How do you know if a specific affiliate partner or campaign was effective?
Can you tell which marketing affiliates have earned additional benefits?
How do you determine when it is time to shift business resources to a new marketing channel?
There is a KPI that covers all of these questions, one that paints the best picture of which marketing investments are working for you.
Here, you will get a high-level view of when to use an incremental strategy, who this type of strategy works best for, what data you will need and how to measure and commission affiliate partners.
It can take time to wrap your head around the concept of incremental sales. If you need help we would love to help you become more profitable, schedule a call here.
When does an incremental sales strategy work?
There are multiple things to consider before deciding if optimizing for incremental sales will work well for an affiliate marketing program.
Here are examples of companies JEBCommerce has focused on increasing incremental sales for – and one that was not ready yet.
- Retail affiliate program, operating for over 5 years with lots of promotional products and coupons
- B2B affiliate program, operating for over 5 years.
- Affiliate program that did not have time to manage partners and had a lot of nefarious behavior take control. Reduced the program to a handful of affiliate partners.
The common factor among companies that can focus on increasing incremental sales is they have a mature affiliate program.
An incremental sales strategy is usually not right for a company that is new.
If a brand has not been around for years then they do not have a share of the consumer’s life that would require or support an incremental analysis.
Whatever sales a brand new company is receiving is not coming from brand exposure outside the affiliate channel. At some point, that will change, but right now, that isn’t the case.
Who is an incremental sales strategy right for?
Ultimately you will have to decide if an incremental sales strategy is right for your company. Here I will list items to consider.
If your company exhibits some of these characteristics, you will want to have a closer look at developing an incremental sales strategy:
- Active, multi-channel marketing campaigns (SEO, PPC, Email, Re-targeting, Re-marketing, catalog)
- Mature affiliate program, 3+ years
- Established brand
- Focused on profitability and overall top line sales
- Pressure to prove profitability in different ways than revenue – cost
- Sum of all online marketing channels’ revenue is greater than the total cash you actually received
- An active affiliate management team that is reaching out to all your affiliates
- Sales from your coupon, loyalty, ppc or other category of affiliates are being questioned
- Tracking new to file, first click, last click, and other data on sales
An incremental sales strategy can lead to better allocation of business resources, a better top line on your P&L and a better bottom line.
Keep reading to learn what data you need to be gathering and how to work with your affiliate partners to increase incremental sales.
Gathering Data on Incremental Sales
Start collecting data on a partner by partner basis. Without good affiliate partner data you will not get anywhere.
Here is a list of the data (by channel AND by affiliate) you will need before you get started:
- Gross Margin
- Average Order Value
- Average Conversion Cost
- New Customers vs Existing Customers
- Average number of purchases per year
- Customer History
- Lifetime Value of a Customer
- Email Marketing/Retention Calendar
- Catalog Marketing Calendar
- Customer Aging
- How often are customers shopping?
- When was the customer’s last purchase?
That list is a start. Remember to grab the above metrics for every active marketing channel and by each individual affiliate.
If you have not begun recording this data and only have first-click or last-click, gather what you can and keep the end goal in sight.
You are trying to prove the value of the channel and the value of each partnership, so the more data, both quantifiable and qualifiable, the better.
It’s a great process to go through, and if you are a data geek like me, it can be a lot of fun.
Your tech team or business intelligence team may need some time to gather this for you, so get a head start.
Why Lifetime Value of a Customer?
You may find that an affiliate, or group of affiliates, initially provides a lower than optimal percentage of incremental sales, but that their lifetime value of a customer is significantly higher.
You want to keep high LTV partnerships humming along.
An initial incremental analysis may move you to reduce your participation with them, but when you factor in lifetime value, the equation may change significantly.
What to Do with Incremental Sales Data
Gathering incremental sales data is used to evaluate the success of the channel, individual campaigns or affiliate partners to determine the value as it relates to profitability.
Once you determine your methodology and apply that to the data, you use this information to refocus the budget to the high profit partners/campaigns, and work on improving the lower performing areas.
If you deem a campaign or partner as less than ideal in terms of incremental sales, that isn’t the end of your dance with them.
If they are performing below expectations, or your needs, it’s time to get to work.
Each partner is different, each partnership is different and the ways to optimize revenue is different.
