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Part 1: Setting Up A Successful Affiliate Program
By: Jim Conley II, MerchantSeek.com

Affiliate programs are an extremely hot topic in the area of
viral marketing on the Internet and can reap you huge profits, if
effectively run. An affiliate program is where you reward
people for marketing your products and services. Just as I
mentioned last week with news releases, you might not be in
the position right now to handle operating an affiliate program.
They are quite a bit of work and require some extra planning
before jumping in.

As far as planning goes, there are a few areas you must
consider:

1. Rewarding your affiliates
2. Which type of affiliate program you wish to set up
3. Quantity vs. quality factor

Once you've made these important, key decisions then you'll be
able to set up and manage your affiliate program to work
successfully for you. But before we do that let's look at each
part of the planning process in detail starting with...

Rewarding Your Affiliates

First off you need to look over your profits and decide whether
or not you can handle paying affiliates for sending you
business. There's no use getting things started to find out
weeks later after you've signed up a few affiliates that you don't
have enough capital to pay them. If your profit margin allows,
you'll want to pay your affiliates a good commission,
somewhere along the lines of 25% to 50%. This is a decision
you will have to ultimately make up yourself. The more you
pay your affiliates, the more likely they will promote your
products and services.

Different Types of Affiliate Programs

There are three different types of affiliate programs you can
choose from. What your business is will decide which program
is best for you. Look at each program and weigh the pros and
cons to find out which one will work best for you. Once you
get started it's difficult to change course in the middle of the
game.

Type 1: Pay-Per-Sale

Of the three programs this one is the easiest one to manage. It's
also one of the more popular ones seen on the Internet. Though
one of its drawbacks is the fact that it's not one of the most
profitable.

Anyone can set up an affiliate program like this one. Why?
Because you only pay the affiliate if a sale is made, no money
out of pocket. Then once a sale is made you pay the affiliate
according to your referral fee structure. Again, the more you
pay your affiliate the more they will promote your offerings.

Type 2: Pay-Per-Lead

This is one type of affiliate program where you'll want to have
some extra capital on hand before starting. Here you pay
affiliates for leads that they send you rather than for sales.
Unless your business sees a high closing rate for sales this is
not the affiliate program type for you. Typically, you pay an
affiliate anywhere between $0.10 to a few dollars for every
lead they send you. A lot of times you'll see this type of
affiliate program used by credit card and survey companies. In
fact, some businesses combine both type 1 and type 2 affiliate
programs.

Type 3: Pay-Per-Click

Of the three I've mentioned this one is the riskiest of them all.
But on the other hand it can be the most profitable for you.
Here you pay affiliates according to the number of people they
send to your website. If your conversion ratio on leads to sales
is really high then you can consider this type of affiliate
program. Though, to really make this type work for you, you
need to have a very effective website with the right products
and services. Otherwise, focus on the above two.

Now that you've got an idea of the different affiliate program
offerings, weigh out the pros and cons of each and see which
one would work best for your company. I would personally
suggest starting out with a type 1 Pay-Per-Sale affiliate
program. It is the least risky of the three and works great if
you're concerned about low closure ratios and/or not having
enough capital to support the other two types.

Quantity vs. Quality Factor

Lastly, you need to consider the quantity vs. quality factor.
You might think that the more affiliates you have signed up,
the better. However, that just might not be the case. If you
allow anyone to sign-up for your affiliate program be prepared
to get lots of e-mail from people asking how to set up the
banners, view statistics, etc. Your time is very valuable and
shouldn't be taken up by people asking you simple questions
like those.

If your affiliate base grows to a few thousand you may have to
hire on someone just to take care of all the support questions.
While this might be OK for a small business, for the home-
based business owner it's not as feasible.

Unless you're trying to brand your company (and this does cost
a lot of money) I would suggest either only allowing current
and past customers of yours to join your affiliate program, or
manually pick and choose which people you will allow to be a
part of your affiliate program. As with any affiliate program
you will find that only a small percentage of your affiliates will
generate the most in affiliate profits for your company. That's
a fact. You and I know that not everyone who signs up for
your affiliate program is going to market it as aggressively as
someone else might. Depending on different factors, you may
find that only 10% of your affiliates are generating 90% of
your affiliate profit. So why not just work with the 10% who
are the real profit producers? For example, it really is not
going to benefit you much if a person who owns an online
flower shop signs up for your seafood selling affiliate program.
In this case, you're not going to make much profit from this
affiliate, nor are they going to profit either. It's a lose-lose
situation, unless you look at it from a branding standpoint.

I suggest manually picking and choosing which people you will
allow to be a part of your affiliate program. You will want to
set some requirements and restrictions. Perhaps they have to
get at least 300 unique visitors to their site everyday. Whatever
the case is, sit down and figure out your requirements for
affiliates. Doing this will weed out the ones who won't
produce many sales leaving you with affiliates who will end up
being virtual gold mines to you. Remember, your time is very
limited and important. There are other business tasks that must
be completed. You don't want to have to answer a large
amount of e-mail from people who don't know how to do the
basic required tasks to be a profitable affiliate for your
company.

It might be a good idea this coming week to plan out your
affiliate program, if you don't have one already. Figure out
how much you want to pay your affiliates for sales, leads or
clicks to your site. Think about and decide which of the three
affiliate program types would work best for you. Like I
mentioned earlier, maybe you're in a position to combine type 1
and type 2 affiliate programs to make it extra rewarding for
your affiliates. Do you want to spend hours every day
supporting a bunch of affiliates that don't profit much or at all
from your program? Or, would you rather work with a select
group of people to make it a win-win situation for both you and
your affiliates? The decisions are ultimately up to you.

Next week we will look at how to choose the right affiliate
tracking software and the best ways to support and encourage
your affiliates. You won't want to miss next week's issue!

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Jim Conley II is the CEO/Founder of MerchantSeek. MerchantSeek allows merchants from around the world to search FREE for a Merchant Account Provider that best fits their businesses needs and budget. Visit us at http://www.merchantseek.com/