7/2/13

The Three Factors That Determine Affiliate Marketing Success

As affiliate marketing has become a multi-billion dollar industry over the past several years, it’s also become increasingly sophisticated. Across the seemingly endless niches are a variety of strategies for generating revenue. With more merchants, offers, and analytics, there’s a lot to the affiliate marketing business.

But while the details have grown increasingly complex, the big picture remains incredibly simple. Success in affiliate marketing ultimately depends on how well you execute three tasks.

Affiliate Marketing For Dummies
If you’re an affiliate marketer, you have a chance to make money every time someone opens up a Web browser. To the affiliate marketer, below is a diagram of how the flow of every Internet engagement unfolds.



You make money on the path that includes three green boxes; on all others–the vast majority of scenarios–you get nothing. So at its simplest, affiliate marketing success comes to those who maximize the number of positive outcomes down the flow chart above.

Three Key Factors
Put another way, think of affiliate marketing as this formula:

Revenue = Visitors x Click Rate x Conversion Rate x Commission

Improving any one of the variables on the right side of this equation will increase the dollar amount on the left side. So affiliate marketing really boils down to optimizing three factors:

Factor #1: Visitors / Traffic
In order to make money from affiliate marketing, you need to convert a visitor to your site to a paying customer for your merchant partner(s). Obviously, the more visitors you have (i.e., the greater the traffic to your site), the more chances you have to make an affiliate referral.

Building up a large base of traffic is in itself a huge challenge. There’s an overwhelming amount of content on the Web dedicated to attracting visitors to your website, and we won’t go into any detail on the topic here. (Check out SEOmoz or Search Engine Land if you really want to read more).

If your website doesn’t have much traffic to speak of, there’s probably not a big opportunity for you now in affiliate marketing. Focus on producing high quality content, building some links, and getting a recurring stream of visitors to your site. But ff you have a website that is already attracting a significant number of visitors from referring sites, organic search, and direct visits, affiliate marketing could be a logical way to monetize.

Factor #2: Click Rate
This is where we put the “marketing” in affiliate marketing. It’s up to you as the affiliate marketer to make sure that your audience sees the affiliate links and offers you have on your site. You can’t simply throw them into the right sidebar and hope that your audience seeks them out and clicks on them. There’s a great deal that you can do to increase the likelihood that your visitors click on the links and get in front of the affiliate offer.

This topic is extremely broad; there are countless strategies for increasing visibility (and ultimately click rate) on your affiliate links, ranging from incorporating links into your content to sending emails to your newsletter list. Check out some of the affiliate marketing gurus on our Best Monetization Blogs overview for an extensive supply of tips and tricks for boosting the number of clicks your affiliate links receive.

John Rampton has some ideas on increasing click rate, and Zac Johnson has five simple ways to boost click rates as well.

Factor #3: Conversion Rate
Conversion rate refers to the percentage of referrals sent who ultimately complete the desired action (e.g., purchase something from Amazon).

This is one area that is often overlooked as an “out of my hands” part of the affiliate marketing funnel. Once you’ve sent a visitor to the merchant site, all you can do is cross your fingers and hope they ultimately complete whatever action is necessary for you to get your commission. That’s partially true I suppose. But you have more input here than you may realize.

Part of the affiliate marketing game involves picking out merchant partners and products to promote. If you’re promoting a crap product, you can probably send some traffic through the affiliate link by doing a good job of marketing it to your audience. But once they get to the merchant site and are disappointed in what they see, they’re probably going to abandon.

If you’re promoting a quality product that you think delivers great value to your audience, they’re much more likely to complete the purchase once they’ve clicked.

Commission $ vs. Conversion %
There’s often a trade-off between the quality of a product and the commission being offered. And it’s tempting to gravitate toward the partners and products that pay you the most per conversion. But if those products are unlikely to convert, they might not be the best fit.

Consider two products:

Product A: $100 commission to affiliates
Product B: $25 commission to affiliates
Product A looks like the winner, right? Not necessarily; your expected revenue from promoting this product depends on the likelihood of conversion. Suppose the conversion rates look like this:

Product A: 1%
Product B: 5%
For each affiliate click you send to Product A, you can expect $1.00 in revenue. For each sent to Product B, you can expect $1.25 in affiliate revenue.

Don’t get blinded by simply commissions. Finding relevant, quality products to promote is one of the most important parts of the affiliate business.

Bottom Line
Focusing on any one of these areas increases your chances of affiliate marketing success. But optimizing one area when another is sub-optimal won’t deliver the results you want. In other words, the real success and revenue comes when all three are executed successfully.

For example, building up a big base of traffic won’t deliver much of a reward if you’re working with the wrong affiliate offers. Similarly, doing a great job marketing the ideal offers to an extremely small traffic base won’t translate into much revenue. Each of these three points must be implemented and improved together, or else you won’t see results.

There’s obviously a lot of work that goes into each of the three points above; building up substantial traffic takes months (or even years) of effort, and finding the right affiliates involves never-ending research.