How Can Affiliate Marketing Work for Entrepreneurs

Some of today's best affiliate marketers are bloggers and other social-media personalities who have a large following. In the typical affiliate-marketing arrangement, an entrepreneur enters into an agreement with an influential Internet personality or someone else willing to represent a product.

The affiliate marketer promotes this product through links, banners, testimonials or other content.

Instead of forking out cash in advance for website links that promote a business, "the marketer provides a commission to affiliates for every transaction that results from these links," Shawn Collins and Frank Fiore wrote in Successful Affiliate Marketing for Merchants. The arrangement is a win for both sides since "it helps marketers acquire new customers and increase revenues, while affiliates can generate revenues.”

Affiliate marketing is "an agreement where one firm (the marketer) compensates another firm (the affiliate) for generating transactions from its users," Simon Goldschmidt, Sven Junghagen and Uri Harris explained in Strategic Affiliate Marketing.  

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Affiliate-marketing programs can provide a substantial upside to an entrepreneur through their ability to involve a cadre of influencers, someone who has an above-average impact on a specific field and can sawy their social-media following.

There's nothing wrong with affiliates scoring a commission in exchange for a promotion involving the placement of links, banner ads and similar forms of advertisement. From time to time, an affiliate marketing might highlight a product through a review or testimonial. The entrepreneur must ensure that the agreement with the affiliate provides appropriate disclosure to he audience.

Entrepreneurs should consider the following when establishing an affiliate program:

A. Watch out for online store glitches.

Stephanie Robbins, CEO of affiliate-marketing firm Robbins Interactive, told me in October on KCAA Radio’s Money Talk that affiliate marketing programs work well when an entrepreneur has set up an online store. She cautioned, though, that the quickest way for an entrepreneur to lose valuable affiliates is from technical glitches that cause lost sales and result in lost revenues for affiliates.

The beauty of a well-developed affiliate program is its integration with an online store. While entrepreneurs can develop homegrown affiliate systems, they might find it worthwhile to explore options available through third-party affiliate programs such as those offered by CJ Affiliate, Rakuten, Shareasale and Avantlink.

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“You need to be able to put the technology in place so that you can reimburse and reward your affiliates as appropriate,” Robbins said.

B. Set an appropriate price.

Affiliate-marketing programs pay a percentage of each sale generated from the affiliate’s activities. Driving traffic to an online store can involve tie-ins as simple as placing a hyperlink or banner on a website to posting comprehensive and well-thought out online articles covering a product's features and benefits.

Influential affiliates with large online followings on blogs, Twitter, Facebook and Instagram can have many products potentially available for them to represent. As such, the commission per conversion (from site visitor to paying client) is important.

Robbins encouraged entrepreneurs to rely on affiliate marketing for products selling in the $60 to $100 range. This price point is optimal as a significant volume of sales can be generated with a reasonable commission. Lower dollar amounts provide nominal affiliate revenue and higher priced items do not sell as readily -- which might prompt an influencer to decline entering into an agreement.

C. Partner with the right marketers.

Successful affiliates work hard to create influence. Affiliates typically won't become involved with products if they don't inspire a conversation.

Affiliates have their niches. Entrepreneurs should target and make arrangements only with affiliates who operate within their industry. For example, an entrepreneur selling high-end culinary utensils and hardware should seek affiliates who are foodies, restaurant owners, industry consultants and others involved in related fields. These affiliates may maintain blogs, websites, social media pages and accounts where they share information and links about the product.

Entrepreneurs must be prepared to establish significant revenue-sharing agreements if they wish to engage with top affiliate marketers.

Years ago some observers advised entrepreneurs to seek out influential bloggers with strong followings and offer a product or some other noncash benefit in exchange for a mention or link. This worked for a while. But not any longer.

“So many people think that if we give these bloggers free product they will be completely happy,” Robbins said. “These are businesspeople now. They know the value that they are bringing to the client. And they want to be compensated for it.”

D. Provide transparency and honesty.

Lack of proper disclosure can damage the reputation of an affiliate and an entrepreneur as well break rules established by the Federal Trade Commission. Entrepreneurs should monitor affiliates in cases where they make statements about the product in reviews and articles.

“In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated,” states the Federal Trade Commission’s Guides Concerning Use of Endorsements and Testimonials in Advertising. “The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.”