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  •  The EvO:R-Pedia Musicians Tips Section

    Welcome to the EvO:R Tips Section. We call this section EvO:R-Pedia because it is like a complete reference library for Indie musicians...Just about every tip has been used so you won't find false promises and a series of books to buy after reading each tip. This section was put here by musicians so that people that followed can take this knowledge and use it's power.

    The balancing act in affiliate management
    Where is the tipping point between DIY and hiring outside muscle?
    By Mary Wagner

    It’s been a banner year for Hempstead, Md.-based Jos. A Bank Clothiers Inc., direct marketer of classic men’s apparel. In August, the company reported earnings for the first half of fiscal 2003 rose 50% over last year on net income that jumped 56% to $4.2 million. Helping to support that healthy growth is an organization that runs lean. A $200 million-plus multi-channel retailer, Bank operates with a marketing staff of only four people.

    That doesn’t leave a lot of extra time for Pete Zophy, divisional vice president of e-commerce, to personally manage Bank’s online affiliate program, so he’s set up a working relationship with Performics Inc. in which the affiliate service provider does what Bank doesn’t have staff to do. The provider identifies, recruits, and manages Bank’s affiliates, including performance tracking and payment processing, and sends weekly or even daily performance reports when needed to Zophy. Zophy also has periodic longer strategy sessions with Performics including a monthly session that looks at performance on sales goals and future opportunities.

    As is frequently the case with affiliate programs, about 10% of the affiliates produce 90% of the program’s sales. The affiliate provider works on program opportunities with top affiliates on Bank’s behalf. Finding, recruiting and fostering relationships with the affiliates that most fit Bank’s needs has helped affiliate sales grow steadily as a percentage of online sales at Bank, Zophy says.

    “I spend a couple of hours every day on the affiliate program,” he says. Bank’s affiliate program thrives under the arrangement. At 10% to 20% of total online sales and growing, it’s a key part of the engine that’s driving growth.

    A different approach

    Meanwhile, across the country in Salt Lake City, Overstock.com Inc. gets similar results, but under a very different strategy. Affiliate sales at the online-only Overstock are between 15% and 18% of total sales. Overstock looks to affiliate services provider LinkShare Corp. for access to a large pool of affiliates and for tracking, reports, and support on demand, but it otherwise maintains tight control of its affiliate program in-house, with a dedicated full-time staff of four.

    Such in-house, hands-on management of the affiliate program works best for Overstock given the specific nature of its business, says CTO and vice president of sales and marketing Shawn Schwegman. “Our inventory changes very dynamically,” Schwegman says. “We add about 2,500 products every week or two and half the inventory purchases we make are one-shot deals. Because our product basis changes so quickly, we have to be very careful in our communication to our affiliates. It’s a lot easier to manage that in-house than train an outsourced affiliate manager to do it.” Under this system, Overstock’s affiliate program thrives, too: revenue has increased fivefold in the past year, Schwegman says.

    Affiliate programs are one of online marketing’s most popular tactics. This year’s National Retail Federation’s Shop.org State of Online Retailing study with Forrester Research reports that 55% of online marketers have affiliate programs, a number topped only by the 71% who use e-mail marketing and 62% who use paid search. 99% of those affiliate programs rate them as effective.

    Yet as affiliate programs have become larger and more complex, running programs becomes increasingly challenging. As online merchants sift through the choices offered up in the various pitches of service providers, they’re seeking the most effective way to staff and manage their affiliate programs. They’re evaluating whether the biggest affiliate program will necessarily be the most successful for them, weighing the benefits of keeping management of the program in-house with the cost of staffing up internally to do so, and balancing the trade-off between outsourcing a bigger chunk of program management to affiliate network providers to lessen demand on in-house staff and accepting some loss of program control as a result. They’re struggling with issues such as how to screen affiliates who want to sign on, how to compensate program managers to get the best performance and how to conserve program spending by not paying to acquire the same customers multiple times.

    Finding the resources

    The approaches taken by Jos. A. Bank and Overstock.com represent very different answers to some of those questions. In the end, it’s often a matter of internal resources that most drives a company’s choice, and success has produced strong adherents to different models of program management.

    “We’d be able to have a little more control if we brought management in-house, but the only way I’d ever consider doing that is if we had additional staff,” Zophy says. “Working with Performics in this way is the best choice for us.” Schwegman is just as adamant about Overstock’s different experience. “Because our inventory is growing so fast and so dynamically, we’ve decided to manage it all in-house. And we’ve done so successfully,” he says. “We have increased our affiliate program revenue fivefold in the past year, and from what I understand, that’s pretty unheard of.”

