Types of Affiliate Management Software Programs
Web Marketing Today Premium, Issue 87, Winter 2005
I asked subscribers of Web Marketing Today Free Edition, and readers of several other newsletters in the marketing field, to respond to a survey about the affiliate programs they used. Here are the results. Please note that there were only 209 usable responses for this question out of tens of thousands of merchants who sell through affiliate programs, so this doesn't pretend to be a comprehensive survey or scientific sample. It is only a hint at what kinds of software others are using.
|
Type |
Percent |
Brief Description |
|
Custom |
16% |
The affiliate program we use is custom programmed. We don't use a service or off-the-shelf software for this. |
|
Network |
23% |
The affiliate program we use is an ASP hosted service for which we pay a percentage of our sales commissions, not a flat fee. |
|
ASP Hosted |
21% |
The affiliate program we use is an ASP hosted service for which we pay a flat monthly fee. |
|
Integrated in Cart |
10% |
The affiliate program we use is integrated into our shopping cart program. |
|
Licensed |
15% |
The affiliate program we use "out-of-the-box" commercial software that is hosted on our own server. We paid a one-time licensing fee only. |
|
N/A |
8% |
None of the above |
The type of program chosen varied quite a bit based on the annual sales volume of the merchant.
|
Program |
Overall |
> $500K |
$100K-$500K |
$25K-$100K |
$5K to $25K |
$500 to $5K |
> $500 |
|
Custom |
16% |
21% |
25% |
15% |
6% |
8% |
14% |
|
Network |
23% |
39% |
9% |
12% |
17% |
28% |
23% |
|
ASP Hosted |
21% |
21% |
38% |
21% |
19% |
12% |
14% |
|
Cart Integrated |
17% |
10% |
19% |
29% |
22% |
12% |
14% |
|
Licensed |
15% |
3% |
9% |
15% |
33% |
28% |
9% |
|
N/A |
8% |
5% |
0% |
9% |
3% |
12% |
27% |
|
Respondents |
209 |
61 |
32 |
34 |
36 |
25 |
21 |
The largest merchants preferred network models (39%, such as Commission Junction and LinkShare), followed by custom programming (16%) and ASP hosted flat-fee (21%) models. The smaller merchants, on the other hand, preferred affiliate networks (such as ClickBank) and licensed models that limit up-front costs to the initial cost of the software installed on the merchant's webserver.
Each model has its advantages and disadvantages. Let's consider them.
Integrated into Shopping Cart
An increasing number of shopping cart programs come with an affiliate program integrated into the cart software for no extra charge. This means that you can immediately begin to sign up affiliates without having to piece together an affiliate program from third-party software. The advantages here are cost savings and ease of set-up.
Their chief disadvantage is this: Since affiliate management functions are an add-on to the core shopping cart program, the features tend to be more limited than those you'll find from companies that specialize in affiliate management itself. Moreover, the vendor's programmers are much less likely to spend time improving the features of the affiliate program in the future. It will always play second fiddle to the shopping cart itself.
Look carefully at the affiliate management features of your shopping cart software and compare them feature-by-feature to the standard and advanced features listed in Chapter 3. You may find that you have all the features you need. If so, go for it. But if you think these features may limit the kind of aggressive affiliate marketing you want to do, look elsewhere. Third-party affiliate management software programs can be installed to work with nearly every shopping cart that is currently available. Don't limit your options.
Custom Programming
Custom programmed affiliate software is programmed either from scratch or from an existing public domain software example. An affiliate program isn't an overly-complex program to write, though it would take a skilled programmer many dozens of hours of writing and debugging to create a fairly simple program with tracking, reporting, and affiliate access features.
Companies like a custom programmed solution because it gives them a lot of flexibility to suit their exact business model. What's more, once the programming is done and verified, the company owns the solution. They don't pay either a commission or a monthly fee.
There is a downside, however. Custom programming is expensive. Additionally, programmers have to "reinvent the wheel" when they start from scratch and often don't build in all the features and easy-to-understand interfaces available through programs that have gone through several major revisions. Custom programs often show bugs months after completion and must be updated as the affiliate approach needs change.
This should be the choice mainly of larger companies that need particular features not available elsewhere. For smaller businesses it's too expensive, unless you're a programmer to begin with. My advice: don't custom build affiliate management software unless you are forced to. Rather, use something that's already functional and spend your time, money, and energy on promoting your website.
Network, Commission Based
This type of program usually has two main features. First, it has a ready-made pool of affiliates who can be encouraged to join your company's affiliate program. This is a big plus! Second, most (but not all) of the network programs charge the merchant on a percentage basis. Additionally, most network vendors pay the affiliates in their network themselves, relieving the merchant of this accounting responsibility.
