In this podcast interview, James and fellow internet marketing experts, Clay Collins from LeadPages and Damian Thompson from linchPin, share their viewpoints and past experiences on affiliate marketing and management.
Topics in this podcast:
01:38 – Personal experiences on affiliate marketing
04:33 – The 80-20 rule
08:12 – Stopping my affiliate program
13:29 – Where my affiliate revenue goes
16:01 – Lack of control
21:18 – Be clear on who you want as an affiliate
23:00 – The most devastating blow
27:25 – An overview of reselling
29:45 – Starting affiliates, free promotion and partnerships
35:46 – Getting more affiliates
38:56 – Integration and white label suppliers
44:35 – Software vs. services
47:20 – Benefits of partner programs
51:24 – Managing your culture
54:26 – Side effects of switching your AP
56:11 – Final tips from James
Not everyone values your brand as much as you. [Click To Tweet].
Most humans act on self-interest. [Click To Tweet].
Start things with the end in mind. [Click To Tweet].
Business changes over time. [Click To Tweet].
Start owning your brand. [Click To Tweet].
James Schramko here, welcome back to SuperFastBusiness.com. Today’s discussion is a multi-part panel. And by part, I mean people, so don’t take it the wrong way, guys. We’ve actually got Damian Thompson and Clay Collins on the line, and we’re going to be talking about affiliate marketing. Good day, guys.
Clay: Hey James, great to be here.
James: So Clay, you know we catch up a lot on the show. And Damian, I’ve been on your show, it’s great to have you on this show. And we’re going to have an interesting discussion around the affiliate marketing subject, especially having a look at who’s it good for, who’s it bad for, what’s your personal viewpoint on it, how important is it for people to consider at various stages in their business. Because I’ve actually been experienced with affiliate marketing for my entire time online.
It was, in fact, the most profitable and successful business model that I chose when I started, and certainly the foundation for my early success, of all the models that I tried. And it’s something that I went through as a product owner, having my own product sold via affiliates, right through continuing to be a super affiliate for other people’s products. So from my point of view, it’s an integral part of my online experience. But I’d love to find out, what’s been your experience with affiliate marketing. Damian?
Damian: Yeah, so, I’m definitely the noob of the bunch. I understand what it is, I’ve been around it for five-plus years, specifically the affiliate title, but in all honesty, I’m really affiliate for only a few products, Clay’s being one of them, and you know, some marketing automation tools I use. I never really got into the hosting affiliate or anything like that, five or six years ago when I first got online.
But I do come from a software background, working for Semantic and McAffee, and they have what they would call a partner program, which is very similar, even in the big enterprise phase, when I was working in Sydney there. You know, in enterprise software licenses you sell this perpetual license. You sell annual subscriptions, and that subscription has partners that service that.
So it’s like software partners, which would be an affiliate program. So I’m familiar with positives of having a partner community, help promote your brand. But me personally I’ve only really focused on a few real hardcore brands that are integral to my business.
James: Right. So you’ve raised a good topic and I think we’ll come back to that, the difference between an affiliate program and a reseller or partner program, because there’s a really good distinction there. I’d love to find out your experience with affiliate marketing, Clay.
Clay: Yeah, so I have kind of two roles in this experience. I’ve done affiliate marketing, and there are also people that do affiliate marketing of our product, LeadPages. And I’ve also watched a number of really interesting things happen and play out, kind of in this space. I’ve seen you shut down your affiliate program, while still being an incredibly successful affiliate yourself. And I benefitted from that: you’re our, I believe, our top affiliate at LeadPages.
And I’ve seen so many different interesting facets of this thing happen. I heard Dan Andrews once come in and I believe he was talking with you, James, and he was talking about how affiliate marketing is… or affiliates are far and away the most expensive traffic source. And he was talking about how in his opinion – and I wish he were here, but – you’re absolutely screwing the customer when you’re essentially tapping on an extra 50 percent to… especially with these $2,000 information products… to cover the cost of some pretty light promotion.
And so I think there’s just a number of different viewpoints here. I kind of started out, with LeadPages and LeadPlayer, we allowed anyone to be an affiliate. And then we only allowed customers to be affiliates. And now we only allow our pro customers to be affiliates. And there’s a number of reasons why I did that.
So I’m here to participate, but I also really would love to hear at some point during this discussion, James, a little bit about why you shut down your program and the history and the plot behind that.
James: Yeah. So we’re going to discuss some of the benefits, and some of the problems. I think, very first up, we should talk about what is an affiliate program, just in case you’re listening to this and you don’t know what an affiliate program is. It’s really just like a salesperson’s commission for promoting a product. And it’s mostly with companies you can join as an affiliate without having to pay a fee.
