One of the first things you will start with when setting up your local tourism and travel affiliate program is choosing the tracking and management solution you will use. This solution will be the basis of your affiliate program. The tracking and management solution will manage aspects like:
- affiliate links and promotion materials,
- communication with your affiliates,
- commission structures,
- reporting and activity tracking.
Affiliate software or affiliate network?
Affiliate tracking and management software solutions and affiliate networks offer a wide variety of features that can be applied to many different affiliate marketing strategies:
- multiple linking methods,
- affiliate categorization,
- email list building,
- lead tracking,
- automated commission processing,
- and much more.
There is a wide range of solutions to choose from. But the most important decision to take is whether you are going to use your own software solution or join one of the many network solutions. Or – and I will treat that in a next post – convince your local tourist board or destination marketing organization to set up a destination affiliate network with local tourism and travel businesses.
How much ‘ownership’ and control over affiliates do you want?
With a software solution you are in control. You control your affiliates, your linking methods, your commissions, your affiliate communications and anything else related to your affiliate program.
With an affiliate network solution, the network controls your affiliate program and “owns” the affiliate relationship.
So, before you look at the features that are included, the prices of each package, the customization available or anything else, you need to make one important decision. Do you want a software solution or an affiliate network solution?
Reasons to have your own affiliate software solution
Finding affiliates is quite hard on your won but you can start finding people in your destination, like local bloggers wanting to earn some extra money or other local tourism businesses or travel operators, to help you as affiliates in promoting your products and services.
You do not have to share your affiliates with other affiliate programs of competitors. Affiliates in networks typically belong to more than one affiliate program.
This means that with your own software solution, in many cases, you have:
Direct contact with your Affiliates.
If you owned the relationship, you could contact them whenever you wanted, however you wanted. You could send them an email, call them or send them a postal mailing.
The only way you can reach your affiliates in an affiliate network is using the network’s online email program. So, affiliates have to login to their account and check their inbox in order to get your message. The affiliate network is the only one that can contact them by actually sending them an email. The only other way is to pay the affiliate network for access to your affiliate’s contact information.
Control over what your Affiliates see.
Your own software solution gives you control over the banners, links, logos and other advertising media your affiliates see on their affiliate administration page. This gives you an opportunity to advertise anything you like to your affiliates. This can be paid advertisements, information about other programs in the destination or anything else you choose.
This gives you the opportunity to create additional streams of revenue through your affiliate channel.
If you own the relationship, you could be collecting advertising fees and affiliate commissions.
In the case you join an affiliate network, the network will be receiving payments from advertisers and affiliate programs they belong to.
Every merchant needs and expects something different from their tracking and management solution. Most software solutions offer merchants the ability to customize the program to fit their needs. In fact, many software solutions allow users to setup a tailored solution for themselves by simply entering their unique information and requirements into the software. Many software solutions also offer custom programming options that allow the user to add features and functionality to the software that goes above and beyond the Affiliate Marketing scope.
Control over other affiliate programs.
If you own the relationship, you are able to tell your affiliates about any other affiliate program you like – or none at all. Like programs from non-competing other local tourism businesses por travel companies. If you decided to promote a program or two, you would earn the second tier commissions.
if you join an affiliate network, the affiliate network can and will offer other programs to your affiliates. They will push better earning programs.
Reasons to join an affiliate network
So, why do people choose affiliate networks?
Easy access to affiliates
Affiliate networks promote their solutions with claims of thousands of affiliates are “waiting to join your program” and marketing specialists constantly are searching the web for new affiliates.
It is much easier to find affiliates who have already joined an affiliate network. However, since they have a much bigger choice of affiliate programs to join they are harder to find and commit.
You have to find those that are willing to leave the programs they have already joined or
consider adding yours to their offerings. Also, if you take the initiative yourself to go out there and find your own affiliates, you will have to keep in mind that the affiliates are joining the affiliate network; not your program. The network ‘owns’ your affiliate, not you.