ClickBank is an extremely popular network type program for small merchants who sell digital products. They charge a $49.95 set-up charge and 7% of each sale, since they handle the sales process as part of their service.
Larger companies will look to Commission Junction, LinkShare, Performics, and TradeDoubler to provide services. Typically these vendors charge several thousand dollars set up fee plus a "network access fee." Then the merchant typically pays to the network vendor 25% to 30% of the commission paid to affiliates. If these fees aren't above the monthly minimum set by the vendor, the merchant must pay the minimum fee.
A new type network of hybrid has emerged in the last couple of years that provides a network of affiliates to draw on, but charges a monthly fee instead of a commission. Typically these networks are smaller than the commission-based companies because their networks are newer. The new network hybrids have evolved from ASP Hosted programs. The most prominent example of such a hybrid is MyAP (My Affiliate Program) with its Kolimbo Affiliate Network.
For larger companies there are many advantages in using network model vendors (with the exception of ClickBank). Software is of the highest quality with the most features of any affiliate software model. Network vendors are able to offer extreme flexibility in the type of affiliate program and the actions that are rewarded. These vendors provide part-time or full-time account representatives who work with the merchants to get the most out of their affiliate marketing. These vendors are large enough to tailor their services to the exact needs of larger merchants, offering a menu of services that the merchant can choose from. Some larger merchants may want to outsource the entire affiliate operation to these vendors.
Network models have their disadvantages as well. First, while they provide a ready-made pool of affiliates, most network vendors (with the exception of a few hybrids like MyAP) "own" the affiliates. If the merchant decides to leave the network vendor, relationships with all of the affiliates are abruptly ended. Second, the cost of most network vendors is a bit pricey for some merchants. Yes, the network vendors provide a great many services, but their charges are higher than other affiliate software models. While most vendors allow the affiliate URL to point to the merchant's domain (thus increasing link popularity and search engine rankings), not all have this feature.
If you are a small merchant selling downloadable digital products, ClickBank gives you a ready-made affiliate program and payment system to get you going rapidly, though their 7% fees can add up.
If you are a larger online merchant, a network vendor may be an excellent choice for you, since you can outsource some or all of the affiliate program functions to them. If you are a smaller merchant with a limited budget, but who needs a ready-made affiliate network to help you recruit affiliates, consider seriously MyAP with its Kolimbo network.
However, if you are a small merchant, especially one selling tangible goods, you may find the network vendors' prices and monthly minimums too high for you. You'll probably want to consider a less expensive model.
ASP Hosted, Monthly Flat Fee
A very popular model for smaller businesses is the ASP (Application Service Provider) Hosted type of affiliate management software program. These typically charge a monthly fee of $25 to $50, and sometimes a set-up fee, though many charge no set-up fee at all.
The advantages are several. Since monthly fees provide a steady income for the vendor, they have revenue to fund both improvements to the software and good customer service. Since the program is centrally located, the vendor is able to make constant improvements so that the best of the ASP hosted vendors have a great many features available and are quite robust. These vendors also provide technical help to set you up. Since keeping you as an ongoing customer is they only way they earn an income, they tend to take very good care of their merchants, especially in the crucial early months of setting up and getting an effective affiliate program underway. These programs are usually scalable too, so if your affiliate program is wildly successful, the provider has enough bandwidth and computer capacity to provide you with the services you need.
One disadvantage is that you must recruit your own affiliates without a built-in network of affiliates to market to. A second disadvantage is that the affiliate URL may not be pointing at your domain, meaning that it won't contribute to your "link popularity" and search engine ranking. (Many hosted ASP vendors do allow affiliate links to the merchant's domain, so be sure to check this.) A third disadvantage is that, if you are a small, struggling company, you will be paying a monthly fee if you get many affiliate sales or not.
Licensed Software on Merchant's Server, One-Time Fee
The least expensive option is to purchase a license for affiliate management software and install it on your own webserver. You control the entire program, affiliate URLs point to your domain, and you don't have to worry about vendors going out of business or raising prices. Your one-time cost will be in the range of $75 to $600, plus any installation fees, but there are no on-going monthly fees.
On the downside, however, this isn't a very lucrative model for the one-person-shop programmers who have written the software. Thus they're not nearly as motivated to keep the software updated and provide customer service if you run into difficulties getting set up. You may be pretty much on your own.
After a few years you may find that your software vendor hasn't kept the software up-to-date with the latest improvements and you're stuck. If you remain a struggling merchant, licensed software may be the right choice for you, but if you become successful, there's no easy upgrade path and scalability. You either have to stay with what you have or go through the huge headache of contacting affiliates with new affiliate links with the new vendor -- knowing that you'll never get all of the affiliate links to your site switched to the new program.
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