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The Pros and Cons of Affiliate Programs

Cliff Ennico on

"I have a small line of consumer products that I promote mostly from our company website.

"A number of my competitors have set up affiliate programs in the past year, where people can sell their stuff from their own websites and get a commission. I'm thinking about doing the same, but our products have a 'luxury' cachet that I'm afraid will be diluted if the affiliates don't maintain a high-quality brand image.

"Is there any way I can create an affiliate program but ensure that my brand image won't be diluted in the marketplace?"

In the world before the internet, companies hired sales representatives, or "reps," who would sell their merchandise -- often within strictly defined territories -- in exchange for a commission on each sale they made that didn't fall through (for those who have no clue how that world worked, see Arthur Miller's 1949 play "Death of a Salesman.")

In a digital world, yesterday's sales rep is today's "affiliate."

In an affiliate program, people sign up with a brand (usually but not necessarily consumer-facing) and agree to sell the brand on their own websites, social media pages and other online venues, via a link unique to each affiliate. When the customer clicks on that link, he or she is directed to the brand's website, which automatically records that the affiliate is responsible for introducing that customer.

 

If the customer buys something from the brand's website within a specified time period -- usually 60 to 90 days -- the affiliate is credited with the sale and receives an agreed-upon commission at the end of the month or calendar quarter.

For brands, it's a low-cost way to market and promote their products. For affiliates, it's a way to generate passive income without having to carry an inventory, interface with customers, ship and fulfill orders, process returns, collect overdue payments or deal with problems for which sales reps in the brick-and-mortar world are responsible.

As this reader points out, however, an affiliate program can create as many problems as it solves. Here are some things to think about before you take the plunge.

What Merchandise Will the Affiliates Sell? Especially when starting a new program, resist the temptation to offer affiliates access to only the stuff you're having a hard time selling. Just keep in mind that the affiliate earns commissions on the gross sales price, not your net profit -- so offering them only low-margin merchandise is likely to erase any margin on items sold through the program.

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