EVERY Business Should Have An Affiliate Program

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An affiliate program is like having hundreds, even thousands of people recommending your products to their friends, family and website visitors (if they have a website). What business wouldn't want this?

How do you think Amazon became such a huge company?

They did a lot of things right but they would never have achieved the success they have if it hadn't been for their affiliate program. They had thousands of people spreading their ultimate selling proposition (USP) and recommending books from Amazon (they started by taking book sales online) and then other Amazon products when they expanded their products.

When Amazon expanded their products beyond just books they had hundreds of thousands of affiliates promoting them. Every company out there wanted to have their products on Amazon because of their impressive marketing model and the possibility of having thousands of Amazons affiliates promoting their products. 

Unfortunately there are a lot of businesses who don't grasp the financial advantage of paying affiliates a commission. They'll spend thousands on marketing but won't pay affiliates.

Do you know what your acquisition cost is per client?

In other words, how much money do you have to spend on marketing costs to develop a client.

Let's say you're spending $1,000/mo on marketing (very low amount, but want to keep the numbers simple to work with).

Let's say from this you generate 10 clients for your $1,000 product which gives you a profit of $200 per sale.

Your client acquisition cost is $100 ($1,000 / 10).

Your ROI is $1,000 (10 sales x $200 profit = $2,000 - $1000 marketing = $1,000).

If your client acquisition cost is $100 to sell a $1,000 product with a $200 profit, that's 10% of the revenue. You could easily pay up to a 10% commission to affiliates. Once you factor in the lifetime value of a client you'll see how much further ahead you really are.

Defining Marketing

Let's first define what marketing is...

My point in sharing our definition of marketing to you is to understand that marketing is far more than just new business marketing. It's also the selling of other products and services on a continuous basis. Marketing is a life-long process with the customer because that presupposes we are going to have an ongoing relationship. 

When you understand the "lifetime value" of a client you realize that it's the backend sales which'll generate the most revenue and profits to your business.

Lifetime Value Of A Client & Why It Matters

In a nutshell, the lifetime value of a client is the total amount of money they'll spend with your business over a certain period of time (we use 5 years as the basis) and the profits earned.

Let me give you an example. I'm only going to do a simple example. In reality we'd be doing ongoing marketing to our clients month after month like I share at the end of this topic.

Let's say you sell a product for $1,000 and make a $200 profit for each sale.

Let's say you average 10 sales a month... that's $10,000 of monthly revenue, $2,000 of profit per month, $24,000 of profit per year.

If all you did was new business marketing this is where the story would end... at $2,000 of profit per month, $24,000 of profit per year. The only way you'd make more is by trying to bring in more new clients each month than the 10 average you're currently doing.

Sadly, this right here is the story to way too many businesses... they ONLY focus on new business. It's the only type of marketing they do. Let me show you why they're making a huge mistake.

Let's now say you have supporting products to the $1,000 product...

• $500 to upgrade the product giving the $1,000 product more features.
• $250 product which will help with the $1,000 product
• $100/yr servicing agreement for the product (or $10/mo - Save $20 paid annually).

Let's say... (Column 1 is the 10 average sales/mo for the $1,000 product)

Now instead of just the $10,000/mo of revenue you have $13,250/mo of Revenue. That's $3,250/mo more than if you only did new business.

Not only this, the 7.5 sales/mo for the $100/yr service contract means you have 90 people from year 1 who will be paying you $100 in year 2 for another $9,000/yr of revenue in addition to the monthly sales in year 2. This $100/yr service continues year after year unless the client cancels it.

At the beginning of Year 4 you have 270 people (3 yrs x 90) paying $100/yr for another $27,000 in year 4. Remember, this is on top of the $3,250/mo ($39,000 annually) of revenue for a total of $66,000 for the year. As you can see, each year you are making more money.

See why us marketers really like reoccurring products?

In the end, just focusing on new business the business would only generate $600,000 of revenue (10 sales/mo @ $1,000/sale = 10,000/mo x 60 mo's).

