Why All Small Businesses Should Start Their Own Affiliate Programs

Just about any organization, large, small or tiny, can and should have its own web site. Although many small business owners view the launch of their web site with a mixture of excitement and fear, reality usually sinks in quickly. The web site of a typical small business often functions as a component of the marketing efforts by that business and, as such, it is rare when the web site becomes a profit center unto itself. A key challenge for most small businesses after launching their web site is how to market it so that it becomes a profit center, even if it will never become the cornerstone of the business.

One of the great lessons learned from the early days of on-line marketing is that traffic is not king. Traditional retailers have long understood that bringing additional foot traffic in through the doors of their stores is only profitable if those people are customers. Foot traffic is worthwhile only if it produces more revenue than it costs. Foot traffic that produces no additional revenue is actually harmful because of the additional investments in infrastructure and personnel that are required to manage that traffic. The same rule applies to web sites. Having a healthy amount of traffic is vital to the success of web sites, but only if that traffic produces more revenue than expenses. To spend on-line marketing dollars attracting traffic that produces more expenses than revenues is foolish and, through the use of affiliate programs, also completely unnecessary.

Traditional advertising models applied to the Internet can successfully drive additional traffic to your web site, but much of that traffic will not produce additional revenue. On-line advertising has historically been purchased just like off-line advertising: the advertiser (i.e., the small business) takes on all of the risk and the publisher (the site on which your banner or other ads are run) takes on none because the advertiser pays to have their ads shown to a certain number of people, regardless of whether those people end up being customers or not.

Unfortunately, just like with off-line advertising, the overwhelming number of people who see your on-line ads will never become your customers. Typically, only 0.5 percent to one percent of people who see an on-line ad will respond to it by clicking on it and going to the advertiser's web site. Once at the advertiser's web site, only one to two percent will convert and become customers. Thus, to get one or two customers to buy something from your web site, you'll likely need to have your ad seen by about 100,000 people. If you pay the going rate of about $10 for every thousand people that see your ad, you'll need to spend $1,000 to acquire perhaps one customer and 99 window shoppers. Wouldn't it be better to spend the $1,000 just on customers?

As one of the owners of CollegeRecruiter.com, the highest traffic job board targeted to students and recent graduates, I faced exactly that issue two years after our site launched. Traffic was increasing, but we knew that we had to find a more efficient way of attracting customers. The trick was how to purchase advertising in such a way that the traffic that it produces always produced additional revenue. The answer was to convert the vendors that we were paying to run our ads into commissioned salespeople. The method was to stop paying them just to show our ads and to start paying them only when they sent customers to our web site. The effect was to eliminate our marketing expenses by shifting those costs so that they became costs of goods sold.

We now purchase our advertising from the 16,000 web sites that belong to our affiliate program. We pay them a commission of $100 whenever they send someone to our web site that buys something from us. When that happens, we also pay a $20 service fee to Commission Junction, which manages virtually all of the technical and administrative aspects of our affiliate program. Because the items that we sell on our web site range in price from $125 to $4,995, we make a guaranteed gross profit of between $5 and $4,895 per item sold through our affiliate program and, more importantly, we have acquired a new customer without having to incur any marketing expense.

Many good small business web sites do nothing more than generate leads for the business by making it easier for their customers to research the products and services of the business and to then contact that business to express interest in purchasing those products and services. Other small business web sites go a step further by allowing those customers to actually purchase those products and services on-line. Either way, all small businesses should promote their web sites through an affiliate program. When you start your affiliate program, you will quickly discover the joy of paying for on-line advertising, because every time you pay a commission to one of your affiliate, you'll know that you also just added dollars to your bottom line…and isn't that the bottom line of being in business?

-- Steven Rothberg is the President and Founder of CollegeRecruiter.com, the highest traffic job board targeted to students and recent graduates with 681,000 unique users per month and over 16,000 affiliates.