When running affiliate programmes our core metric is 'cost per action/acquisition' or 'CPA', but why is it so unique?
Simple, it is a key return on investment KPI; no matter how many impressions or clicks our campaign triggers, we only pay for the sales it generates - this is where we bring the real value - the ROI.
Clients love to work on a CPA basis as it is risk free, highly measurable, and an extremely cost effective way of media spend. According to the IAB and PWC study entitled “The Value of UK Online Performance Marketing 2014”, advertisers spent £1.1 billion on ‘online performance marketing’ in 2014; up 8% on 2013 and generating £16.5 billion of transactions, or £15 for each £1 spent.
However, it’s not as flawless as often thought; there are typically three main concerns or limitations when focusing only on a CPA model.
The last-click attribution
As airtight and ROI-driven as the CPA metric seems to be, is it really for everyone? What happens if you are a small-medium content site? A CPA metric is probably not as profitable as people want you to think.
Our traditional one-dimensional attribution models based on 'last click wins' certainly don’t favour upper funnel affiliates. Most of the time we reward them unfairly even though they have been involved in the sales process. Whilst discussions have been ongoing for many years now, the truth is that we are still - at least most of the time - working on a last-click basis.
We quite regularly disregard earlier customer interactions upon the path to purchase. Yet, if we really want to work further with our long-tail affiliates, we need to incentivise them accordingly. We can use any relevant attribution tool provided by our affiliate network and pay them on not only a standard CPA but also a commission if they assisted the sale. Furthermore, to make it even more efficient we can set daily caps to monitor it very closely.
If we are still a bit unsure about using multi-touch attribution, we can always go back to basics and pay a tenancy. It is quite tricky when we need to stick to a certain ROI or have a tight budget, but it is definitely something that needs to be tackled if we want to keep these players in the industry.
There is no doubt we should reward our affiliates on a more equitable basis by looking at all the touchpoints of a customer’s purchase journey. Whilst it is easier for the more powerful retailers as they may have more resources to work with their own attribution tools, or the ones provided by the networks, the rest of merchants should at least be analysing the data so they can start putting suitable resources in place.
Programmatic and real-time optimisation
How amazing would it be to optimise our affiliate campaigns in real time as programmatic does? Unfortunately, our CPA is generally static for all publishers and we cannot change bids in real time like in search and display.
First, if we had more programmatic capabilities we would be able to use demographics and behavioural data - age, household income, education levels, lifestyle, etc - so we could target specific users at the right time and fully maximise our budgets.
This would be ideal, for example, right after setting up an affiliate programme. There might be some delivery issues in the beginning of a campaign where we see many impressions and clicks but low conversions. Having some automation in place that could enable us to optimise in real time and adapt our commissions in a programmed way, would save both time and costs, as well as most likely increasing ROI in the campaign.
Whilst other channels like search or display are completely automated, with Xaxis for example buying audiences and optimising with statistical accuracy, in affiliate marketing we are still negotiating CPA increases with publishers on the phone and working out the commission changes manually on our affiliate networks.
In the fast-paced environment that is digital marketing, advertisers are getting used to the dynamic world of programmatic and we risk being stuck with our fixed commissions. We need to put resources in place as soon as we can and adapt to the trend. We should not get trapped in traditional practices but rather move forward.
Luckily for us, there have been new affiliate models coming up in the market offering highly targeted inventory that they purchase on a CPM basis and we reward them purely on a CPA metric.
Branding, engagement and brand loyalty
Although many retailers - mostly luxury, fashion and beauty - are developing strong content strategies within their affiliate programmes, as an industry we are quite discount and sale-oriented. The range of voucher, cashback, and loyalty sites are a good demonstration of this.
Moreover, even if we work with affiliates who are not purely deals focused, let’s say a fashion-shopping comparison site, it is hard to determine whether the consumer got an item from a given retailer because of an appeal to the brand or just because of an impulse.
It’s been in fashion for a couple of years for retailers to use the affiliate channel to hunt new customers, but why did we stop caring about the existing ones? Even if we have an amazing CRM team, we should look after our existing consumers too and put resources on it.
Even though affiliate marketing is not initially a branding channel there’s so much that can be achieved and rewarding publishers in a CPA basis is not necessarily the best or easiest way to proceed.
The question is, if we use affiliates as a purely performance channel, how can we justify any spend on content affiliates? When clients decide to work in our channel, their main KPI’s are ROI and sales. Nevertheless, we should make sure we provide them with the right branding and content value to be in line with the rest of their channels anyway.
Thus, it is also our role and responsibility to advise brands on allocating part of their affiliate budget on branding and other upper funnel activities, ideally at least 20%, which may lead us to pay tenancies, CPM or CPC – not being the end of the world.
Agency side, we often set CPA targets together with other channels, which let us be more flexible and creative with our affiliate budget.
It’s a sure thing that clicks and impressions are good indicators of our performance, but is this bringing the revenue? It might be the case that it’s not necessarily in the short term but what about in the long run, if for example a site becomes unbelievably popular or if the user is not converting on this site, but somewhere else in the purchase funnel. Let’s work closer then with all affiliates, not only the ones that work on a CPA basis, and let’s invest more in other models. Rewarding publishers based on the sales they generate is the best scenario for advertisers, but this is not sustainable for some affiliates in the long term.
To summarise, three solutions for three concerns: Look at the whole conversion funnel and reward your publishers as they deserve, automate where possible and invest some of your budget in branding.