Home ShopTalk The Ascent of Affiliate Marketing: The Seattle24x7 “How-To” Interview

The Ascent of Affiliate Marketing: The Seattle24x7 “How-To” Interview

When we reached out from Seattle beyond the peaks of Snoqualmie Pass to interview Affiliate Marketing expert, Jamie Birch, the 43-year old triathlete answered his cell phone on a racing bike while ascending a steep incline just outside Coeur d’Alene. 

For those first, few minutes, dodging logging trucks and construction zones on two wheels, Jamie could have added a fourth sport to his resume — affiliate marketing stunt driver.

Growing up in the vintage, small-town ambiance of Sumner, Washington, Jamie would frequently challenge the steep hills that climbed from Daffodil Valley to the higher elevations of Bonney Lake on his bicycle. The analogy to affiliate marketing, where the goal is to produce an upwardly sloping trend line of incremental sales revenue generated by clicks from third party websites and ads, was prescient. 

If you’ve ever wondered what it takes to design and launch a successful affiliate marketing program, whether to develop an in-house affiliate program to generate additional sales or to hire an outside affiliate manager along with network partners, or where to set the bar for affiliate commissions, this interview could be your pedal to success.

We delved into all of those questions once Jamie was safely back at his computer inside JEBcommerce, the firm he founded and that has overseen more than 250 web affiliate programs driving close to $120 million dollars in sales per year for clients like Johnston & Murphy, Eastern Mountain Sports, Speck, Le Tote, Plant Therapy, and Bodybuilding.com, and paying out millions in commissions to more than 10,000 affiliates in shared revenue.

Seattle24x7: Greetings, JamieWhat was your first exposure to large-scale affiliate marketing?

Birch: I started in affiliate marketing in 1999, fresh out of school. My first deep dive came when I accepted a marketing post at Coldwater Creek where I also managed email and search. My first lesson was that affiliate marketing encompasses every other marketing medium and channel. You have affiliates using every digital channel that you can imagine, including offline. 

By learning and testing the logistics of SEO, SEM, and email, I had a lot to bring to my conversations with my affiliate partners. I was able to help these affiliates grow their overall business, not just their help with my brand. It was very fulfilling to be able to help affiliates generate impressive revenue. In several cases, we were able to help them grow to a point where they themselves became acquisition targets.

Seattle24x7: So lesson #1 is that affiliate marketing is “omnichannel,” and lesson # 2 is that by being a knowledgeable affiliate manager, you are teaching your recruits how to be more effective marketers?

Birch: Yes, and you’re also learning from them. They are able to show you what works for them when marketing your brand. That helps you become a better marketer as well. Often times, affiliates can be testing many more things than you are as a brand, and they bring those insights to promoting your company and your products.

Seattle24x7: Let’s start at square one. Who should consider an affiliate program for their product mix and who should not? 

Birch:  The first rule is to have realistic expectations. The affiliate channel can be a strong, complementary channel that can add from 20% to 80% to total sales revenue.  However, affiliate marketing will fail if the channel is expected to be the main driver of all sales transactions. It is rare that you can launch a brand or a product solely on the backs of affiliates. 

So the first thing to consider is what other channels are you engaged in? What has been most successful? What has not been successful? Who is your target audience? What are they doing online? Who else has a program that’s similar to yours?

Seattle24x7: What are the entry costs (or cost barriers) to setting up an affiliate marketing campaign?

Birch: For starters, setup costs with affiliate networks typically run between $1,500 to $3,000. On top of that, it is customary to be asked to set up an escrow account of between $1,500 and $3,000. So for some merchants, you’re looking at around $3-$6,000 just to get started. 
There is also a technical fee, otherwise known as a network commission, that is typically 1 to 3% of sales or 10 to 30% of affiliate commissions.

The beauty of affiliate marketing is that you can account for these costs from the outset and set the bar where you will be profitable on each and every sale. 

Seattle24x7: Let’s do the math!

Birch: Say you have a $100 order at a 50% margin. You have 50 points to divvy out. You’re paying the three points to the network, and then you have the rest to pay to the affiliate.

So if you have 47% in profit, you can pay out a higher percentage. You can decide, for example, to pay yourself 10% in profit for every sale and reward your affiliates with 20% leaving you with 17-20% as a negotiating tool to get better placements, more exposure, inclusion in emails that the affiliates send, or more support in AdWords and other channels.

What’s different with affiliate marketing over paid search and other sales generators is that you get to decide the structure up front.

