What do I need to start an Affiliate Program? Part 5 of 5: A Budget
Part 5: A Budget Consideration
Budgeting is tough! No doubt, your boss (or you) is (are) going to ask the question some day…. “How much do I budget for an Affiliate Program?”
Unfortunately, since Affiliate Programs pay out based on their performance, this is a bit of a tricky question since technically, if you get a lot of response (and thus pay out a bunch of commission) – you’d be over budget! Conversely, if you completely fail in the Affiliate Channel – you’ll be way under budget.
Let’s start with some of the basics – the non-variable costs.
Conversely, if you completely fail in the Affiliate Channel – you’ll be way under budget. – Brian Littleton
Setting up the Platform or Network
Step 1 is really putting together the logistics of how you are going to operate an Affiliate Program, and this usually means joining an Affiliate Network.
Costs here range from from the low 100s to around 10k at the top range. Personally, I don’t think it makes any sense to pay someone 10k to join an Affiliate Network!
ShareASale’s setup fee is $550 – so for this particular example I am going to recommend budgeting about $1,000 total to account for minimal tech or development time that you may need to get started.
Promotions, Bonuses, and Activation
This is again, an area where you could spend more – but let’s focus on the single example of getting an Affiliate Program going, getting some momentum, and see if we can narrow down some numbers.
Starting with the above assumption, let’s budget for using the “Get the Ball Rolling” strategy that I outlined in an earlier post. That strategy focuses on getting some positive momentum going by recruiting bloggers with a “to big to pass up” activation bonuses. Specifically, I argued for $100 blog bonuses for those blogs that you really wanted to see take part in your program.
Simple math – let’s take 5 bloggers, $100 each and budget $500. Now, obviously – you could go bigger here, but again … we are taking a specific scenario and making assumptions that you are just getting started in this channel. Adjust accordingly!
Pro Tip- Ask your Affiliate Network if they would consider waiving the setup fees on their network and instead transfer them into available activation bonuses similar to those listed above. They might just take you up on it!!!
Ongoing Costs
So this is the hard one… because it depends on how successful you are in recruiting, activating, and having Affiliates generate transactions for you.
If you totally fail at the above, you’ll need to budget $0 for commissions – but this isn’t the goal!
Instead of focusing on a strict number to budget, pitch to your boss instead the idea of “Total cost per sale” – as it is something that you can control much better in the Affiliate Channel than in any other channel.
Total-Cost-Per-Sale is a metric that is exactly what it sounds like – the total marketing spend per transaction.
If you offer a 10% commission on your product (example), and the total gross sale for an individual order is $100, you are going to commission $10 to the Affiliate. You’ll then factor in the network fees that are associated with each transaction (typically) – and in the case of ShareASale that would have been $2 on this specific transaction. Your Total-Cost-Per-Sale on an individual transaction would thus be 12%.
If you can project a percentage, as opposed to an actual $-value budget number, you’ll be able to project spending based on sales projections. For example, if your company is projected to do $1,000,000 annually in sales – you might expect 10% of that or so to be generated by the Affiliate Channel. At 12% Total-Cost-Per-Sale you would be looking at $12,000 in budget money needed for your channel.