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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.

How Do You Make Sure Only the "Right Ones" Join the Program? Especially for a company that sells high-end, luxury consumer goods, you can't afford to let everyone into your program who wants to join. You should be allowed to view their website and social media pages to determine that their brand image is the same quality as yours and that they handle themselves in a professional manner. You also want to be sure that they do not carry competing merchandise and have some knowledge of the types of merchandise they offer on their site. An affiliate that's offering jewelry and pet supplies on the same page is not going to be a good fit for your business.

What Does the Affiliate Get, and When? Your website should clearly describe for potential affiliates:

-- how much commission they get on each sale;

-- the "cookie duration" for any sale (the period of time from the moment a customer clicks on your site using the affiliate's link to the moment they purchase something there);

 

-- any minimum sale requirement (e.g., commissions are paid only on sales over $100); and

-- how commissions will be affected by rebates and returns.

What Should Your Affiliate Agreement Say? Your affiliate agreement should have, at the very least, clauses:

-- requiring them to obey all federal and state consumer protection and advertising laws, including the federal CAN-SPAM Act regulating email marketers and the Federal Trade Commission's Guidelines on Endorsements and Testimonials for bloggers;

-- reducing the affiliate's commission to reflect any discount you grant a customer on a particular item;

-- allowing you to terminate the affiliate relationship for any reason, or no reason, as long as you pay any commissions owed for sales that take place before the termination date;

-- explaining that rebates and refunds granted to customers will be credited against commissions due the affiliate the following month; and

-- requiring them to notify you when they make changes to their website.

How Much Support Will You Give Your Affiliates? To ensure that your affiliates are living up to your brand image, you may want to create their marketing materials yourself and require their use on the affiliate's website. You should also consider a monthly newsletter with special deals, one-time coupon codes and other incentives.

Should You Sign Up With an "Affiliate Platform"? If the thought of managing dozens or hundreds of "remote reps" makes you nervous, a number of software companies offer affiliate management programs that will automatically sign up and scrutinize potential affiliates, issue their customized links, track website clicks and sales, pay commissions and otherwise help you manage your affiliate relationships ... for a monthly subscription fee, of course.

Among the most popular software solutions: ShareASale, Rakuten Advertising, Tapfiliate, Titan Affiliate, Referral Rock and Post Affiliate Pro.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at www.creators.com.

 

 

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