9 Comments

Placement Fees

Apr 20, 2006
by

Along with other affiliate managers, I recently received an email from a well known affiliate. I had been attempting to get a hold of them for quite some time as I have worked with them quite a bit in the past and thought we could do some business together now. While at Coldwater Creek, I did a lot of business with them. Well, by business I mean we spent a few bills on placement.

They never did very well for us, but their large brand awareness always held a lot of promise for myself and many other managers. It never really lived up to it. Early on it didn’t seem like they were really putting the effort into driving consumers to their online marketplace.

The email I received was a merchant rejection letter for one of our clients. It stated that we were being removed because they were “in the process of optimizing the online Marketplace”.

That is understandable. I can see how affiliates will go through their merchant list and separate the non performers from the performers. That makes sense. Why dedicate real estate and effort towards merchants that aren’t producing. The merchant that received this email has had their program down for some time. So it made even more sense.

Then a colleague of mine pointed out that I should have read the whole email. After notifying me that we did not make the “optimization” cut, they informed us that “if you still wish to remain active on the (affiliate name withheld) marketplace, a $5,000 annual placement fee is required. ” It then gave a date to contact them by.

Hmm, odd. I didn’t make the cut, but I could if I had $5,000. Ah, a placement fee. Nothing new there at all. I don’t recommend going about it this way though, it seems a little disingenuous, even like a shake down (ok that may be a little harsh, more like an ultimatum, which it was). “Let’s monetize our real estate” is a concept that is widely used and by no means new. But $5,000 just to be included? Does the traffic and potential sales warrant that large amount just to play the game, not even garnering a good seat at the table? That was my first question.

I was informed from many other managers that they too received this notice, and some from very large brands, quite a few of them. Did they send this to everyone? Who are they keeping?

I think we can learn some things from this.

Affiliate charging placement fees. $5,000 may not seem like a lot to an affiliate looking to pitch it to a Fortune 500 company. The thought process could be “what’s $5k to them? A drop in the bucket.” One thing I do guarantee you is that they became a big company because they watched every drop enter and leave that bucket, and $5,000 is a sizeable affiliate expenditure. If you are looking at charging insertion fees, you’ll need to show a good track record of production. I know many affiliates will want to know how a merchant is doing with other affiliates or has done with them before they will give them a premium spot on the site. Well this is the same thing. A merchant wants to know how much return they are going to get on this investment. You need to show them that the traffic and sales resulting from that insertion fee is worthy of that $ amount. More often than not it isn’t. If you are planning on doing a huge marketing push, or increasing your marketing budget substantially, inform the merchant. That may help them make this decision. I contacted the affiliate and did not receive much more than a reiteration of the original email – If wish to stay on the marketplace, a $5,000 placement fee is required.

Scope your competition. If your competitor in this space is charging the same rate but has more than 10x the traffic, do you see the problem there? You are essentially telling the merchant to expect 10x the cost per transaction. To a merchant it just doesn’t make sense. Unless there is some mitigating circumstances, maybe your visitors convert at 10x the average rate, they purchase 10x more frequently, their average order sizes are 10x normal. But, if that is the case, you’ll need to notify the merchant and explain it to them.

When I worked with another affiliate years ago, CatalogCity, they would charge a “hosting” fee that was substantially more then $5k. But they were very confident that it was worth it. So they put their money where their mouth was. They guaranteed a certain sales level. For XX investment they guaranteed XX return. Now that worked out well and they always hit the mark and actually over delivered.

An affiliate that asks for $5,000 out of the blue, with no explanation, with an email that feels like an ultimatum, and without a track record of high production, I think I’ll have to pass on this one. A little more communication could have gone a long way.

Filed under: Affiliate Marketing
  • Jonathan (Trust)

    Someone on Jeff's audioblog mentioned a fee like that, same amount. Would it happen to be a TopMoxie affiliate, current or prior?

  • http://www.gobeachdesign.com Dave Cole

    Interesting story Jamie. Question for you, has this affiliate burned the bridge? Assuming, for instance, that the gross majority of their merchants decline their offer, it seems very likely that they might decide to stop this "insertion fee" and go back to a traditional method.

