The relatively low start-up costs of affiliate marketing programs compared to other forms of marketing make it appealing as an additional marketing income stream. Plus, you only pay affiliates for their performance.
But the true cost of affiliate marketing can vary greatly depending on your requirements, preferences, and the complexity of your program. If you’re stuck at, “I don’t know how much to invest in my affiliate program,” our guide outlines the costs, you need to consider. You’ll then have the knowledge you need to set a budget and finalize your affiliate marketing plan.
Affiliate Tracking Technology
Costs will depend on your approach. Options include joining an affiliate network, developing specialized software in-house, or using customized affiliate management software.
Affiliate Network
Affiliate networks act as the middleman between you and your affiliates. When you join an affiliate network, you pay them for access to their carefully vetted database of affiliates. This can be ideal for a company setting up its first affiliate program, as you’ll see results more quickly, but additional costs can add up.
The biggest affiliate networks often charge a fixed upfront fee of over $500, a monthly administration charge, and around 30% on top of each commission payment you make to your affiliates. The result is often less available commissions to reward and incentivize your affiliates.
In-house Development
Controlling your affiliate program in-house is typically considered a cheaper option in the long-term. You can customize software and functionality to your needs, and you won’t need to pay out to an affiliate network every time you make a sale. However, you’ll need to build your network of affiliates, which can be time-consuming if you’re just starting in affiliate marketing.
But the biggest hurdle in choosing to do in-house development for your affiliate software is the time and resources required. Developing reliable tracking that affiliates can depend on is an involved process. On top of that, there are many functionalities needed for affiliate management, payments, and engagement tools. Developing your software will likely mean a higher initial cost and a delay before your program can go live and start earning and ongoing maintenance requirements.
SaaS Affiliate Management Software
If you don’t want the burden of developing your own program from scratch and you don’t like the idea of paying a network, a pre-built SaaS affiliate software like LeadDyno can provide a helping hand. SaaS affiliate software offers invaluable features like affiliate performance tracking, engagement tools, automated processes, and mass payment handling through Paypal. An affiliate marketing software pricing model means you’ll pay only fixed costs, usually between $49 and $79, so you’ll know what to expect each month.
Creative Inventory
For your affiliates to sell your products and services frequently and enthusiastically, they need a convenient supply of your promotional affiliate content to use. This means setting aside an adequate budget for banners, promo videos, flash content, professional product images, landing pages, and any other creative materials.
If you have strong enough graphic design and technical skills to produce an inventory of quality work, you can avoid the cost of hiring professional services. But for most companies, outsourcing this work to a freelancer or agency is a better alternative.
The price of your creative materials will largely depend on what you need, which can range from simply affiliate links alone to a full catalog of resources. It will also vary depending on whether you’ve gone in-house or you’re working with an affiliate network. The creative cost is more than a one-time investment because you’ll need to update and add to your creative inventory whenever you launch new products or change your branding. You might consider using a monthly graphic design service.
Landing Pages
Custom landing pages are a great option if you’re selling only a couple of products and, for instance, you’re offering a discount through referral links. Each affiliate has their own landing page the customer reaches when they click on that affiliate’s link.
The cost includes the time taken to develop a few extra pages on your website with minor formatting, imagery, and text tweaks. Depending on your e-Commerce website you might be able to create these for free or hire someone to make them for you. You can add your preferred landing pages you want affiliates to promote.
Management Costs
Managing an affiliate marketing program requires consistent time and effort, so you need someone who can dedicate themselves to the job every day. An affiliate manager will complete tasks like:
- Finding and recruiting new affiliates
- Communicating with affiliates and responding to queries
- Designing affiliate program rules and policies
- Optimizing your affiliate program
- Producing affiliate performance reports and newsletters
You can do this work yourself, hire a new employee for this role, assign the work to an existing staff member, or use an outsourced program manager (OPM) — an agency that takes over the management of your affiliate program.
The average salary for a full-time affiliate manager in New York is currently around $63,000, according to Glassdoor, and you’ll probably need to pay a performance bonus on top.
The cost of hiring an OPM can vary a lot depending on the services you need, but if you’re planning to grow your affiliate program exponentially, it’s often wise to hand its management over to an agency with guaranteed expertise and insider industry knowledge.
Gather quotes from OPMs, seek out independent affiliate managers, weigh the pros and cons of both solutions, and decide which will be the most cost-effective for your business.
Affiliate Payouts
Compensation Models
Three main affiliate compensation models are the most relevant to e-Commerce and SaaS businesses:
Pay-Per-Sale (PPS): You pay a percentage commission to your affiliate for every sale they bring to your business. This option is popular, and it involves either increasing your sale prices to accommodate the affiliate’s commission or absorbing this cost into your profit margin.
Pay-Per-Lead (PPL): Every time a customer registers on your website through your affiliate, you pay a fixed commission. The task of converting them into a paying customer then lies with you.
Pay-Per-Click (PCC): You reward your affiliate for the traffic they send to your website.
You’ll need to calculate the most cost-effective method, or several methods combined, for your business.
How Much To Pay Your Affiliates
How can you possibly figure out how much commission to pay your affiliates? Break it into steps:
1. Assess your production costs for your baseline figure.
2. Evaluate your competitors’ commission rates.
3. Price above what wholesalers are paying.
4. Assess whether the customer’s lifetime value will affect how you pay your affiliate.
5. Pull your figures together, and finalize your calculation.
Check out this useful, in-depth guide on how to calculate your affiliate commission rates.
Using LeadDyno Can Save You Money
The tools that affiliate management solutions can provide are invaluable for both beginning and experienced affiliate marketers looking to optimize their processes and cut expenses.
At a low monthly cost, LeadDyno offers cost-saving solutions for many of the elements involved in setting up and running an affiliate program. To see for yourself how easy it can be, consider a free 30-day trial today.