Seattle24x7: Do the setup fees make sense for everyone?

Birch: If setup fees are a concern, there are networks like ShareASale Seattle, that cost as little as $499 to start. $499 isn’t too big of a mark for most advertisers, especially if they’re serious about this channel. We’ve run millions and millions in sales for our clients there and they provide some of the most impactful tools to make affiliate marketing successful.

Seattle24x7: Is there a minimum affiliate commission to be considered?
Birch: I know very successful affiliate programs that offer their affiliates a 1% or 2% commission. And I know very successful programs that offer 100% upfront. You have to calculate what you can afford, and then you have to look at your offer.

If you can afford 2%, ask yourself what is your competition offering? If they’re able to offer five times what your cost structure allows you to offer, then you need to determine do they actually have that margin to work with? Or are they trying to keep you out of the market? 

If you are at the same margin as your peers then you’re ready to get going, but you have to remember it needs to be competitive.

Seattle24x7: What would be the primary driver that makes 1% to 2% commissions appealing? 

Birch: An absolutely vital metric that affiliates are looking for is “EPC” or “Earnings per 100 Clicks.” The affiliates want to know “What am I gonna earn when I send you 100 people?”

2% can be a more attractive commission than 20% if the volume is greater.  As an example, almost all electronics margins are low, and so the commissions are relatively low as well. But a lot of people are looking for Xboxes, and Play Stations, and TVs and radios and Bluetooth speakers. Now, a commission of 2% on $10,000 is more than 20% on $50 bucks.  You also need to factor in your site’s conversion rate.  If the conversion rate is higher than competing offers, the EPC will be higher as well as more of those visitors will convert to a buyer.

Seattle24x7: Let’s talk about human resources. Once you’ve decided okay, we can make the math work, what is the best way to go about it?

Birch: Your first step is going to be to hire someone to architect the program, and make decisions about how you’re going to staff up. Is it to go outside or do you want to have someone in-house? Or both.

Let’s be clear. It’s pretty hard to find an in-house person. This isn’t a curriculum track in college that people are learning about. Most of the good affiliate managers. like myself, have started their own agencies.

Even with an in-house person, it’s always a good idea to have an outside agency with lots of experience. Our company has been serving this market for nearly two decades. A firm like ours will work beside your team to come up with the strategies that work and bring learnings and best practices from many different brands, affiliate programs and affiliates.  So you get a wider net of opportunities.

Seattle24x7: The best affiliate managers are relationship builders? 

Birch: To be successful, the difference between affiliate marketing and all other channels is primarily centered on building relationships. 

In contrast, AdWords is all about campaign optimization where you have five or six levers to pull. You get to see those results right away. With affiliates, you’re building a relationship with someone on the other side of the phone. You’re working to establish what’s best for them and what’s best for you as well. This kind of interest and investment is fundamental. It’s not about approving the invoice and cutting a check. That is not going to make affiliates get excited about joining your brand.

It is essential to maintain the affiliate relationship week-by-week and month-by-month. At the same time, there is an ongoing requirement to identify potential new affiliates. Get them on the phone, or get them to talk to you over email. Discover what works best for both of you.

Seattle24x7: HR-wise, who else should be part of an in-house affiliate marketing team? 

Birch: To build the ideal affiliate marketing team in-house, you’re going to want to have someone who is focused on strategy, who is looking at the program from the top down. You’re going to want to have an affiliate relationship person, a person who is either activating or optimizing affiliates and doing recruiting.  You’re also going to want to have an analyst who is looking at what’s going on with each partner. Who is up, who is down, and who’s new that we need to work with? In all, providing that deeper level of analysis to the team.

Another team member would be a list builder, someone who’s actively looking for new affiliates to bring in. In our agency relationships with clients, the ones that have been the most successful have an affiliate manager who is our counterpart and responsible for the affiliate program in-house. As consultants, we are able to help them with strategy and do a ton of the legwork.

The ideal agency in-house partnership is where there is someone in-house who knows all the channels, is involved in all the discussions, and is able to bring that to the table in working with our team. Without that, your agency could be running blind. The ideal scenario is to have someone within the company who has the strategy of the whole company in mind when creating the strategy for the channel.

Seattle24x7: As an affiliate management company do you work on a commision basis or a retainer?

Birch: It’s usually both. We will have a retainer along with a performance incentive.  We will look at our relationship with each client and how their needs and market demands change over time. We have one client that we charge only a retainer which is an average of what we had billed for the first three years. 