Now it’s time to get creative.
Oftentimes, informing a partner that you are evaluating revenue in a new way, and sharing that methodology with them, allows them to refocus their marketing on your behalf.
A simple conversation can make a world of difference when they know what you are looking for.
You can also provide new tools for them to use.
Things such as single use coupons and promotions targeting new customers can do wonders for a campaign and profitability.
Sharing the demographic data of the customers they are sending compared with the ideal demographic has proven to be very helpful.
You may find yourself commissioning differently on the quality of the sale. It’s been done in the finance space for years.
Now, I know affiliates will not like this, but I don’t see incremental sales strategies going away.
But how do you track and reward these different types of customers?
Can it be done? Yes.
Keep reading to learn the different ways affiliate networks allow you to track, report and commission on incremental or new customers.
Affiliate Incremental Sales Tech: How to Track, How to Commission
The obvious answer to how to commission is to commission based on the different qualities of customer gained.
You may want to pay out a higher percentage for incremental, new or high LTV customers, and lower for lower tiers of customers sent by affiliates.
You may simply want to know these numbers and not track through a network, or track and not commission differently.
Knowledge is king and data can help you paint a fuller picture.
Many of our clients track this and use it to decide where to spend paid placement dollars, who to give VIP commission rates to or simply who to spend the most time with.
You don’t need to go the route of new commission structures, but if you need to, you can.
Almost all affiliate networks offer a way to differentiate a particular transaction as new or incremental and others as existing or non-incremental.
SAS has some really interesting technology to assist with incremental sales and profitability. Read about some of their features here.
Their Leap from Transaction feature combats cart sniping: “If you note a pattern in your Affiliate Program that involves Affiliates earning commission on clicks very close to the time of the sale – you can setup a rule that skips past that click and looks backwards in the click-stream to see if there are any other Affiliates involved in the transaction. This can be extremely helpful in dealing specifically with Coupon and PPC Affiliates – to allow them to stay in the program while ensuring value.”
They also allow you to track and commission new vs existing, they call it Flexible Commissions: “Want to pay different commissions based on SKUs, categories, new customers, different stores, etc… There are endless possibilities – whatever you can think up can likely be accomplished with our system of rules and settings.”
The flexible commissions allows advertisers to commission different types of sales in just about any manner you choose.
Be aware of how this will affect your affiliate partnerships.
What looks good to the accountant will upset your base and can kill your entire program.
You don’t want this exercise to do that. The key here is that you’ll need to be able to tag a sale when it happens.
If you can’t tag a new customer, for instance, as a new customer when the sale happens and the pixel fires, you’ll need to go back to the drawing board.
Brian Littleton, CEO of ShareASale added, “By properly segmenting your Affiliates and utilizing customized commission rules – you can motivate them to generate the types of transactions that you are looking for. Instead of using “blanket” methodology such as removing all coupon Affiliates, use the data available and set commissions higher in instances of new-to-file customers, or in cases of greater than average order size … and lower in data-proven scenarios that you identify and want to correct.”
This network features new customer acquisition campaigns and acquiring new customers (most often the easiest way to determine incremental, but not without its own flaws) can be optimized and increased with solid tracking and outstanding strategy and tools.
Linkshare offers the ability to utilize their sku based reporting to track new vs. existing or incremental vs. non incremental. You can see it outlined in the following screenshot from a very good presentation on Publisher Incentives for New Customers.
Using Linkshare’s Product SKUs for New or Incremental Publisher bonus.
The only downside could be that you may lose the sku of the product and thus lose some of the value of the product success reports.
This solution really is great if you want to simply add an additional bonus for a new customer or incremental order.
To get around this issue, you could send two sku’s, or two orders, one at a higher rate for new customers and one at a lower rate.
Either way, it is relatively simple to pay out more on new or incremental.
Linkshare commissioned a Forester Research paper that discusses the incremental value of affiliate programs and includes many statistics related to our discussion. Download the paper here.
IR has technology to track new vs existing. It’s pretty simple and straightforward.
You would be using an action tracker for each customer designation. You can “disposition” and action as either new or returning.
I’m assuming you could disposition an action in any way you deem fit. You’ll just want to make sure it aligns with your corporate goals, is easy for the affiliate to understand and is something they can align themselves with.