It’s like if you want to start selling a product, you have to follow the rules and the terms, and there are varying terms and conditions with each program. Some people are very, very tight on brand control, and they use a high-level affiliate program like Commission Junction to enforce rules, like you cannot bid on trademark names in pay-per-click search engines and that sort of stuff.
And then there’s other ones that are a little bit loose that pretty much accept almost anyone as an affiliate. And the reality is, certainly as an affiliate program owner in the past, only a small percentage of your affiliates are going to generate the bulk of your sales. Do you find that that’s the case with your program, Clay?
Clay: I do. You know, I’ve heard about the 80-20 rule and I think with us, it’s probably like, oh, I don’t know, 97-3. So like 3 percent of the affiliates or less are producing 97 percent of the affiliate revenue. So that’s absolutely been the case. I think a lot of people like the idea of belonging to an affiliate program.
Like a lot of times when people purchase LeadPages, and I’m fine with this, but they’ll purchase LeadPages and joining our affiliate program appears to be an immediate income opportunity. Like whenever they want to tell a friend about it, or what have you, they want to make sure they earn some income on it. And I’m often approached by a lot of people who are not customers, who heard of LeadPages, that literally want to tell one person about it and can’t bring themselves to literally say the word “Leadpages” to someone else unless they’re going to get a cut of the action.
So I think it ranges from folks like yourself, James, who are like huge value adds… I’ve spoken at your events, you’ve had templates put inside of LeadPages, we’ve done podcasts together, and it’s a very high-level integrated partnership that has not only entailed the straight up affiliate piece, but also just a lot of connections that you’ve made for us, and a lot of advice that you’ve given us as well.
So it ranges from that to someone who literally, again, cannot bring themselves to say the name of our product to another human being, in person, on Twitter, in email or anywhere else, without an affiliate link. And I just wonder, what would happen if the consumer electronics base were monetized to the degree that Internet marketing was like literally if someone said, “What phone are you using?” You couldn’t be like, “Oh, it’s the iPhone.” Like. “Oh, but here’s the link.” You know what I mean?
So it’s gotten to I think an absurd extent in a lot of cases and the vast majority of affiliates simply do not bring sales and a very high percentage of the ones that… You know, when it comes to the 97-3 where 3 percent of affiliates take up 97 percent of your time, those are also the least high maintenance affiliates. And the highest maintenance affiliates that I found in most cases tend to be the ones that literally do not make a single sale ever. And so I can understand why someone like yourself would shut down your affiliate program.
James: Yeah, well I’m going to cover some of the reasons why, and I think you’ll find them quite interesting, but it’s super douchey when someone wouldn’t even mention the product unless they’re getting a cut. A classic example of the opposite is my relationship with some of the software that I promote where I don’t get a cut. Yes, I’m an affiliate for some products, but there’s some other products that I use that I love so much that I want to tell everyone about it because my heart is really in my customers’ best interest.
And even if I don’t make a commission, they might still become a part of my community, they might stick around and open up my emails, they might listen to a podcast like this and get good information without having to pay for it, and one day buy something. Maybe they’ll go and click on my LeadPages link. Who knows?
But I think that’s one of Dan’s arguments, is that there’s whole markets where the whole point, the whole reason people are pushing, and you might actually rename that as “pimping,” is just for the cut, and there’s no greater example of that in my mind than this direct sales-slash-MLM industry where the whole focus is on how much you’re going to make, and it’s like nothing to do with the product or the value or anything. And I think all of us on this particular podcast are coming from a place where we actually value good products and services that are helpful to humans.
And that being the case, that’s why the affiliate program can be optional in markets like this. That’s why the iPhone is talked about even without people making commission. But there’s still a reseller market channel for things like that, and it is interesting to see how much the market can be distorted when you start loading a marketing budget to it, which was Dan’s other point, that it’s highly inefficient when you have to pay out 30, 40, 50 percent of your revenue back to people who are professional pimps. And here’s one of the things I found, that not everyone values your brand or your core values as much as you might.
And I was finding stuff that bothered me a little bit about my own brand, especially an example. Like right now we’re talking on Skype on a username that one of my affiliates registered. He registered my own name for his Skype account, and he went and registered my own name as a .org. And then he started putting up websites.
And it was really, literally passing off. It was actually being me, not being clear about the fact that he was an affiliate. It was him assuming my entity so that he could just scrape that 40 percent off the back of all the hard work that I do. And I found that that was a little bit on the nose. What do you think about that?
Damian: That’s a bit creepy too, I think.
Clay: And I think this highlights the distinction between affiliates who add value and affiliates who are trying to leverage value that you’ve already created to get a cut of the sales.
