We get approached by companies offering affiliate programs regularly and one recurring theme is companies restricting their affiliates from using SEM/PPC marketing on search engines which links to their website.
Is this the wrong mentality?
Is limiting the SEM of affiliates a good idea?
Here is a great article that covers most of the main points to consider for any company considering starting an affiliate program.
The two major arguments for not allowing affiliates to directly link to the company’s website with a PPC ad is as follows
- Drives up the price of clicks
- Message in affiliate ad may conflict with the company’s own message
StrikeEngine, as an experienced Google advertising agency finds these two reasons short sighted.
Let me explain why
First – Driving up the price of clicks.
This argument is mute. Despite conventional wisdom when it comes to Google advertising, advertisers should absolutely not be setting their keyword bids according to what other companies are bidding for a keyword.
I have covered this in our Cost Per Click formula article but I will repeat the key points briefly here.
The only thing that should be guiding a company’s CPC strategy is profitability. A company will have a maximum cost per click it can pay and still have that click return the profit the company wants or needs.
In short it is irrelevant how much other companies are paying for their clicks, their profitability targets could be different and their website conversion rate will also be different.
And another very important point to note here is this. If you happen to sign up an ultra effective affiliate marketer who is getting a 20% conversion rate through your website where the average conversion rate is only 1%, their cost per click budget will be vastly higher than yours.
Is this a bad thing?
Of course not! In fact it is a good thing!
If they can have such a high CPC budget donated to promoting your company, it means their ads will be appearing above your competitors in search engines.
Second – Inconsistent message
This kind of thinking reminds me of the days of Yahoo’s Overture where there were probably hundreds of people employed by Yahoo! to stop people advertising on their search engine.
Yahoo! were employing people, who were almost certainly ignorant to the advertisers business, yet they were making judgments on what ads were and were not appropriate.
And we know what happened to Overture/Go…
An affiliate will only be using a “message” that gets the result you want (as the company running the affiliate program) ie sales through your website.
An affiliate is not going to be paying for ads which are “off message” if they do not resonate ie convert. An affiliate is going to use a message that is consistent with the website they are sending the customer to. Simply put, if the wording of their message does not match the goal of the website, the affiliate will not and can not afford to run the ad.
The situation is self regulating (something Overture/Go/Yahoo! were completely oblivious to)
Where the conflict might arise is if there is a difference in opinions between the affiliate and the company about the website. Ultimately, whoever is able to pay the most per click and remain profitable has the correct opinion. Again, getting the message right is self regulating. The sales numbers will do the talking.
Having said all that, most likely the message of the affiliate will not be radically different from the company’s.
Therefore the fear of inconsistent messaging is also mute.
Either the message will be consistent and getting conversions.
Or the message will not be consistent and getting conversions.
Either way the problem will not be the affiliate and their PPC ads.
In conclusion, giving affiliates total freedom with regards to SEM is the way to go.
If you want people and businesses to promote your business, why would you handicap them?
What if an affiliate bids on the company name?
If a potential customer clicks on an affiliate’s ads instead instead of yours, is there a problem?
Perhaps you could argue its actually a good thing. You get a click to your website which you no longer have to pay for.
And don’t forget. There are no restrictions on competitors bidding on the name of your company to drive traffic to their website. Anything that makes this practice more expensive is a benefit to you. Especially when you are not even paying for the click, your affiliate is!
Benefits
The benefits of giving affiliates complete freedom for SEM has numerous direct and indirect benefits. Yes, many people think they have a valid reservations but when you focus in on the fundamentals of SEM and PPC marketing, I think these reservations dissolve and at the very least, these downsides are by far outweighed by the massive benefits.
What’s the worse than can happen? You no longer have to do PPC marketing because your affiliates are doing it for you, but…
They are stealing our profits!
I can see how someone could think this.
The affiliate is ranking above us in SEM and we are paying them 20% of the sale whereas if our ad gets the sale I don’t pay any commission to anyone. I’m getting a bad deal.
If the situation was as simple as it seems there is an obvious solution. You increase your PPC bid.
But lets think about this situation.
We, as the company, are bidding our maximum CPC for profitability.
Our affiliate is bidding more and his bids are also profitable.
Are we looking at a fundamental problem here?
An example
Let’s assume we are paying our SEM affiliate a 20% commission. ie for every 100 dollar sale they get 20 and we get 80. And their conversion rate is 10%. For every 10 clicks the affiliate send us we get 80 dollars, they get 20 dollars. Cost to us is 20 dollars for 10 clicks.
We are paying 2 dollars per click using an affiliate
And let’s assume our CPC budget is 2% of revenue. And the conversion rate for our ad is 5%, every 20 clicks gets one sale of 100 dollars. We pay 2 dollars (2% of 100 Dollars) for 20 clicks.
We are paying 10 cents per click if we do our own advertising.
Clearly, in this example we have a major problem.
We have completely mispriced our SEM affiliate commission.
This problem does not come from the affiliate using SEM/PPC advertising, this problem comes from us as the company not pricing our affiliate commission correctly.
Are they stealing our profits? Yes.
Is it our fault? Yes.
In summary, it is possible to get into a situation where a business can feel that they are letting affiliates cut into their profit margins but this can only come about because we have mispriced the commission we are paying our affiliates.
If the commission paid to affiliates is correct, it will make no difference how the visitor got to your website. It will make no difference if you are giving your CPC money to Google or to your affiliate. It is the same thing (If your affiliate commission is priced correctly).
Check this article for information on how to price your commission rates for affiliates.
To sum up this article on one sentence.
We see no compelling reason to limit the SEM activities of affiliates.
