The ROI on PPC vs. Affiliate Marketing

Which gives the best return on your investment – Pay per Click advertising, or building strong affiliate partnerships?

We recently released the audio recording of our clinic on this topic. You can listen to a recording of this clinic here:

The ROI on PPC vs. Affiliate Marketing

Building and maintaining strong PPC campaigns is becoming increasingly difficult in what has become a very competitive marketplace.

At the same time, many companies report poor performance with their affiliate programs.

The question we asked ourselves is this:

If companies invest sufficient time and effort to develop strong affiliate programs, can affiliates deliver a better ROI than PPC advertising?

Working with two of our research partners we have identified some important trends, and have confirmed that a well-managed affiliate program can deliver significant revenues.

Please note that the purpose of this brief is not to encourage marketers to abandon their PPC advertising in favor of affiliate marketing.

Instead we are suggesting that a strong affiliate program can deliver additional revenues with a very favorable ROI. Also, with skilled affiliates working on your behalf, and with some of them using PPC advertising themselves, you can extend the reach of your total PPC exposure, and reduce your PPC costs.

That is to say, many affiliates will be running their own PPC campaigns to attract the same traffic you have been fighting for yourself. They will then refer the most qualified of those visitors to your site, in the hope of achieving a sale and earning a commission.

Case Study 1 – Tracking the relative ROI between the PPC and affiliate programs of National Alert Registry.

One of our research partners is the National Alert Registry.

While we have been handling their PPC campaigns only for about a year, we have seen a decline in ROI, in spite of making substantial efforts in a number of areas:

  • We have added a number of new campaigns over time, often in response to current news in the media.
  • We have more than doubled the number of keywords we are bidding on, searching the “edges” for low-cost words and tracking their conversion rates.
  • We have more than doubled the amount of traffic to the site generated through PPC.

However, in spite of this, over the last nine months we have seen our partner’s PPC cost per sale going up, and PPC profits going down.

NAR is not the only company or organization to have found itself unable to scale its PPC programs any further.

Over the same period, NAR has more than made up for the decline in PPC revenue and profits by working hard on its affiliate program.

This increase has been achieved by focusing very tightly not on recruiting thousands of new affiliates, but by identifying a small handful of super-affiliates, or strategic partners.

Here are the results:

NAR – PPC vs. Affiliate Comparison Oct ’05 & June ’06
October, 2005 June, 2006
PPC Sales 4,427 3,667
PPC CPA $6.71 $9.43
PPC Profit $14,564.83 $2,099.65
Affiliate Sales 983 4,501
Affiliate CPA  $4.00  $5.00
Affiliate Profit  $5,898.00 $22,505.00

 

What You Need To UNDERSTAND:  Monthly profits from affiliate revenues have increased by 281.57% over a period of just nine months.

Case Study 2 – Growth in affiliate revenues for Net Detective.

Another of our research partners, NetDetective.com, has been working with an affiliate program for several years now.

While they don’t investment a significant amount in PPC campaigns, they do pay a great deal of attention to their affiliates.

In fact, the Net Detective affiliate program has now been running for over nine years, which makes it one of the longest running programs of its kind on the web.

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By building and refining the program over such a long period of time, they are now in a position where almost 80% of the company’s total revenues are generated through their affiliate partners.

The growth in both affiliate income and profits has been steady over the years.

However, the most significant increase has been over the last year, during which time they have recruited a number of new super-affiliates.

As with the National Alert Registry, time invested in forging strategic partnerships with key affiliates has been shown to dramatically increase revenues.

Here are their results, also over the last nine months. The figures show payouts and profits per affiliate, per month.

ND – Affiliate Growth between Oct ’05 & June ’06
October, 2005 June, 2006
Average Payout per Affiliate               $701.35          $2,315.99
Average Revenue per Affiliate  $2,686.87  $6,731.93
Average Profit per Affiliate  $1,985.52  $4,415.94

 

What You Need To UNDERSTAND: The average profit per affiliate per month has increased by over 122.41% over a period of nine months.

Finding Good Affiliates – The key to a successful affiliate program

The growth of both the National Alert Registry and the Net Detective affiliate programs was due to their recruitment of super-affiliates.

