by Lindsey Goodwin

Although familiar to end-user consumers, affiliate marketing is little known or understood by many small businesses.

The basics 

A relative newcomer in the world of middlemen, affiliate marketing is a process by which coupon sites, Web sites and blogs link to specific products and receive a cut of the products sold as a direct result of their links.

The benefits

Sources said the benefits of affiliate marketing include increased brand awareness and sales.

According to Andy Uriarte, Adagio’s marketing manager, around 20 percent of Adagio’s retail sales are from affiliate marketing. The company has been using affiliate marketing for about three years.

Newman Johnston, managing director at Teas, Etc., said affiliate sales account for less than 10 percent of the revenue of Teas, Etc, which has been using affiliate marketing for less than a year.

Getting started

Deborah Carney, owner of Affiliate ABCs, shared these steps for getting started with affiliate marketing:

1. Have a consultant prepare your Web site and integrate your affiliate marketing approach with a comprehensive plan for your business.
2. Find the network that’s right for you based on size and fees.
3. Make banners and other graphics that affiliates can put on their sites. Carney said this should cost $1,000-$2,000.
4. If you have a large selection of products, create a product data feed. This is basically a catalog of products with a categorized link, description and image for each product.
5. Find affiliates through the network and your own research.
6. Tweak as needed.

Pay structures and ROI

According to Carney, affiliate Web sites tend to be centered on a related range of products (such as coffee, tea and kitchen appliances), while affiliate blogs tend to be review sites. She said appliance sales usually receive a 4-percent commission and food sales typically receive between 8 and 12 percent commission, but that many companies also offer performance-based incentives, such as bonuses for sales made within 30 days of account activation.

Uriarte said Adagio has seen success with a 10 percent commission and 15 percent bonus commission for sales exceeding monthly targets, but that each company can find a good fit with trial and error.

In addition to payments per sale, there are typically monthly fees for networks, and some networks have a signing fee. Link Share specifically recommends that advertisers generate more than $1 million in annual sales, but sources said smaller networks (such as Share A Sale) tend to be geared toward smaller businesses.

It often takes six to nine months, Carney said, for a return on one’s initial investment. However, Johnston said Teas Etc was able to recoup its costs in three months by connecting directly with bloggers who produce quality content, rather than relying on them to come to him through a network.

The timing of a program’s launch influences its ROI. Carney said a February or March launch is ideal, but a November launch won’t see returns until after affiliates are finished promoting established partners during the holiday rush.

More tips for success

Banner ads are standard for affiliate marketing, but Carney and Uriarte said text links are always higher converting. (In other words, they are better at turning clicks into sales.) Both advocated linking within the body of the site text, rather than in ads on the side. Carney recommended linking at the beginning and end of a product review with two to three links maximum, and said that some sites supplement this technique with 125 by 125 pixel text and/or image ads on the side.

Uriarte and Johnston suggested working with bloggers to plan content and maximize returns on affiliate marketing. Both also warned against connecting with just any blog or site. Johnston said he looks for quality blogs, while Uriarte said he avoids sites that attract only bargain shoppers.

Some 90 percent of Adagio’s affiliate sales come from about ten percent of their affiliates, Uriarte added, making it well worth working with your best-selling affiliates to keep them happy.