We’ve also had clients where we’ve felt very strongly that we could grow their channel significantly and we work solely on a percentage  basis. We were able to grew their account from $9 million to $18 million in two years.  It made sense to service the account for a small percentage of that volume.

Seattle24x7: Nice. A doubling of revenue is impressive!
Birch:  Yes, that particular client already had a channel that was performing well. When we audited the account, we saw huge opportunities, and we knew we could exceed their goals.

Seattle24x7: This begs the question of transparency. Affiliate management companies need to have an open and trustworthy relationship with their clients, and the brands with both networks and affiliates. How is this transparency achieved?

Birch:  There is a kind of mating dance and ritual that goes on where marketers are required to share the lifetime value and the short-term ROI of a customer. Sharing average order size, clickthrough rates and customer data can feel a little too extroverted at times.

What affiliate marketing has that is unique are third-party networks to intermediate and audit the transactions. ShareASale, Pepperjam, ImpactLinkShare, CJ, AltaLink, Link-Connect, they all grew up in the industry from the very early days.  This tracking helps the everyone in the ecosystem trust the process because it is available to all.  
Top 20 Best Affiliate Networks named by eSuccessMag.com
Beyond that, trust and transparency is established in tried and true ways, just like any relationship.  We focus 100% on getting to know our clients.  That allows us to help them in ways they need and want, and achieve their goals.  Then simple but impactful things such as responding to messages and inquiries on time every time.  Being direct in our communication back and forth.  Following through on deliverables, promises and answers on time each and every time.  And owning our mistakes.
Seattle24x7: What role does technology play in tracking?
Birch: Most networks have a tracking pixel, a one-by-one transparent image pixel that is uploaded to the sales confirmation page. When an affiliate or a customer comes through an affiliate link, the cookie that is placed gets tracked all the way to this page.

The pixel references the cookie on the order, grabs the order information off of the confirmation page and sends that order to the network to report on. There are other API tracking solutions, and there are server-to-server tracking solutions as well. 

Some clients may also do bulk uploads of data if they use a lot of different formulas to determine what is a commissionable sale. In those cases, when it’s not server-to-server, or API, or tracking pixel, the networks are responsible for working with that client data. 
An affiliate advisor like us will always require access to a client’s analytics.That way we are able to go in and monitor performance directly. 
One of the biggest frustrations with the affiliate channel over the years is that the network reported number never matches what’s in the backend analytics, whether that’s Google or Adobe, IBM, whatever. The closest I’ve ever seen a program is 96% accurate.

Seattle24x7:  How do you account for the discrepancy?

Birch:  The length of the cookie is often a factor. So if you’re offering a commission inside of a 90 day window, but your entire tracking system is based on a one cookie day, you’re going to be off in those two channels. That is usually how it works out.  Each brand has its own way of tracking and the networks are typically very simple and consistent.  

Seattle24x7: Clearly, it wasn’t always this sophisticated.

Birch: In the early days, affiliates would promote a merchant, and the merchant could go bankrupt or not pay. This can still exist to a certain extent if you’re working with a merchant directly, outside of a network. There can be a degree of angst.

The third party system adds a level of confidence because they have a contractual agreement with both the merchant and the affiliate. That agreement requires the merchant to provide accurate sales data. 

A company like ours must have an unfiltered view of your business. A majority of the time, to be honest, it takes a bit of time for a new client to open the curtain enough for us to accurately assess how we can reach their goals, what it could cost them to reach those goals.

We have many clients who have been with us for more than five years. We’re able to show them that their goals are our first priorities. 

Seattle24x7: What happens when a customer visits two affiliates along the clickpath to making a purchase? Can channel conflict arise?

Birch:  Historically it’s been the practice that the last click earns the commission but that’s created huge problems. For instance, take a fan site in Chicago that is at the “top of funnel.” They’re the introducer in the path. But now, a coupon site like RetailMeNot comes in at the end, in the last ten seconds. Should they get credit for the sale?

That’s been a huge problem. The good thing is that ShareASale, Impact, Pepperjam andother  networks have come up with technology that combats it. ShareASale has something they call Conversion Lines* and Leap Frog Transactions** that will allow you to filter out an affiliate that comes in the last x amount of minutes.