    Would you accept them back in to your program as it stood, or would this initial marketplace "optimization" leave a negative mark significant enough for you to decline future dealings with them?

  • http://www.converseonaffiliates.com Jamie Birch

    Oh,I don't think it has burned a bridge. I typically don't hold grudges like that. I can understand a move to something like that, but thought it was a good opportunity to bring up the subject and discuss it. They always had potential in my mind and still do. They are good people and I always enjoyed working with them.

    Now saying that, some merchants may feel that way. But I think overall, if the terms can prove profitable, merchants and affiliate managers will evaluate an offer like this and any subsequent offers. It really comes down to numbers.

  • http://www.datafeed-tutorial.com SandraR

    Many a merchant pay advertising agencies, affiliate marketing firms, software bundling companies and banner advertising sites, to get their name out working towards exposure and brand recognition.

    As for the 5K price tag! Well that's a whole different can of worms.

    When all else fails – exposure still has value, I would look at traffic levels then determine a possible counter offer.

    If the person making the offer were a booger then the counter offer would be:

    $25 a month for a front-page spot above the fold a bare minimum of 300×250!

  • chris

    I received the same letter for one of our clients. I can understand a site declaring a benchmark of revenue per year, especially a company of this size. Where I think they might be making a serious mistake is if removing these merchants impacts their customers. If I were a regular user of their site and could no longer shop with my favorite merchants I might just go to the nearest competitor. Have they kept enough merchants per category?

  • Jonathan (Trust)

    You left out what kind of affiliate it was, the marketplace reminds me of the music dl/file sharing sites that have their marketplaces.

    So if that's the case, they get you twice. Turning your free traffic into commissionable traffic and charging you $5,000 on top of that. Merchants need to monitor their employees (affiliate managers) more closely.

  • http://www.mrrebates.com Craig Cassata

    Aren't we all in this together in what is called "Performance Marketing"? The minute you put a CPM/Insertion Fee into the mix, I don't believe that you can call it "Affiliate or Performance" marketing. I suppose there are some exceptions like a merchant sponsoring a contest or something to that effect but that's a different story.

  • http://www.thoughtshapers.com Jeff Molander

    WOW. Hi Craig! Long time listener first time caller? :)

    This is one of the biggest issues out there. Nice work, Jamie.

    As I see it, the move for such affiliates to become media companies began long ago — as much as 4 years ago. eBates, iGive, uPromise… they have all caused much debate over their desire to work outside of the 'pure performance' box and, of course, their use of 'reminderware' applications.

    Paging Brian Littleton of Shareasale? This is an issue that he's been involved with for a while now. I consider him to be a thought leader in fact. Brian and I seem to agree that the 'rewards' affiliates don't really fit into the affiliate mix so well. Based mostly on their business models and how advertisers view such affiliates (i.e. they don't much care for paying high commissions on repeat customers shopping through them) a fixed fee relationship may make more sense — once an analysis is done on the ratio of new to existing customers, etc. etc.

    There I go again — turning this into brain surgery!

    I am curious, Jamie, if you have discussions like this with your advertisers. Realizing that your job is to keep the affiliate program pumped up with revenue don't your clients find themselves examining new-to-file customer ratios? I'd be surprised if they don't.

  • http://www.revenews.com/davidlewis/ David Lewis

    What about the intangibles? SandraR alluded to this but it has gone absent from this debate.

    BRAND!

    Yes, affiliates have brand value. While we often hear about the value of merchants' brands, no one seems to consider the potential value of a merchant being associated with an affiliate. What if the affiliate were to spend millions of dollars on its brand. Say it spent millions of dollars to have its brand on milk cartons, at gas pumps and even on eggs.

    Many people have pointed out on the pages of Revenews that multichannel merchants advertise to customers in various ways that all cost money. Doesn't it make sense that an impression on a brand name affiliate's site would help the merchant's brand image as much as or more than a single catalog in the mail?

    Affilaite marketing is low-level business development deals for the masses. There is no single deal that works for all (you can always adjust the commission to make up for the slotting fee). What this discussion shows is that these relationships can develop into more.