8 Prerequisites for Launching an Affiliate Program
January 26, 2024
Are you thinking about starting an affiliate program in 2024?
Many companies are finally seeing the value and tangible outcomes of endorsement marketing, and affiliates are getting a seat at the growth table. But it’s not the right tactic for everyone; an affiliate program needs to be carefully evaluated to avoid spending valuable time and budget on the wrong marketing strategies.
In this article, we’ll discuss why many brands invest in and find success with affiliate marketing, affiliate partner strategies by funnel type, and how to prioritize different affiliate options. Finally, we’ll present a checklist for determining whether you meet the criteria to start an affiliate program for your brand.
Why Invest in Affiliate Marketing
That answer to ‘why invest in affiliate marketing’ is pretty easy—it’s a potentially low-cost acquisition channel that reduces your overall customer acquisition cost (CAC).
But that’s not the only reason to invest. Here are a few ways affiliate marketing partnerships can impact your business and brand:
- Cost-effective, with high ROI potential: Affiliate marketing has a low start-up cost. And despite the low barrier to entry, it can be highly effective. Oftentimes, you only pay commissions on actual sales—not clicks or impressions—making it a cost-effective strategy with little budget burn. (Though affiliate is changing to more of a hybrid pay-per-performance plus flat fee structure.)
- Increases traffic and brand awareness: By partnering with endorsement marketers (affiliates, influencers, PR, etc.), you can gain access to a broader audience. This helps increase website traffic and improves brand recognition.
- Addresses gaps: By partnering, you have the opportunity to reach new types of audiences and fill in gaps within your existing marketing ecosystem.
- Improves reputation and trust: The right partners can help build trust for your brand through their recommendations and endorsements. Many consumers trust content creators and will trust your brand as an extension of those creators.
- Low risk: The affiliate marketing model is designed to be flexible.
But just because it’s cost-effective, low-risk, and often high-ROI doesn’t necessarily mean affiliate marketing is right for your brand.
One of the common misconceptions is that affiliate marketing is set-it-and-forget-it. It's actually a super tactical, resource-intensive channel because relationships take investment. Another misconception is that you can dial it up or down quickly. It’s analogous to your SEO program. It takes time to build, but can be handsomely rewarding.
Many marketers jump into this new motion without thinking about how it works alongside your current media mix. For example, other endorsement marketing channels and the intersection between affiliates, influencers, PR, and podcasts.
Types of Affiliate Partners and How to Prioritize
There are several different types of affiliate marketing partnerships to consider adding to your program. One way to think about affiliate types is using the sales funnel. Here are a few examples:
- Top-of-funnel includes influencers, bloggers, podcasts, digital media publications, etc. These content creators can provide an engaged following in your niche and effectively promote your products or services to their audience.
- Mid-funnel includes affiliates who help your audience make purchasing decisions, including buying guides or review sites.
- Mid-to-bottom-of-funnel, including coupons and loyalty programs, help complete the conversion.
- Brand-to-brand collaborations, or co-marketing activities, offer mutual benefits within your industry or shared audience.
This list is by no means exhaustive, and with the rapidly changing state of affiliate marketing, new opportunities arise regularly.
With all these options—and the right platform and networks to manage them—how do you decide where to aim your focus? The not-so-secret secret: Prioritize a diverse mix of partners who can reach your target audience and who are aligned with your brand values. And choose the platform that helps you to create operational efficiencies leaving you more time to build relationships.
Checklist: Prerequisites for Affiliate Program Succes
Not every brand is ready for, or will benefit from, an affiliate program. Here are eight factors to help you determine whether you’re ready for a successful launch.
Annual recurring revenue (ARR)
This prerequisite is hotly debated, but in our experience, brands typically shouldn’t incorporate an affiliate program until they are doing at least $1M in ARR. Why? Because it’s a sign of solid product-market fit and a foundation for a successful program.
Brands under the $1M mark may not have a demonstrated place in the market, which will make it harder to drive traction with affiliates in a reasonable timeframe. Some brands under this threshold may be winning at affiliate marketing because they have an ultra-unique product, highly-specific niche, or existing brand reputation. But this is rare, and we typically don’t recommend that brands attempt affiliate until they meet $1M in ARR.
If you're a single-SKU brand, it may be tough for affiliates to repeatedly promote you. This is because creators often look for related products within your catalog to expand their efforts. That way they aren’t pushing the same exact product over and over and appeal to a broader future customer base. It’s easier to be authentic when affiliates can talk about new products in fresh ways.
Plus, if they’re driving sales to your ecommerce site or Amazon seller page, shoppers will browse your other products. Having too few products—especially if those products stay the same over time—makes it hard to encourage brand loyalty.
A broader set of diversified products makes it easier for affiliates to talk about your company in different ways as you continue your partnership.