    Overstock.com did $92 million in sales last year, showing you don’t have to be one of the biggest to successfully manage an affiliate program in-house. Even smaller organizations willing to put in the time can manage affiliate programs in-house, as evidenced by ClubMom.com, an online membership program that offers special deals targeting mothers’ interests. It expects its 3 million members to grow to 10 million by the end of this year. Affiliate manager Shawn Collins manages the program internally with the help of an intern, using an affiliate management software program, My Affiliate Program, from KowaBunga Technologies rather than an affiliate network solutions provider such as LinkShare, Peformics or Valuclick Inc.’s BeFree.

    To make it work, Collins puts in up to 60 hours a week at the office in addition to providing affiliates with contact information for e-mail and instant messaging, which he regularly checks and responds to via wireless on evenings and weekends. To keep the program manageable, Collins and ClubMom keep affiliates to fewer than 1,000.

    Quality vs. quantity

    “I’m bigger on quality over quantity,” says Collins. Though he concentrates on a smaller top-producing group within that affiliate pool, he tries to have at least some personal contact with every ClubMom affiliate. The payoff is in affiliates’ loyalty, he believes. “There are those that run programs with better offers out there, but we do offer top service and we help teach affiliates how to succeed. So a lot of affiliates stay and promote our site out of loyalty,” he says

    That also personally benefits Collins, who had performance incentives incorporated into his compensation after he’d been with the program for a year. Collins estimates that perhaps only a quarter of affiliate program managers have a program performance element in their compensation structure, but it’s something he encourages companies looking for affiliate program growth to consider. “If you achieve the numbers that they’ve set, it makes it a lot more comfortable for the company to pay the extra money,” he says.

    In addition, he maintains, companies benefit from additional staff. “Companies that manage their affiliate programs internally would be surprised to see how much more could happen if they would just add one more person to the team,” he says. “If they never dedicate the resources, they many never know how prosperous their affiliate program could be.”

    But staffing up isn’t always the answer. It was just such a dilemma as Collins describes that recently led online apparel discount retailer ClassicCloseouts.com to turn virtually all the day-to-day management of its affiliate program to Commission Junction Inc. after a year and a half of trying to operate the program internally.

    “We had up to six people working in-house to run the affiliate program,” says Daniel Greenberg, the company’s executive director. “We’ve hired seasoned Internet professionals; we’ve hired qualified but untrained people and tried to train them; we tried untrained people working under professionals. We couldn’t find the proper set-up to justify the expenses we were incurring in that department.”

    Managing breadth

    The problem was that the strength of an affiliate program can also be its greatest drawback: the breadth of advertising exposure that thousands of partner sites can bring to a program, balanced against the cost of maintaining those relationships. “We realized doing it in-house wasn’t going to be cost-effective on our end because we couldn’t figure out a way to do that,” Greenberg says. To solve the problem, ClassicCloseouts assigned that responsibility to Commission Junction, whose affiliate network it already had been using under its earlier efforts to manage the program in-house.

    Under its new agreement, ClassicCloseouts has what Greenberg estimates is 40% of one affiliate manager’s time at Commission Junction and about 10% to 15% of as many as three others. Greenberg himself spends a few hours a week overseeing the program and monitoring results, while his designer staff of three and his programming staff of three are available to push banners, copy and other creative elements through to Commission Junction or address affiliate integration issues as needed.

    Greenberg says it’s too soon to assess how much time the new arrangement, barely two months old, will require of his programmers and designers. But he’s prepared to hire extra capacity in those departments if program results justify it.

    Greenberg, who estimates that under the earlier arrangement affiliate sales represented only about 5% of annual sales that are forecast at about $10 million this year, would like to see that number increase to 20% or more. “It’s up to Commission Junction to really go at it,” he says. “There’s really no limit.”

    Overstock took a different tack to boost its affiliate program results, deciding last year to pull most of the hands-on management of its affiliates in-house and switching network providers. Since it added dedicated affiliate managers and switched to LinkShare’s network, affiliate program revenues have soared. Schwegman credits LinkShare with a large measure of the success of Overstock’s affiliate program. “Because of the power of LinkShare’s network we are able to acquire somewhere between 1,000 and 1,500 new affiliates per month. We now have about 28,000 affiliates,” Schwegman says. LinkShare also tracks affiliate transactions for Overstock and helps affiliate managers identify new business opportunities.

