This post is wrote in reply so to speak to a few other posts I’ve seen of late from affiliates and will hopefully give affiliates a merchant point of view on the industry it’s a bit long but I hope you will take time to read it. Remember that I am both an affiliate and an affiliate manager, without affiliate marketing and my affiliate position I would never hold the job I hold today, and I am 100% behind the company I work for, so feel that I can give a very unbiased view, on all accounts.
Anyway, on with the post! The most recent post id like to tackle is from Jason Dale, who as far as im concerned is a pure affiliate, hes been in the industry ages, hes worked hard, hes built his site from the ground up and now has one of the UK’s most popular competition sites. However his most recent post here points out that hes becoming lightly concerned about cashback sites and how he can compete.
Firstly one thing mentioned in the post that is 100% true, networks love cashback sites. Why wouldn’t they? They have sales, and override – fantastic. Merchant side it’s a little more tricky, any self respecting merchant works to either one or a set of KPI’s (key performance indicators) in the affiliate space these are generally things like CPC, EPC, conversion but one not many affiliates will use is COS – cost of sale, as many affiliates don’t actually sell anything. However as a merchant this is possibly the most important metric. As an example I have a product and the mark up (ie. My profit on the sale) is 50%, I decide that of that 50% I want to be pocketing 30%. I can let my cost of sale run to 20% and till be happy, a COS over 50% is an actual loss.
So lets say I have an affiliate programme paging 15% commission, with the network override of 30% it brings my cost of sale to 19.5% (15 * 1.30), now this is a great result, im under my target cost of sale and only paying out on confirmed sales.
However on more detailed analysis of the sales from a cashback site it turns out over half the sales they send are from existing customers. So the hypothetical merchant has acquired a customer but then for every repeat purchase is being forced to pay 19.5% COS for their custom, not so great now as I was basing the initial COS of new customers. So what, the merchants still getting a sale? True, but merchants have other methods of securing a sale, the merchant might be a big brand and their brand term will probably cost them next to nothing to bid on and convert fantastically so the COS from a brand search will be very low, lets ay 5%. So from a merchants view they can acquire a sale for 19.5% of its value, or 5%. Affiliates are good with money and costs when relating to sale acquisition, its fairly easy to work out.
So this comes to the question of why does anyone work with cashback sites? Well they do add value, they have a user database which is effectively as good as your competitors customer database because they are also a merchant on the site. Would I pay more than 5% COS for a competitors customer database – simply, yes.
So in response to Jason, can it be controlled? My opinion is no it cant, there will always be different angles to making money online, cashback, at whatever % is just one of them. However id also like to say that, again in my opinion it will never be the case that 100% of online shoppers use cashback sites there will always be people who want the pre sell, need the convincing and aren’t just after the % cashback.
Whos next? Kieron on “David Hawk is wrong – the Affiliate Marketing Industry is alive and kicking” im with both parties on this but ill explain further in my next post
