How do you have a marketing strategy without a marketing budget? With online affiliate marketing, Martin McNulty explains, you only spend when you get results

IT’S ONE of the age-old debates in marketing. Do you put activity on hold to cut costs in a recession? Or do you trim it back slightly, leave it as it is or even increase it?

Affiliate marketing can help you market your firm and services more widely and reach prospective clients without having to spend anything up front – good news for the cautious.

Affiliate marketing is a kind of online advertising that is purely results-based rather than paid for up front (the pay-and-pray approach). You commit to paying an affiliate marketing company a pre-agreed sum of money every time a visitor the affiliate sends to your site performs a pre-agreed action.

This action could be anything from a completed online application form, a person clicking through to your “contact us” page or even a closed deal.

Here’s how it works:

Everyman Insurance, a hypothetical insurance broker, agrees with an affiliate marketing agency that each time an application form is completed on the Everyman site by a visitor sent from an affiliate site, it will pay the affiliate £5. The affiliate agency then invests its own money to drive traffic to the Everyman Insurance site (for example, by placing keyword adverts search engines). The affiliate company is gambling that it will generate enough applications to recoup its initial outlay and make a small margin on top.

Benefits

The benefit of this model is that the client is able to determine the action and the fee paid to the affiliate when that action takes place. It is fully trackable and transparent. But how much do you pay for a pre-agreed action? The cost of the action (or CPA – cost per action) will depend on the action itself, specifically the degree of certainty that the particular action will result in a sale. However, it is also affected by the quality of the client site and strength of its brand. Let’s follow Everyman Insurance through four scenarios:

1: An affiliate programme for Everyman Insurance is structured on a CPA basis, where the action is deemed to be a “sale”; only once an insurance policy has been signed and the deal done will Everyman pay the affiliate for the lead.

2: An action is deemed to have been performed when a visitor generated by the affiliate fills in an online application form.

3: An action is deemed to be when a person fills in a “request to call” form.

4: An action is deemed to be when a person clicks through to Everyman’s “contact us” page; Everyman pays the affiliate for each click-through.

What determines cost

In CPA 1, where an action is deemed to be a “sale”, the CPA paid by Everyman would be the highest of the examples here, as all the risk is being shouldered by the affiliate. After all, there is every chance the sale could break down during the process and the affiliate will get paid nothing despite having sent traffic — and a potential new client — to the Everyman Insurance site.

Example 1 is also more expensive because “dotted-line” deals, which involve phone calls, meetings and other types of post-application activity, are much harder for the affiliate to track than simply a click-through to the Everyman site and the completion of an online form.

In the second example, the CPA paid by Everyman for the completion of an online application form would be less, as it is not certain that this action by the prospective client will result in a sale. Because Everyman is itself taking on a degree of risk, and the affiliate is getting paid irrespective of whether an actual deal takes place, the affiliate will get paid less.

In the third example, the CPA for Everyman will be lower still, as there is even less certainty that this will result in a sale than the completion of an online application form, which shows more commitment on behalf of the prospect.

In the fourth example, the CPA will be the lowest of the four scenarios, as simply clicking through to a “contact us” page, while it does show a degree of intention on behalf of the visitor to the site, is still a long way from converting to a sale.

Put simply, the amount that Everyman Insurance pays for actions reflects the level of risk it agrees to take on. The more risk it is being exposed to, the less it will pay.

How much a company pays an affiliate for a pre-agreed action will also be influenced by the quality and usability of its website, the historical conversion rate of its website and the strength of its brand. The weaker the company website is in these areas, the more money the affiliate marketing agency will have to invest in traffic (or paid clicks) to achieve the desired action.

However, well-branded websites that already receive robust levels of traffic, require minimal integration and make the application process (and navigation generally) effortless, will benefit from lower CPAs.

The most important factor, though, is that with every affiliate marketing campaign the insurance broker — or insurance company — will only be paying for results. IT

Martin McNulty is client services director of online marketing agency, Trafficbroker.