Having built and run multiple performance marketing divisions over the past decade, I’ve learned that the best thing I can do for the industry is bring more advertising budget into our space. I’ve partnered extensively with Revenue Performance magazine over the last three years, and we are collaborating again to offer this guide for CMOs to help educate them on best practices for engaging affiliate marketing.

Affiliate marketing is the smartest online advertising investment CMOs can make. How can I make this statement with such bravado? Let’s start with why brands need affiliate marketing.

1. Twenty-one billion reasons — Performance marketing drove $21 billion in online advertising revenues in 2011, according to the IAB. This isn’t a niche segment of the online marketing industry. Affiliate marketing is a mature and profitable industry in and of itself and one that CMOs should invest in as part of their integrated marketing campaigns.

2. Small investment leads to big results — It takes a very low investment to test into various media channels, at a recommended spend of $10,000 per three media channels.

3. Multiple channel reach — Affiliate marketing includes all types of online marketing, so marketers can easily launch their test campaign(s) in up to three different channels, such as email, search and social media.

4. Speed to market — Once an affiliate marketing campaign launches it often takes as little as one to two days to fulfill the budget and measure results. This is unparalleled in any other marketing vehicle.

5. Measurable results — Brands pay their affiliate network only when an action occurs, be it a sale or a lead. Plus, they receive critical analytics from user activity across their website. There are no other channels in marketing that have such an ROI focus, making affiliate marketing easy to evaluate.

There are several more reasons to engage in affiliate marketing, but CMOs need to start with a basic understanding of what to look for and how to manage their affiliate marketing efforts before engaging an affiliate network.

Here is a five-step process CMOs should follow when launching their affiliate marketing program.

Step 1: Define the Goal: Sale or Lead Generation
It is critical to define exactly what the brand is looking to do with its online marketing campaign. There are two types of affiliate networks — one that focuses on e-commerce or Cost-Per-Sale (CPS), and the other on Cost-Per-Acquisition (CPA), which is also known as Cost-Per-Lead (CPL).

Incidentally, the 2012 mThink Blue Book does a nice job of breaking these two groups out and ranking them based on a variety of factors.

Part of the significant value of affiliate marketing is the ability to track payments performed through the network, as technology and finance functions are done for the advertisers.

CPS networks, like Rakuten LinkShare and Commission Junction, typically charge advertisers a set-up fee for their campaigns, take a percentage of the revenue from every sale and pay affiliates a small percentage of the sale as well. These networks are best suited for advertisers looking to sell products via
website owners who are seeking to monetize their page-one- or page-two-ranked sites on the organic search side.

CPA networks, like Neverblue and MediaWhiz/MonetizeIt, are focused on generating leads at a fixed price for advertisers, which can be further monetized. The benefit of these networks is the lack of set-up fees, creative services are often provided and expertise is offered by the network in multiple media channels, from email, organic and paid search, social media, co-reg (arrangements between companies to collect user information), mobile and more.

Step 2: Choose the Network
Once a marketer has decided on the goals for his online marketing program, it is time to find the right partner. It is imperative that marketers select only one affiliate network partner to start, since launching a new program can be potentially dangerous from a quality and control standpoint. An affiliate network isn’t a stock portfolio where marketers need to diversify all of their assets. It is more like a mutual fund with a portfolio of marketers from different disciplines and expertise that can help propel a brand’s marketing efforts.

Above all, marketers should perform extensive due diligence before engaging an affiliate network. Investigate the network’s tenure, reputation, financials, staffing and references. Then look at industry resources, such as the mThink Blue Book and the Performance Marketing Association, to evaluate a network’s credibility and reputation. Compare and contrast affiliate networks’ relative media channel and vertical expertise, as well as professional services offered, including technology, client services and creative.

Step 3: Media Planning
Now that the affiliate network partner has been secured, it is important to sign a Mutual Non-Disclosure Agreement and Master Services Agreement.