James: And that, Clay, is one of the major reasons I shut my program, because when you look at my Pareto principle, there was just a handful of affiliates who were doing anything useful and getting most of the sales, but when I looked at where, guess what I found? They were squatting on my own name and ranking for my name. And I actually, this is where it became ridiculous, I had to hire two or three people, put them full-time on getting my own brand back for me, on the first page of Google for my name.
So I’m thinking, hang on, this doesn’t make sense. I’m actually paying a cut of my commission to this affiliate, and I’m paying my team to win back territory for my own name that they’re taking, because they’re just harnessing… You know, when I go and talk on a podcast and someone types “James Schramko” into Google, I can either have it go to me, or I can have it siphoned off to an affiliate who’s going to pretend to be me.
Clay: I think that’s spot on. Someone was buying ads on our brand name and creating all kinds of different variations of our brands and trying to get that traffic, and siphoning off brand searches from the brand itself is not a creation of value. That’s someone who’s just trying to, again, just siphon dollars away from your business without actually adding any value to the marketplace. I’m completely comfortable with an affiliate who adds massive value to what you’re doing, getting paid for that value that they’re creating for the marketplace.
Like stuff I’ve done with you, James, where like you’ve created courses, you’ve created tutorials, you’ve done objective reviews, you’ve done all kinds of things that have added a ton of value.
James: Yeah, we hold physical events where we educate people on how important this is. And then we have competitions, you know, like people trying to knock off my conversions template, which I donated. I actually woke up this morning and I got an email from you and in there was one of the split tests that I donated to you, and one of the incredibly simple things that I tested.And I want to share that with you, and I would do it, regardless of being an affiliate or not.
But when I am getting some commission back, let me tell you exactly where that affiliate revenue goes. The money comes into my account, and I redirect that… It actually supports a full-time person in my team whose role is to go and create more value on our websites, to put more in-depth articles and tutorials and pictures and screenshots and to run tests so that we can get more data and case studies that we can have something useful to talk about on our next podcast.
Damian: I think there’s two really important things that both of you said there, but why I like Clay’s affiliate program is, so, I’m an affiliate for Clay and I’m an affiliate for Clay because I’m using LeadPages anyway, like when I integrate LeadPages with Infusionsoft, or with OAP, with OfficeAutopilot, it just makes sense, it’s a great tool to work for that, so I do it anyway. But the fact that I can be compensated for it means that I can develop.
Like we’re about to start building some templates to upload, specifically for thank you pages, the sign-up page for these marketing automation funnels. Well that’s money that I’d have to come out of my pocket for, but I’m going to use my LeadPages money to pay for that. So I think that’s, to me, the qualification for whether I am an affiliate or a partner or, quote unquote, whatever you want to call it is, am I using the software internally and would I promote it anyway? And yes, so I don’t think we’re talking about Dan’s $2,000 info products where I’m only going to make 25 percent of it because I have to rely on these hundred-thousand person lists.
I’m going to turn out real solutions that solve real problems. And I do think there’s a number there, right? If Clay was giving 50 percent away for an affiliate, then you’ve obviously got to build that into your business plan. But at 30 percent or 10 percent or whatever that number happens to be, I think that’s an acquisition cost.
James: Well I think, in simple terms, Clay’s outsourced some of his marketing. And he’s hoping that the incremental sales from that are more than if he just took control of the marketing himself, and given that Clay’s got a hundred and eighty hours a month to work on his business, he can either hire a marketing person, or he can outsource it on a fee for performance basis to people like me. And I reinvest some of that budget back into resources like hiring a team member, running a website, doing podcasts. Like my time has a value on it.
So is it true that I would put a little more attention on it because the reward comes there? Yes. But I think at a core level most humans act in self-interest, so it’s quite a clever thing to be doing. Now somewhere at this point I would think, now this sounds like the best thing ever, why wouldn’t everyone do it? Well, I learned some other things too, especially when I was using one platform, which was very popular when I was starting out five or six years ago, it was called ClickBank.
I noticed when I put my product on there that a lot of people were buying through themselves. So they were buying it through an affiliate link that was almost an exact match for their domain name or website. And I noticed a hell of a lot of them just put through a refund before the refund period expired, and they were effectively helping themselves to a free product.
So it was the lack of control that I had with the affiliate program that was annoying. I couldn’t filter people when they wanted to cancel, I couldn’t ask them why, it just happened automatically. I was paying a big fee for this affiliate management. And people were just helping themselves and there was nothing I could do about it. It was very frustrating.