Beyond product diversity, also consider how suitable your products are for promotion through affiliate marketing. If you have ultra-niche or high-end products, it may take more time to find the right partners, and even longer to convince consumers to buy.
Also consider the quality of your products. Low-quality items aren’t a great fit for affiliate marketing because consumers trust creators, and will feel disrespected if they’re encouraged to buy a sub-par product. This leads to poor reviews, and damage to brand reputation, both for you and the affiliate.
This one is simple: Can you afford to offer competitive commissions?
This comes down to your margins. If your margins are too thin to afford the commission percentages that affiliates can get elsewhere, launching an affiliate program may be a non-starter.
Your competitors are likely paying affiliates average—or above-market—rates on their commissions. If you don’t have the room in your margins to be competitive, you shouldn’t attempt to manage an affiliate marketing program. You’ll first need to increase your margins, and/or increase your revenues to be able to afford commissions.
The hard part here is that affiliates can be a high-impact, low-cost marketing tactic, but you first must be able to deliver on the commissions and kickbacks.
Channel and publisher diversification
Brands often pay affiliates based on the outcome—lead, new customer, sale, etc. You can control cost, enforce value, and have a predictable CPA by paying on the outcome. Looking for more stability in your growth marketing portfolio? Affiliates can reduce your blended CAC.
If you’re willing and able to diversify the affiliate partners you’re working with (i.e., not just the big names), your program will be more defensible. This means you aren’t just working with the same partners as everyone else. There is value and volume in the long-tail, smaller partners, and out-of-the-box partnerships. While you want to work with the digital media publications—and you should—everyone else does so you are beholden to the competition and will likely pay high commissions to them.
The best affiliate marketing programs work with diversified publishers, adding value across the full funnel and filling gaps in your marketing mix.
Tools and resources
Affiliates act as your online sales team. They will share your brand with their audience, and represent your products or services in a way that builds trust and drives action. But just like an internal sales team, they will need resources and support to be successful. These resources equip affiliates to better sell on your behalf.
Do you have the budget and resources to equip them?
Some examples of resources include product spec sheets, marketing materials, brand guidelines, product training, special offers, and responsive affiliate managers. Without these affiliate marketing resources, your program has a lower likelihood of success
Beyond providing resources and support to your affiliates, you also need tools for affiliate management. Affiliate marketing tools can help you recruit new partners and manage partnerships at scale. You may look to networks like Rakuten or CJ, SaaS tools like Impact or Partnerize, Amazon Seller Affiliate Programs, and pay-per-performance influencer platforms, to name a few.
For small or regional businesses, factor in your geographical reach before investing in an affiliate program.
Most affiliates are doing their promotion online, unlimited by geographic boundaries. To consider launching an affiliate marketing program, you should sell your products or services in at least 50% of U.S. states.
If you only offer your products in a small, limited region, that will stifle their reach—and the success of your program. Affiliates aren’t able to do robust targeting, so they will prioritize brands that sell to a larger geographic area to increase their reach and earning potential.
State tax nexus and legal considerations
Affiliate programs apply to many business and legal regulations, such as GDPR. Be sure that your business is ready and able to adhere to all applicable standards. One such area is the state tax nexus in all U.S. states where you’re doing business, as this may have state tax collection obligations.
To avoid tax issues—and a frustrated finance team—seek to understand the implications of partnering with affiliates in specific states.
And while you’re thinking about taxes and legal implications, be mindful of your industry and applicable potential issues. Highly-regulated industries, like fintech and healthcare, may have requirements around what affiliates can say. For example, making claims about the efficacy of supplements. Your affiliates will have to adhere to the same strict guidelines as your marketing teams.
If you don’t have the internal resources to manage your potential tax and regulatory concerns with affiliates, it may not be the right time to start a program.
Do you have any established brand equity? If you’re a brand new entrant to the market or if you’re establishing a new category, it may be too early for an affiliate program. Partners will need a baseline of recognition to start talking about your products and your category.
Affiliates can do a great job getting your product in front of your audience, but if you can’t convince them that your brand is worth partnering with, it will be difficult to get them on board. Make sure you’ve invested in brand marketing to establish at least a baseline of brand equity in the market before you start trying to recruit affiliates.
There are success stories of new brands or products finding success with affiliate programs, but generally, having a strong brand is a prerequisite.
Launch your Affiliate Program with Right Side Up
This checklist should help give you a clear sense of whether an affiliate marketing program is right for your brand at this time. There are always exceptions, but generally, you’ll need at least $1 million in ARR, product diversity, geographical reach, brand recognition, and the ability to invest in channel and publisher diversification, commissions, and resources.
If you’re ready to launch your affiliate program, we’re here to help. The affiliate marketing team at RSU helps clients build responsible, incremental affiliate programs from the ground up. Get started!