Then have a kick-off meeting to share KPIs and downstream metrics. Lay out all critical needs, including the allowable CPA or CPS, demographics, geo footprint/store locations, call-center hours, budgets, legal requirements, etc. The affiliate network should lay out a media plan for the brand and be equally transparent in terms of where that money is being spent, from media channel to samples and/or placements by the affiliate.

Perhaps the biggest hurdle to overcome when working with an affiliate network will be the “Cost Per” language. Affiliate networks operate on CPS or CPA, even a CPC (cost per click) or CPM (cost per thousand clicks), whereas the agency world is typically a “time and materials” or “costplus” model. This doesn’t always translate well for affi liate marketing, and it is recommended that brands start by paying on the action.

Once test results have come in from the fi rst allocated budget, brands should stick with the model or migrate to one of the standard agency models. In my estimation, it is much easier to pay on a CPA or CPS since a marketer knows every lead or sale being generated. This ensures a brand does not get stuck with a higher bill than anticipated as can happen when a contractor works on a “cost-plus” or “time and materials” contract.

Step 4: Compliance and Monitoring
For newcomers to the space, compliance is something unique to the performance marketing industry — and it requires brands’ strict attention. When a company partners with an affiliate network, it is dealing with many different affiliates, including other affi liate networks, which creates a more shallow level of transparency.

Unlike brands that live and die by a PMS color or a logo located 0.375 of an inch from the left border on a letterhead, affiliates often like to design their own marketing materials for the media channel they work in, as they know what works best to break through the clutter.

CMOs working with an affiliate network need to ensure their brand guidelines are thoroughly adhered to by the affiliate and be aware of various industry regulations that impact how affiliates operate. For example, email has CAN-SPAM laws regarding unsubscribes. Numerous states have nexus laws that govern the collection of taxes from purchases made online.

The FTC has privacy laws and marketing guidelines for various verticals, such as neutraceuticals and education. Google has policies around paid and organic search content. Facebook is strict about targeting in brands’ wall posts and other ad copy. The list goes on and on.

These regulations and industry guidelines get layered on with the fact that, like in any industry, there are rogue affiliate networks that don’t follow any of the guidelines, which can seriously jeopardize a brand’s reputation and customer affinity.  The good news is that there are lead monitoring companies, such as CPA Detective, Scrubkit and The Search Monitor, that can determine where a click was initiated. Lead validation programs, from eBureau, Lead-
ID and Targus help ensure strict adherence to lead quality for brands’ call centers and other lead-gen efforts.

Affiliate networks should help brands utilize or obtain proper tools for making sure their campaign is being conducted accurately and legally. The real-life parallel is that even a home with an ADT anti-theft sign in the front yard can get robbed, but it is far less likely to occur. It’s this same proactive measure that CMOs need to take to prevent undesired activity from their affiliate network.

Step 5: Optimization
The final step in performance marketing is optimization. Every affiliate sending a brand leads will be tracked on a unique SubID. Some affi liates perform better than others, and, therefore, CMOs should pay careful attention that the overall returns on marketing spend and volume goals are achieved properly by balancing the two.

The first optimization priority is on the affiliate network to get more volume from the best performing affiliates, as identified by the brand, and decrease volume from (or stop) the under performing ones.

The second optimization priority is correct pricing. The advertiser should create payout tiers for the affiliate network. Affiliate marketing breaks the one-size fits all model of traditional and other online marketing so brands pay more for good traffic to their websites, mobile pages or other digital assets and less for bad traffic. The full blend should help marketers achieve their volume and quality goals.

This all may seem like a daunting task for a CMO, but following these steps will help brands launch successful affiliate marketing programs.

More advertising dollars pour into the performance marketing space every day, and it is a powerful channel that cannot be ignored. Traditional offline media will always have place in brands’ integrated marketing mix. But when it comes to measurable and scalable results, CMOs would be hard pressed to find a channel that delivers better ROI than performance marketing.