    But after also initially using complete program management services available from LinkShare while it accustomed itself to the provider’s platform, Overstock staffed up internally and resumed more of the day-to-day handling of its affiliate program, with LinkShare’s ongoing support. Schwegman estimates that Overstock’s affiliate program gets perhaps 50% of a dedicated rep’s time at LinkShare. In addition to supplying regular reports and performance tracking, LinkShare takes on such tasks as getting answers to questions not readily available from its regular reports to Overstock. “If we get a bunch of golf gear, we need to find some high-powered affiliates that skew toward golf equipment,” he says. “LinkShare will help us identify a set of specific affiliates and work with us on those leads.”

    For the rest, Schwegman has segmented Overstock’s affiliate base into four groups and assigned an in-house manager to each one. One affiliate manger handles the top 100 accounts; another handles those affiliates that are technically savvy and adept at integrating various product data feeds offered by Overstock; one works with affiliates that are coupon and discount sites; while the fourth handles the others. “We look at the affiliate channel as a sales channel, not just an advertising and marketing channel,” Schwegman adds. “So we typically pay lower salaries and higher commission.”

    With nearly 30,000 affiliates through LinkShare, Overstock has made the decision to save itself time by auto-approving all new affiliates. “There is no possible way at the level we are now that we could manually approve every affiliate coming in unless I doubled my staff. So when affiliates get auto-approved, the second they generate any revenue or any significant traffic, we take a closer look at them and decide which of our four groups they belong in,” he says.


    To keep its percentage of active affiliates—those who actually drive traffic and sales—at its current rate of 22% to 23%, Overstock does regular housecleaning. After an affiliate has been inactive for a set period, the company will e-mail some suggestions on getting started and offer contact information at Overstock for affiliates with questions. If Overstock does not receive a response in 30 days, it sends a second message. If it still has not received a response 90 days later, it removes that affiliate from its list.

    Overstock also pays keen attention to the number of repeat customers it gets from the same affiliates, responding to a concern shared by many program managers about the risk of paying repeatedly for the same customer instead of adding that customer directly to their own base. Schwegman says Overstock offers assistance in driving new traffic to affiliates that are producing a high rate of repeat customers.

    “Any sale is a good sale, but if I’m giving up the profit on that sale every single time and that customer develops no loyalty to Overstock, the lifetime value of that customer is not as great at that of a customer that we acquire through the affiliate program and then market to later directly,” he says. “It depends on where the loyalty lies for the end user. We take that into account when we negotiate terms with affiliates.”

    Whether managed in-house or out of house, whether retailers use a full service solution from a network provider or a software product suite to find solutions for themselves, affiliate programs rank high among online marketers as a way to seek out new customers.

    But the early-on strategy of simply making links available and waiting to see which affiliates put them up has proven about as effective as throwing darts at a list of affiliate partners.

    Online retailers today know a winning strategy takes more—more effort to find the biggest or best fitting affiliate partners and more work to support them and the program, whether they put in the time directly or arrange with a provider to do so.

    “There are a lot of different philosophies about how to make the magic happen,” says Collins. “I’d just encourage people to do their due diligence before signing on with anyone.” l

    Experience counts—and you get what you pay for

    Retailers who contemplate hiring staff to take over responsibility for affiliate programs vs. hiring a solutions provider may have more difficulty than they expect finding qualified personnel at an affordable price, says Shawn Collins, affiliate manager of ClubMom.com. For one thing, the discipline is new so experienced managers are rare. For another, they cost. Collins says he’s seen affiliate manager positions in major metropolitan areas listed for as little as $40,000 a year. “You’re not going to get a person who’s been in the industry for even a year to work for that,” he says.

    “A mistake companies make is to pluck a kid right out of college and tell him to run the affiliate program,” he says. “If you get someone who doesn’t know what they are doing, or doesn’t put in the time it takes, the program becomes stagnant.” Over time, Collins says, he’s learned to identify high-producing affiliates by networking with other managers, attending industry conferences and watching numerous industry message boards.

    Companies that retain management of their affiliate programs internally should be prepared to ante up for job experience. “Companies are shooting themselves in the foot if they are not willing to invest in an experienced person,” he says. “Then they wonder why the model doesn’t work.”

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