* – One of the key concepts in Conversion Lines is the idea of a “Closing Event”. A traditional “Tracking Gap” has an “Opening Event”, which is defined as a number of days from the transaction. With a traditional “Tracking Gap”, the “Closing Event” is the transaction itself, which we call the “Conversion Event”. Conversion lines allow you to shift this “Closing Event” in time, or to set it to a different event. Using our Analytics platform, you can key off events like “Add to Cart”, “Session Start” and “Coupon Added”. – Ed.

** – Leapfrog transactions aim to reward the content affiliate where one exists in a clickstream. Where a content affiliate and a coupon affiliate both exist, the commission may be split between them according to conditions that the merchant sets. The coupon site gets credit for providing value and the content site gets credit for providing value (where previously they were not. – Ed.

They also have a Conversion Line that allows you to say, if this group of affiliates or this affiliate, in particular, is in this chain, they should get 100% of the sale or another percentage of the sale.

Pepperjam has a preferred affiliate program, so it will allow an affiliate who is always the introducer, to get the commission. Impact has a bunch of different technologies that let you see how many affiliates are in the stream and what other channels may be involved in the sale.

Seattle24x7: So splitting commissions on the path to a sale is not uncommon?

Birch: Splitting commissions, or awarding commissions further up the funnel, say to the introducer or influencer of the sale, is not uncommon today. Impact, ShareASaleand Pepperjam all offer solutions to allow this to happen. 
What you are trying to do is reward the affiliates in that customer’s path to purchase that contributed or were responsible for the sale. Until relatively recently, you only were able to pay on the “closer” of the sale. But the affiliate that introduced your brand could be the most important player.  So creating a priority class in the chain, or splitting commissions amongst all the players is a way to manage your spend and maximize your results.

Seattle24x7: Where does the Google juggernaut figure into the affiliate marketing process? In Search, there has been a noticeable migration from SEO visibility to paid advertising on the search results page. Is Google also the 800-pound gorilla in affiliate marketing?

Birch: I think the Panda and the Penguin updates rocked our industry to the ground. There were affiliates who lost 80% of their revenue because of that change in the algorithm. So the way that Google interjects themselves into this channel is through their search algorithm.

They are constantly looking at affiliates that are light and thin, that are adding very little value, and that are easily reproducible and kicking them out of the index. 
There is no question but that a lot of affiliate channel revenue is generated through search. And Google will actively go out and penalize affiliates that are thin sites that offer little value.

I personally thought Google would intervene even more when they bought two companies: Performix and DoubleClick. Performix  turned into a Google affiliate network for a while. That worried a lot of affiliate marketers because Google owned all the search data and now they had affiliate data as well. It would have been easy for them to really own the space. Surprisingly, they closed the whole program down. They didn’t sell it, they just closed it down.
Seattle24x7: Crisis avoided?

Birch: It really forced all of us to get better at what we do and to focus on the consumer. As an affiliate, we have to constantly ask ourselves: What’s our product? Who are we serving? What problem are we solving for them?

At the time, it was like ‘damn you, Google.’ But Google has done some great things because they’ve always focused on the consumer experience.

Seattle24x7: Historically, affiliate marketing actually predates Google?

Birch: Yeah, that honor goes to William Tobin founder of PC Flowers in 1989. Amazon was the first major brand to use the affiliate model as one of their marketing platforms. Amazon’s affiliate model became the model for other major retailers looking to establish a program of their own. Amazon was also the first program that allowed “associates” to use banners to promote their products. This gave affiliates a new way to promote products and attract customers to one of Amazon’s product pages or home page. Affiliates could still use links if they wanted, however, banner ads presented a visual option affiliates could add to their site.

Seattle24x7: JEBCommerce does a lot of work with apparel companies. How does apparel compare with other products in the affiliate world?

Birch: One of the key differences with apparel is product showcasing when reaching new customers.  Many of our apparel clients use the affiliate channel for new customer acquisition. When that is the case, showcasing a multitude of product in your ads/banners etc. is vital.

Seattle24x7: Given the complexity and sophistication that has come to define affiliate marketing, it does not seem like a system that a company ought to do on its own, or go it alone?

Birch:  It is definitely a more complex environment now. There’s more data to pour through. There’s more to manage, more to audit. It does not make sense for an advertiser to staff all of those different functions and pay those full-time salaries in-house until the program can really scale.

As an agency, we can build into your costs exactly the service level that you need, from high-end strategy to lower-level administrative work. It all comes down to sourcing. How do you find great solutions and great people? I can tell you, I’m hiring right now! [24×7]
Visit JEBCommerce online.