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Tips & Guides — 01 Jul 2022
Partner Marketing Budget Explained
Assuming you are into affiliate marketing or about to start your partner program, you are expected to be aware of the advantages affiliate marketing offers. The budgeting aspect is most likely of interest to you as well.
In terms of budgeting, affiliate marketing has several advantages. For example, you can significantly save money on testing advertising campaigns, and you don’t need to calculate the customer acquisition costs. On top of that, the main advantage of affiliate marketing is that it has the lowest risks because you pay affiliates commissions only for performance and results. However, like anything else in business, affiliate marketing requires certain investments.
So, what are the costs of launching an affiliate marketing program? What do you have to pay affiliates, and when? In this article, we will talk about the most costly budget items you need to consider when preparing for a partner program launch. Let’s find out.
It all starts with the basics – choosing how to run an affiliate program. Your decision of how you will manage your affiliate program will significantly affect your budget in affiliate marketing. You can choose from several options.
When beginning your first affiliate program, it might be reasonable to join an affiliate network. In this way, you may save time recruiting affiliates and achieve results faster without the necessity to interact with partners directly. In time, as your business grows and you gain a deeper understanding of affiliate marketing, you can build and manage your own affiliate program.
How much does an affiliate marketing platform cost compared to working on an affiliate network? The affiliate network takes percentage fees similar to affiliate commissions which are also based on performance only. Usually, commissions vary between 2% and 35% percent depending on an affiliate product you are selling. Further, keep in mind that some affiliate networks charge an initial fee from $500 to $2000.
With an in-house affiliate program, you have more control over how your brand is presented through the channel. And, most importantly, you have a complete picture of the program’s performance. You have access to the overall statistics of the partner program and individual targets of each partner. With this information in hand, you can find the upside potential and use it for business growth.
Depending on a plan, you can benefit from integrations with BI tools, automate a large part of the workflow, use the best-in-class fraud prevention tools and create your custom solution with many unique features.
If you use the SaaS platform to manage and automate affiliate marketing, you usually pay for a monthly subscription. Still, some brands and advertisers prefer to pay a full year in advance because it’s always cheaper this way. Pricing varies from platform to platform and depends on the size of your business and the traffic you receive. Forward-looking, owing to the advanced technology, total transparency, and additional features, the option with an affiliate platform can be much more profitable than working with an affiliate network.
Another part of the partner marketing expenses might be the preparation of creatives (banners, video, texts, and landing pages). The quality of creative materials will play an essential role in the results of your product’s promotion and selling, so pay full attention to it. If you don’t have your own professionals to create a marketing inventory, it’s worth hiring well-proven freelancers. In addition, one of the things affiliates usually pay attention to, among other things, is whether the affiliate program provides ready-made creatives or not.
It’s worth considering not just the development of converting landing pages and attractive banners for your partner’s marketing campaigns. Your company’s general digital marketing strategy that increases your brand and product awareness also contribute to your affiliate program’s success. In online marketing, everything is connected. Without a professional marketing team, hardly anyone in the market can grow a well-known affiliate program.
Affiliate marketing is based on a Cost Per Action (CPA) system. Thus, the payment of commissions is one of the most critical points of budgeting. However, finding the perfect commission rate for each specific affiliate program is not that simple. The affiliate commission rates for your business will depend on many factors, including your budget, your industry niche, and your partner program.
However, it would help if you considered all the determinants that affect the affiliate’s payouts. So let’s take a closer look at each of these factors:
Post-launch partner program management is another expense category in affiliate marketing. Again, you can either hire an affiliate manager for your company or outsource these tasks to an agency.
Having an affiliate marketer on board is crucial, and along with the program growth, you may need to expand staffing. Initially, you need at least one affiliate program manager to address all matters related to drawing and registering affiliates, adhering to the rules and policies, and many other managing tasks.
Both affiliate networks and SaaS platforms provide account managers to assist with the issues relevant to platform operations. However, their role is to onboard your managers and help with the first set-ups. The following work is expected to be handled by your managers with supervision from the platform employees, if necessary.
Thus, irrespective of whether you choose to work independently or cooperate with an affiliate network, you still need an employee who will communicate with the platform provider and manage daily operations. Many things determine payments to affiliate managers. They can be in the form of a flat monthly salary, a monthly salary plus performance bonuses, or you can pay managers only commissions (from 2% to 35%).
The marketing budget is strictly fixed in most organizations as it’s hard to predict the exact output. But affiliate marketing is a slightly different story. Affiliate marketing is based on the principle of performance marketing, which implies that you pay only for results.
Accordingly, you only pay your partners when your product is sold. The profits you earn here will always exceed the marketing costs you incur. Even if the total amount of commission that must be paid to affiliates exceeds the approved budget, you still win as you earn proportionally. Thus, affiliate marketing is a highly ROI-driven channel.
For instance, in affiliate marketing, ROI is calculated in the following way:
(Affiliate Marketing Revenue – Affiliate Marketing Costs) / Affiliate Marketing Costs x 100 = ROI.
In order to get the most accurate ROI, it’s essential not to omit any of the details. For example, consider your affiliate marketing software pricing, banner creation, and landing page development cost – if you outsourced those services – and your affiliate commissions.
Let’s say that your partner program generated $5,000 in revenue, and overall you spent $3,000 on the program. Now, let’s do the calculation using the ROI formula: ($5,000 – $3,000) / $3,000 x 100 = 67%. Once you have calculated your ROI, you can use it to evaluate each of your affiliates and discover your growth potential.
It’s hard to imagine that someone would willingly refuse to make further profits because of surpassing the monthly budget. When you have exceeded your initial budget for affiliate payments in a given month, you can borrow from your next month’s budget. Adjusted partner marketing budgets will bring even more profits.
As you can see, partner marketing doesn’t come as the most costly channel. However, it still requires financial planning that depends on several things. Suppose you aspire to make profits from affiliate marketing. To accomplish this, you need the right tools and professional support, which naturally comes at a cost. Affiliate networks provide management and tracking of your program while also having affiliates’ directories for you. SaaS platforms offer the same services, while compared with affiliate networks, SaaS solutions are more transparent and beneficial over the long run.
Make sure your affiliate program is visible, choose a management tool that suits you, and hire trained employees to manage the program and communicate with affiliates. Then, if you have a great product, partner marketing will do the rest for you.
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