Navigating the Affiliate Marketing Channel with Craig McGlynn Episode 6: What Kind of Budget Do I Need to Run an Affiliate Program?
This article is the sixth in an ongoing informative series written by Craig McGlynn, the EVP or Agency at leading Affiliate Management Agency, Perform[cb]. The series covers topics of interest to people in the Affiliate Industry, considering launching an affiliate program, or scaling an existing affiliate program. Links to the previous articles are below!
Two of the most common questions we get in affiliate discovery conversations are around opportunity size:
- How big is the opportunity of affiliate?
- How much should I budget for an affiliate program?
The opportunity size of affiliate depends on a few factors:
- The industry type and product offering
- Current digital marketing efforts
- The velocity of your ecommerce business
- Sensitivity to publisher types and whether you are promotional in your offers
- Size of payouts to affiliates
We ask the above questions because these factors dramatically impact the velocity of affiliate channel referrals. For instance, if you don’t want to do any promotions, and you only want to work with five named content websites, you will quickly find a ceiling to the contribution of affiliate to your overall ecommerce sales. Alternatively, if you are willing to work with a full-funnel approach, offer a rich set of promotions, and offer generous affiliate payouts, you will see much more volume in this channel.
The rule of thumb is that a mature affiliate program will likely contribute 15% incrementally to your ecommerce channel mix. I have seen this grow as high as 80%, and reach as low as 1%, but global affiliate figures support the 15% as a good benchmark.
That brings us to everyone’s favorite topic – budgets. The budget necessary for a successful affiliate program is dependent on your business. During discovery, we ask prospective brands and affiliate marketers to better understand their costs, the value of a new customer to their business, and what they are willing to pay on a sale. Key metrics many use are LTV (lifetime value) of a new customer, and product margin. From there, we derive a CPA (cost per acquisition) that you are comfortable with. If you prefer a straight numeric answer, brands generally set aside about 10% of their marketing budget for affiliate marketing, although the aforementioned variables have a strong impact on a brand’s affiliate program budget.
Check out this helpful infographic from Wordstream for a breakdown of average CPA by industry to get a better idea of what your brand’s CPA may look like.
Partnering with a good CPA affiliate marketing agency can help you sort through all the nuances to get to the right figures to support this channel in a healthy way. Connect with an affiliate management expert today!
Stay tuned for our next episode and if you missed them, check out the other articles in this series:
- Utilizing a Full-Funnel Approach
- What is an Affiliate Program?
- Major Players in the Affiliate Ecosystem
- How & When to Launch a New Affiliate Program
- Can Affiliate Work for B2B Brands?