Tuesday, October 28, 2008

What You Need to Know About Affiliate Marketing

Well, you have finally done it.

You have told your boss to take your job and shove it. You have taken the plunge and made the decision to join some affiliate programs.

But what does that mean, exactly?

There are active affiliate programs that encourage you use your sales savvy to actively recruit in other new affiliates, purchase product and sell it retail. Then there are passive affiliate programs, such as the Amazon Associates program, or Commission Junction. Most people simply place banner or text ads promoting products on a website. You can be as active or as passive as you want to be, changing banners, or offering many categories of products and rotating them, but generally you do not have to recruit other affiliates or stock product - it will be drop shipped by the company.

Here is the banner I have in the sidebar of this blog that promotes Amazon Prime, the fabulous "free shipping" program they have for $79 a year. One price gets you free two-day shipping on any item, with no price or "total purchase amount" restrictions.

Only certain products are eligible, and only products that are actually sold by Amazon, as opposed to J&R Music World or one of the other stores that uses Amazon shopping carts, are eligible for this special offer. As someone who spends thousands at Amazon in a year's time, and buys cases of toilet paper, trash bags, and other heavy cartons, as well as other groceries, books, DVDs and small appliances, I can confidently say that Amazon Prime is the deal of the century.

If you follow the link in the sidebar for "Resources for Work-at-Homeschool Families" you will find an Amazon "A-Store". There I am offering a selection of product relating to homeschooling.

These are both examples of passive affiliate marketing.

Affiliate marketing can be very lucrative. It provides people with the opportunity to work for themselves with very little risk. Those that are sales savvy, good at marketing and are not afraid of a little hard work can often do incredibly well with an affiliate marketing program.

Affiliate marketing sounds easy but you do need to exercise some caution. You will want to avoid the affiliate marketing pitfalls that can ruin your business - or worse, have you crawling on your hands and knees back to that boss who now knows how you REALLY feel about him.

People tend to get excited when they start a new venture. Unfortunately, in their excitement to begin, they may fail to read the fine print in their agreement. Whenever you sign up for an affiliate marketing program, you will be expected to sign an agreement. The "terms and conditions" will govern your relationship with the company.

If they want to hide something this is where they will put it. It will either be in the small print, or they will dazzle you with legal language. Either way, you need to read and understand your agreement thoroughly to avoid disappointment and lost earnings.

If you are signing up for a commission based affiliate marketing program then you need to understand how the term revenue is defined. This is one of the biggest pitfalls of the contracts. They may advertise 5-10% - or even 20-30% commissions, but it all depends on how they define revenue.

Most affiliate marketing programs will calculate commission on the gross value of the sale; in other words, the amount of money the company will get at the completion of the sale. Before you get too excited about that, you need to read this part of the agreement very carefully. The amount of the sale almost always excludes credit card or debit card payment surcharges. They also are likely to exclude payment and delivery charges as well as any gift wrapping or other surcharges.

What sounded like a nice commission is soon shrinking before your eyes. Ask these questions specifically before you sign an agreement.

Some affiliate programs are even stricter in their definition of revenue. Your commission may be based on the profit margin of the product sold. For example, if you help sell a book for 20 dollars but the company only makes 10 dollars profit, you’ll receive a percentage of $10, not $20! This can make a substantial difference in your earnings. Again, make sure you understand these things and ask specifically what your commission will be based upon. Read your agreement and look out for odd sounding clauses. These could come back to haunt you later.

Here is a real world example. I participated in a certain travel opportunity several years ago and later discovered that the travel company was ITSELF an affiliate of another travel website! So the great commissions I thought I would receive on travel that people booked on my affiliate site were actually a percentage of the commissions the COMPANY received as an affiliate for the other travel site! I thought I would be getting 14%, for instance, only to discover that it was 14% of the 20% the company was getting.

Something else to be aware of when you work on commission is returns. Many affiliate marketing companies only pay commission out on completed sales and then only if the customer keeps the item. If they return the items your commission could be cancelled. You could also be billed for the outstanding commission if you do not have sufficient commission credit built up. Make sure you understand this before signing on. You cannot expect a company to pay you a commission on an item that is returned, so make sure you understand their return policy. Find out your rights in this situation.

Affiliate marketing can be a great way to earn money. If you have good sales and marketing skills then it can give you the opportunity to put them to good use. You’ll be able to work for yourself and not someone who undervalues and does not appreciate them. But you need to consider affiliate marketing carefully.

Make sure you understand your agreement and exactly what you will be paid for. You don’t want to have to go crawling back to your boss begging for your old job back.

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