|How Much Should I Pay an Outside Affiliate Manager?|
I have a proposal from someone for 7% of sales
We manage 4 merchant sites with over 35,000 items. I don't have the knowledge or the time to manage my own aff program, although I am increasingly convinced that we should be present in this channel. My conclusion has been to outsource the aff management function.
I have been talking to someone who manages the aff programs for several large unrelated ecommerce sites. He would dedicare two people to our account and take care of all communications with affs and our network (he wants us to sign up with ls). I know that he has a good reputation with some heavy affs and that he could bring them on board with us.
All of this sounds great except that after I pay my affs (figuring 6% average - low margin high dollar items), my aff manager (he is proposing 7%), linkshare (3%) and my credit card costs (2.5%), I have now spent 18.5%. On top of this my aff manager is proposing coupons and special incentives for affs etc. Since my current gross profit margins are only 20.2%, this is just too much risk and not enough potential return for me.
What am I missing here?
You are not missing anything, I am afraid.
Paying 1/3 of your gross margin to yet another intermediary and doubling the cost of your affiliate sales while driving your net profits from affiliate sales close to 0 does not sound very attractive business strategy.
The only benefit I see is the increase of total sales /market share, which could bring you better input prices, but still, I find 7% expensive, given your margins.
Tough business case here. Going the affiliate route will severely diminish your margins, and using an affiliate manager will eliminate them. I'd be inclined to start without this intermediary and see how it goes. A smaller number of sales that make money may be better than a somewhat larger number of losers.
A lot depends on your repeat business assumptions. Direct marketing firms often expect to lose money on a customer's first order, but make it back in the future. It works for some, but is obviously a somewhat risky way to run a business.
If your margins are thin, you may want to skew a few of the variables in your favor - tighten up cookie duration, etc. (Amazon is a master at this.) If you do this, of course, you risk losing affiliates to more liberal programs.
You're proposing to pay more to your affiliate manager (7%) than to all your affiliates combined (6%)? That seems WAY out of line to me.
I would base the figure more on (1) how much time you expect the job to take up, and (2) how much you can expect the aff manager to improve sales.
If this guys aff's brings in say a 20% increase in sale volume, would you be able to reduce the price you pay for the goods?
I.e your now buying in larger volume more often.
Just how many of your first time customers come back and become repeat long term business?
With myself the increase in purchase volume meant I scored another 20% off the purchase price, customers also buy more than once in the long term over a year.
How much is it costing you to make a sale now?
Figure that one and then you can say that it worth signing upto or not.
wingslevel >> What am I missing here?
Black ink ... you'll see plenty of the red stuff IMHO.
Hire a good affiliate manager for your own staff so you retain control of your program and have a much better chance of it succeeding and putting your affiliate program revenues in the black at the earliest date.
As an affiliate marketer, I will never join a program that is mucked up by contract management. Been there and done it and will never waste energy that way again.