on the first visit. Nor is it made on the second or third. Quite often a visitor will come back to a site over twenty times before making a decision to buy and rarely do they come in to your site through the same channel. An affiliate may send them once or twice, they may come in through a search engine, through a PPC or display ad or through your social network. Given all of these visits and all of these variables, how should you allocate the cost of a sale?
Google Analytics usually tells you that the last channel is the one while many affiliate channels credit the sale to whichever affiliate who sent the first visitor to the site. Considering all this you can see that your cost per sale is not only hard to determine but it is in all likelihood, much higher than you think.
Netizen has an approach that analyzes and simplifies all of these factors. I don’t really understand how they do it (yet) but it could be quite revolutionary. As a big believer in testing and measuring everything, this could bring to light a lot of variables that have remained hidden until now.
I’ll keep you posted as I learn more about this technique.