By including additional products with the sale to upsell and cross-sell the new client you increased your monthly revenue by $3,250/mo (another $195,000 over 5 years).

Then you have that reoccurring product generating an additional $9000/yr which grows each year...
Yr 1: $9,000,
Yr 2: $18,000,
Yr 3: $27,000,
Yr 4: $36,000 &
Yr 5: $45,000
= $135,000 - $45,000 ($9000/yr already factored in) = $90,000 additional dollars over 5 years.

Additional over 5 years = $285,000.

The key point I want you to understand here is you'll make more money on the backend that you'll make from selling a single product unless your upfront product is ridiculously more money than your other products.

A client with only upfront new business sale = $1,000 lifetime value

A client who also buys backend products & additional products = $1,725 lifetime value ($1000 upfront + $325 average upsell/cross-sell products + $400 on reoccurring product for years 2-5)

This is $725/client more, and it doesn't include additional marketing to your clients over the 5 years like a good marketer would be doing. At minimum you should be...

• Marketing the $500 upgrade to the 75% who didn't buy it,
• Marketing the $250 product to the 50% who didn't buy it, and
• Marketing the $100/yr service agreement to the 25% who didn't buy it.

This is the minimum! (This is why a good database program is important... so you know who bought what, or didn't buy a specific product, so you can continuously market to these people.)

Generally speaking, when it's all said and done, a well structured business with a good business optimization strategy in place will have a lifetime value of 2-10 times GREATER than businesses who only sell to new clients and only do marketing for new clients.

Here's another fact you need to know... it's far easier to sell a product to an existing client than to develop a new client. It's also 80% less costly.

Look at all of the money you could be missing out on if you only focus on new business and don't sell any other products to your clients.

We Include Referral Business Into Our Analysis Of Each Clients Lifetime Value

We're going to add in one more factor to analyzing the lifetime value... referrals.

Why?

Because these are clients you likely wouldn't have gotten had it not been for the recommendation from a family member or friend who your client.

Let's say you get 2 new clients from your very effective referral marketing you have in place. We already established that the average lifetime value per client is $1,725. Now add another $3,450 to this which is the lifetime value of the 2 new clients from referral marketing which you wouldn't have gotten if it hadn't been for the client who referred them to you.

Do you see how this works?

Only Paying 5% For Affiliate Sales

Whether it's the $100 client acquisition cost from marketing or a 5% affiliate commission, when the average lifetime value of a client per what I showed above is $5,175 I'd want an army of affiliates out there promoting our products. I'd also kick up my marketing budget.

When every sale generates $5,175 to the company over 5 years not including additional marketing campaigns we could do to our clients, and it's only costing me $100/client to get each client from our marketing or 5-10% of revenue paid to an affiliate, I want as many clients as I can get.

The first thing you need to do is put your marketing strategy in place and have your products in place. Any marketer worth his salt can guide you on all of this.

Next...

Know Your Numbers

The point is, an affiliate program is a great investment into your business.

The key is to know your personal numbers. Get a spreadsheet out, run a sales report by client over the past 5 years (Total Revenue, Total Clients, do not count same client more than once) and divide the total clients into the total revenue to see what your average revenue is per client.

As easy as this may sound you may find your database system won't be able to generate a report like this. You may instead need to export the data out and then manipulate the data in Excel to create the report you need.

Putting In Place An Affiliate Program At Your Website

Obviously, an affiliate program only works when people are buying your products from your website. If you're doing traditional sales either by phone or in person, instead of an affiliate program you'd put in place a referral marketing program.

For putting in place an affiliate program you have two main options:

We manage our own affiliate program. In part because we want to have a direct connection with our affiliates to work with them and support them. Their success is our success so it only makes sense to have this relationship, especially since we have an extensive background in marketing.

This also allows us to help them with their marketing by providing them with sample emails, sample social media posts and graphics to help them promote us so they can make a lot of money. 

Like I said, their success is our success. 

Now keep in mind, there's a lot more to this topic. In an article you can only share so much information. I hope we shared enough to show you just how valuable an affiliate program is to your business and shared enough information to start you down the right path to include doing research on this topic.