I touched on before the fact of brand control where people hijack you, but other little things, like people taking a screenshot off my site, squishing my head around, making me look like a fat alien or something… They don’t care what I look like on the Internet, but I do. And they’ll think nothing of taking something off any of my sites, squishing it around, jamming it onto the most horrifically ugly website ever, and passing off as me, and the real tipping point is when I start getting support tickets for people saying “I need my bonus,” or you promised such and such would be with this product, and I’m like, we never promised that, and then I say, “Where did you see that?” and they show me a site with my name in it, and then like one little modifier, and there’s all these basically outright BS on there, and I’m like, hang on. This is ridiculous.
Clay: Yeah. So I think that’s an excellent case for taking down your affiliate program. I think another thing that we’ve seen where people have misrepresented are people…Like back when we used to let anyone join our affiliate program, people would create these fake reviews, like they’d have five different products that they’d want to review, and one of them would be ours, but we wouldn’t be the one that necessarily gives the greatest affiliate commission rate, so they’d want the one that pays out the most to win.
But heaven forbid, like someone actually buy LeadPages who the review where they’re promoting something else for the additional commission or for the reciprocation or for whatever, they wanted a cut of that as well. So we kind of wanted to make sure that only customers, that only people that actually used the product and had experience with it applied it.
And another reason why – and I know we’re not playing devil’s advocate, but I’ve definitely seen the dark side and I kind of want to speak to some of the benefits of doing this. So part of it, I would say, is outsourcing our marketing. I actually think we’re pretty good at marketing and we’re slowly growing our marketing team, but the real reason, and something that you just can’t pay for, is the thought process of an absolute expert in their space. Engineering a situation where your offer is going to convert extremely well with their audience.
So for example, I did a webinar with Amy Porterfield, who works with social media people, and she’s like, in order for LeadPages to convert a social media crowd, you need these two features, and we need to say this in the webinar, and you need to explain it like this. And there was literally no dollar amount that I could have paid that would have gotten her, that would have been too little for that advice. Because I literally added one feature and two bits about positioning, and our offer all of a sudden started to take off among the social media crowd.
But unless we incentivize it like that, I don’t think I would have gotten her head applied to that specific situation in a very real way. And I’m so glad I did, and I’ve had this same experience with you, James, and with Pat Flynn as well where they’re really just taking in a myriad number of facts and sources and synthesizing it with respect to our offer, our branding and our positioning, and giving us features messaging that we can then go off and scale.
Another piece is when someone like yourself or Pat Flynn or Amy Porterfield endorses us. That is not just about the sales that are made there. That is a signal to the market. And when you get enough of those big signals lined up, you get a lot more sales than are going to come through that affiliate link, which is why for certain levels of super affiliates, the affiliate commission is much higher, because I realize that a lot of people have bought LeadPages probably that heard of us because of you, James, that maybe have bought when I spoke at your event or whatever, but you weren’t compensated for that.
So we’d like to increase that. And I’m a huge fan of how we’re doing it now that we’ve dialled in, but prior to that it was an absolute fail for all the reasons that you’re describing.
James: Right. So the main points there are that it can be really, really good and what we haven’t talked about is when is a good time to have an affiliate program versus not. And you were in start up phase, so it would be fair to argue that an affiliate program early on in a product cycle can really help you get market exposure. That’s how those big product launches work.
It’s just making sure that every single person in the space knows about something quickly and of massive presence so I think a more established business, you can actually see a diminishing return. But I just want to close up on one point there. So if you’re going to have affiliates, one of the clear points we’ve established is you really need to be clear about who you let become an affiliate. Clay is quite careful about who’s an affiliate.
I just put up an affiliate review yesterday, or my team member, by “I” I mean my team member. I just searched for the product name in review, and I swear to God five of the results on the first page are for the product name, review scam. And that is a negative brand message. And that is a cheap old affiliate trick. Those people obviously have access to the program and they’re doing more brand value degradation than they are uplifting, in my opinion.
So customers are great affiliates, rather than just the man off the street. It’s really important that you screen your affiliates and set the frameworks for brand guidelines. And remember there’s probably a liability too, if people are out there making fake claims, and someone buys what they have said, It really could pull back to you these days. I think there’s some legislation around that.
So anyway, the next thing is at what phase in your business is an affiliate program useful and a lot safer? A lot of people starting out, they’d really want anyone on board telling the world about their product. So if it’s front end-heavy on advertising costs and you’re getting other people to do all the marketing for you and you’re only paying them when they make a sale, then in theory that works really well.
But I want to alert you to something else that happened to me: that was the most devastating blow of my affiliate program. And that was I spent a month travelling Europe, and I had very limited access to the Internet, I had about half an hour a day on the Web, and when I got back, I found this raft of chargebacks in the post, and there was more than $29,000 worth of chargebacks that had been put through by fraudulent affiliates. And the way this one works is they join the affiliate program, they purchase the product with the stolen credit card, and then they try and collect the commission before the customer whose card was stolen figures out that their card’s been used to purchase a product.