Measuring the Value of Affiliate Marketing

Dear Dr. pROfIt: My boss isn't a fan of affiliate marketing. She thinks affiliate marketing simply cannibalizes existing marketing activities, and that other marketing efforts drive consumers to an affiliate, where they complete their orders. How do I convince my boss that affiliate marketing is necessary and important, providing a significant return on investment?

Dr. pROfIt: Every company has a different customer dynamic surrounding affiliate marketing. For some businesses, affiliate marketing is a critical component to the growth of their brand. For others, affiliate marketing simply cannibalizes orders that would otherwise happen through other channels.

If possible, discontinue all affiliate marketing activities for a month to see how it affects your business. For example, assume that affiliate marketing comprises 3 percent of your annual sales. If you expect it to account for 3 percent of your sales in August, and you discontinue affiliate marketing for August, see what happens to total sales. Do sales decrease by 3 percent? If so, affiliate marketing may be incremental and, therefore, important to your business.

However, most businesses can't afford to execute a test of this nature. In those cases, it's important to analyze customer behavior. Pay close attention to the mix of new/existing customers using affiliate marketing. If you find that 80 percent of your affiliate marketing customers are first-time buyers, you probably don’t want to make changes to your affiliate marketing program. If you find that 80 percent of your affiliate marketing customers are existing customers, pay close attention to how these customers place subsequent orders.

If existing affiliate marketing customers purchase via that channel on their next order, they're likely using the channel for discounts and promotions, requiring an evaluation of the objective of your affiliate marketing program. If these customers use another channel in subsequent orders, it's likely that they're more loyal to other forms of marketing. This means that you may continue your affiliate marketing program to capture orders without changing the dynamics of customer behavior.

So run an analysis of your customers who use affiliate marketing. Your findings will tell you whether you should continue marketing via affiliates or if you should abandon the channel per the comments from your boss.