We’ve done this and similar things with IR’s tracking and actions and it is easy to set up within IR.
Todd at IR made a great point that I want to stress, “Equally important is reporting by partner on new vs returning (even if you aren’t paying differently) in order to determine each partner’s value.”
CJ allows you to set up multiple actions, or conversion types, within their network. You can set up new customer actions, existing customer actions or group or tag them in any way you see fit.
But it is important, as I’ve said above, to be sure that you can technically do this at the point of purchase, it’s easy to understand for affiliates, and doesn’t cut off your nose to spite your face.
Setting up actions is relatively simple but there is a charge for each additional action in CJ.
I was able to speak with Sandrine Thompson, Strategic Insights Director at Commission Junction, briefly about CJ’s tracking options and incremental sales in general.
Sandrine had some great insight:
“I examined incrementality a lot last summer when I presented a CJU session on the topic. Incrementality is a persistent question that faces marketers in all channels, but perhaps a bit more in affiliate due to our last-click payment model. Incrementality can be expressed in a few different ways, but sales from new customers are nearly universally accepted as incremental so it’s a great metric on which to focus.
A few years ago it seemed to be a challenge for advertisers to capture this metric, but sophistication in (and greater adoption of) site and channel analytics has improved the situation a great deal. Nowadays, I find more advertisers than not can assess new customers by channel (or they’re working on implementing the right analytics to do so).
At Commission Junction, our technology allows advertisers to report whether a sale was from a new or existing user and pay publishers differently, if desired.
An advertiser who has the ability to provide new customer information at the transaction level can structure a program term something like the one below:
This functionality has allowed many of our advertisers to structure their affiliate program to greater meet their end goals.
Because advertisers have a view into which publishers are driving new customers they can also be more strategic in optimizing and growing their publisher relationships.
Tracking and reporting new customers in an affiliate program has been an important development toward advertisers being able to truly assess the value and incrementality of affiliate sales.
We have enough advertisers now reporting and tracking the new customer sales in the CJ network that we’ve been able to average the rate of new customers driven by affiliates.
We consistently see that number average 25%, which is in line with third-party research on the topic which places the affiliate channel at about 2nd best for driving new users (behind Search).”
Great insight. You can read more from Sandrine at CJ’s blog.
Google Affiliate Network
GAN also has this capability. Beginning to see a pattern here?
From our great account manager at GAN: “Google Affiliate Network is able to track and payout on both new and incremental customers. Advertisers can leverage our Category Level Commissions feature to pay different amounts for orders placed by new and existing customers. Advertisers need to identify new versus existing customers at the time the order takes place and provide the appropriate data to Google Affiliate Network.”
We have several of our clients on this network. They have some amazing technology, check out their Advanced Link Encoder if you have content affiliates, and continue to make waves in our industry.
They are able to track demographics of orders, such as new customer, existing customer, incremental sale, non incremental sale, through the use of an additional parameter in the pixel when it is fired.
For this exercise, the additional variable could be “new_customer”.
“It should be entered into the tracking that is described in the documentation found here, so the tracking code would look like this:
The value for new_customer should be ‘Y’ or ‘N’.
AvantLink can structure commission payouts to be awarded to affiliates only when a referral is a new (or ‘Y’) customer, should the merchant wish to set up their commission payouts that way.”
Chad Waite was gracious enough to add, “Affiliate marketing isn’t the simple “last click wins” model it was a decade ago- a lot has changed. Program managers are now placing greater emphasis on getting and reacting to in-depth insight on the different values of returning vs. new customers, how other marketing channels overlap with the affiliate channel, and attribution logic for multiple affiliate referrals. AvantLink’s ability to record new/returning customers as well as their AvantMetrics attribution platform provides solutions to these issues and delivers program managers that in-depth insight to their programs they need to show that sales made through their affiliates are indeed incremental.“
JEBCommerce has seen incremental sales coming down the road for a long time and I’m excited to see the networks offering ways to track affiliate programs and their success better.
In the end it will only make this channel stronger and will help affiliate managers get a more stable seat at the digital marketing table.
Creating an incremental sales strategy takes time to develop and plan.
If you are looking for help getting to a better platform of profitability, whether advertiser or publisher, schedule a call here.
We’d love to help you become more profitable.