One approach to take when searching for top affiliates is to look for good content-driven sites. Many top affiliates have websites that are content-centered, instead of ad-centered. These affiliates will attract traffic and qualify it through their website and content before sending it on to you.

In the beginning, some of these site owners may be skeptical about becoming an affiliate. They may fear alienating some of their visitors, or may be suspicious of the payout terms or their ability to make a profit.

One way to approach these kinds of owners is to buy advertising on their site. If the results are positive for you, approach them about becoming an affiliate and be candid about your stats. You want them to know exactly what they are signing up for.

The objective is to partner with happy affiliates. Someone who is satisfied with the program and your company is going to send you much more traffic, and put more thought into their own campaigns, than someone who feels they have been misled.

Guidelines – Guidelines for establishing and running a successful affiliate program.

Pay per Click campaigns can still be a strong channel for many online marketers. As with any channel, the higher the level of your expertise in this area, the better your results will be.

If you plan to implement or improve an affiliate program to increase the overall ROI of your marketing efforts, keep in mind that many affiliate programs fail. And they fail because companies do not invest enough time and resources in research and program management.

Consider the following guidelines.

  1. Commit to allocating sufficient resources to fully research and explore the best way in which to manage your affiliate program, whether you use an in-house affiliate management solution, or partner with an outside supplier like Commission Junction or LinkShare.
  2. If you are going to use an in-house solution, invest in a program or service from an established provider. While some companies have done well with solutions they have built and programmed themselves, this takes an enormous investment of time and money and fails to leverage the expertise and experience of other companies.
  3. When launching an affiliate program, give yourself a 12-month breakeven horizon. It takes time to build a reputation for having a good program, and to recruit good affiliates.
  4. While some affiliate programs make huge revenues by having tens of thousands of affiliates, others achieve the same results with just a few strong partners.
  5. Treat your top affiliates as valued strategic partners. Your top few affiliates may have the potential to provide you with a significant proportion of your total revenues.
  6. Get to know how each super-affiliate operates. Some will feature your company within an existing, high-traffic content site. Others will create new sites, specifically to sell your products or service.
  7. Be generous with your commissions. Top affiliates make their living as affiliate marketers and invest their resources only in programs which offer generous terms and are well managed.
  8. Be prepared to increase commission rates for your top performing affiliates.
  9. Provide affiliates with the marketing tools they need in order to effectively promote your products or services. These may include text links, banners, content pages, data feeds and even complete stores delivered by javascript.
  10. Give affiliates access to detailed reporting on their performance and sales. Top affiliates will want to track the ROI of links from their pages…from exposures, to clicks and through to sales.
  11. Be open to special requests from key affiliates. Some may ask you to place custom code on your sales confirmation pages in order to track their own marketing efforts, including PPC campaigns.
  12. Listen carefully to top affiliates when they critique your landing pages. Many professional affiliates will have deep expertise in what works and what doesn’t.
  13. Be available to top affiliates by email and phone. You should treat your top performers as important strategic marketing partners. Being available to them helps build that kind of relationship.
  14. Appoint a single individual to work with top affiliates, so they know who their contact person is within your company.
  15. Enable affiliates to link to any interior page on your site.
    Conversions will be low if you simply attract affiliate traffic to your home page.
  16. Work with your top affiliates, learn from them and build custom landing pages to help maximize conversion rates.
  17. Alert your affiliates to upcoming specials, deals and new product or service introductions, so they have time to prepare their own pages or links.
  18. While some companies forbid their affiliates to bid on the company’s “own” keywords, this practice is not recommended. eBay, Amazon and other major sites freely allow this practice, as they understand and have calculated that giving their affiliates free reign is to their advantage. A common exception is that most companies will not allow you to bid on their trademarked names and phrases.
Related:  Selling the Click vs. Selling the Product: Which Strategy is More Effective for a Text-Based PPC Ad?

In-house affiliate management solutions:

Outsourcing solutions for affiliate program management:

Related MarketingExperiments Reports:

As part of our research, we have prepared a review of the best Internet resources on this topic.

Rating System

These sites were rated for usefulness and clarity, but alas, the rating is purely subjective.

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Credits:

Editor — Flint McGlaughlin

Writers — Nick Usborne

Contributors — Aaron Rosenthal
Michael Clowe

HTML Designer — Cliff Rainer

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