All administrative work taken care of
The affiliate network takes care of all the administrative stuff, saving you a lot of time. All tracking and payments are done by one network. Networks act as a middle man, and in most cases will pay their affiliates, if the network itself is not paid by the advertiser.
Access to special features
And the especially features that are normally too expensive or complex for small businesses. The tracking and management solutions that an affiliate network can put in place are designed to fit general affiliate marketing needs.
A third solution: best of both worlds?
There is a model which has not yet been explored. And that is the local tourist board or destination marketing organization taking on the role as local affiliate network. I will explain this exciting and promising model in future posts.
When it comes to price – there a few things to look at: Setup Costs, Monthly Fees and Commissions. Setup costs range from hundreds of dollars to thousands of dollars for both Affiliate Networks and Software solutions.
The monthly or annual fees charged by the providers vary from the hundreds to the thousands as well.
The real difference in price is in monthly commissions. Affiliate networks will charge you a percentage of your commission payout each month. This can be anywhere from 20% to 50% of your total payout. So, if you pay your Affiliates € 1,000 in commissions – you’ll owe the Network €200 – €500. Plus – many Networks charge a minimum commission amount starting at €250. This means that if you pay your Affiliates only €100 in commissions one month – you’ll owe the Network €250 for that month.
Affiliate marketing is “performanced-based”. You will need to reward your affiliates for their performance. For this you need to set up a commission structure.
There is no set formula or standard for setting your commission level for commissions. It really depends on what you can pay and what your Affiliates are willing to work for.
Here are few options you have:
Pay per sale or pay per lead?
The first thing you have to decide is what you will pay for. Though there are an endless number of actions you can choose, do your best to stick to the “trackable” actions. You can choose from:
- Pay Per Sale (PPS)
- Pay Per Qualified Lead (and/or resulting in a buying customer) (PPL)
Keep your objective in mind when deciding which is the best route for you. But, also keep in mind that you can reach your objective by paying for a different action.
For example: If your objective is to increase subscribers, you can focus on that, but still pay your affiliates only when those email addresses result in a buying customer.
Do not pay for ‘click-throughs’ or ‘impressions’. There are very few business models that truly benefit from a pay-per-click strategy. Also it attracts unethical affiliates to join your program and perform fake clicks to increase their commissions. Focus on paying for (financial) results.
No other marketing technique offers you the opportunity to pay only for results. Paying for sales and qualified leads is an easy way to ensure that you are only paying for results.
Once you decide what you will be paying for, you need to decide what you’ll offer in terms of a reward. Here, you’ve two choices: Percentage and Flat Rate.
A percentage pay scale is easy for your Affiliates to digest: the bigger the price tag, the more they make. This type of commission structure can work well for you if the same holds true for your company. After the Cost of Goods Sold, the bigger the price tag, the more you make.
Your actual percentage rate should work across the board for all of your products or services. You can offer different rates for different offerings, but that can get extremely complicated for you to administer and very confusing for your Affiliates. They will be striving to figure out what commission is paid on what product instead of striving to make sales.
In a flat rate structure, your Affiliates will make the same amount no matter what they sell.
This structure will work well for you if your profit after Cost of Goods Sold is roughly the same across the board. In other words, if you are not making considerably more by selling higher priced items, neither should your Affiliates. The flat rate structure also works well if you are paying for things like email addresses, leads and so on.
You will want to decide whether or not a two-tier program is right for you and add it to your plan. Offering a two-tier program is a strategic decision.
What is a two-tier structure?
In a two-tier program, your Affiliates can earn commissions in two different ways.
- Affiliates will earn a first tier commission when they refer a sale.
- They will also be rewarded for referring new Affiliates to your program. For each sale that the new Affiliates refer, the original Affiliate will earn a second tier commission.
Here’s an example of how a two-tier system works:
First Tier: John joins your Affiliate Program and places your link on his site. Ellis comes to John’s site, clicks on the link to come to your site and purchases a widget from you. John earns a first tier commission.
Second Tier: Mary comes to John’s site, clicks on the link to go to your site and signs up for your
Affiliate Program. Since Sally came from John’s site, she’ll be placed in John’s second tier. Any time she refers a sale, John will earn a second tier commission.
So, when Peter comes to Mary’s site, clicks on the link to your site and purchases your product,
Sally will earn a first tier commission and John will earn a second tier commission.
Two-tier affiliate programs recruit Affiliates automatically.
A two-tier program will not only help you offer greater incentives to your Affiliates, but it will also help you build your Affiliate Memberships.
You have already acknowledged the power an Affiliate has to reach potential customers, why not consider letting them reach your potential Affiliates as well.
The majority of website owners with Affiliate Programs choose to offer their Affiliates a two-tier structure. They realize the benefit in having their existing Affiliates recruit new Affiliates. They also realize that many prospective Affiliates pass up programs with only one tier. Remember:
your Affiliates will be working hard to send you traffic, so reward them for their efforts and they will be happy, motivated, and hopefully prosperous!
Do not attempt to create a program with more than two-tiers. Because then it becomes a Multi Level Marketing Scheme (MLM). MLM can be a dangerous legal game to play with your business and carries with it a negative stigma.
WHEN TO PAY
Along with deciding what to pay, who to pay and how much you should pay, you will need to decide when to pay commissions. There are two main factors that play into “when” to pay: Schedule and Minimum Amounts.
Schedule deals with the time frame in which you plan on paying commissions. This can be any period you wish. But most companies decide to pay either monthly or quarterly (4 times a year).
A monthly schedule seems the best schedule for paying Affiliates in most situations. There are not many Affiliates who are willing to work hard day and night promoting your company and then wait for three months for you to turn over their fees. A monthly payout schedule is therefore also accepted as the norm across the industry.
A lot of merchants work with ‘minimum commission amounts’. It means setting a minimum amount that Affiliates must reach before you will pay them fees. There is a practical reason since it means less payment adminstration and check issuing for you while maintaining timely payments to your performing Affiliates.
For example, let’s say you choose a minimum payout amount of $10. Each month, you’ll issue checks to every Affiliate that earned more than $10 in commissions that month. Then, you’ll simply carry over the commissions for Affiliates that earned less than $10 to the next month. If
those Affiliates earn enough the next month to reach the $10 (combined with the carried-over amount) – you will issue them a check. If not, you will carry over their amount again.
Each quarter, you’ll clear out your balances by paying everyone that’s earned a commission that quarter – no matter what amount they earned.
Choosing when to pay your commissions is an important decision to make. Despite what other companies are doing , your payout time has to fit your company.
HOW TO PAY
The last decision you need to make is how you will pay commissions. There are several different options you will have in issuing commissions:
- Hand Written checks: in many countries like France, the UK and the US, hand writing checks is still quite normal. With this option, you simply sit down with your checkbook and start writing out checks to each Affiliate and sending the by mail.
- Automatic Check Writing: If you are using an accounting software package, you can type the checks into the software and they will be written for you automatically. You may also be able to have your Tracking and Management Solution export a commission report into a file that can be imported into your accounting software.
- Online Payment Services: There are online payment services, like PayPal, that will allow you to upload a file that contains your Affiliates’ email addresses and the amounts you wish to pay them. And the service will distribute the money to them. If they are not already signed up, your Affiliates simply have to join the service – for free – to get their commissions. If your Tracking and Management solution can export your commission report into a file that can be uploaded directly to the Payment Service – paying commissions will only take you minutes.
- Your Bank: Check with your bank to see if they offer a payment service. For a fee, you may be able to send your commission reports to your bank. The bank will issue checks from your account to your Affiliates.
Once you determine what commission levels you can pay, what you are paying them on and when and how you’ll be paying them you are ready to put your commission structure into your Affiliate Marketing Strategy.