Why The PPC Affiliate Model Is Flawed
Many a budding affiliate marketer has dipped their feet into PPC models in their quest for quick online success. Using PPC to drive affiliate traffic to a merchant’s site is an inherently flawed model.
The Structure of a Flawed Model
In a nutshell, the model is extremely simple. You sign up for an affiliate account, choose a merchant program to promote, and use Google AdWords to send eager customers directly to the merchant’s site. You use your PPC expertise to research profitable keywords, write enticing yet qualified messages, and link to landing pages which are most likely to convert. By adding tracking parameters to your Google AdWords keyword URLs, and sending PPC visitors directly to the merchant’s site, you then get rewarded if the customer makes a purchase.
And because you’re sending PPC visitors directly to the merchant’s site, you don’t even need your own affiliate site. Think about all that time and effort you could save by not having to develop and maintain your own site! Not to mention having one less reason for potential customers to get distracted and go elsewhere.
It is easy, and is probably why so many affiliate marketers have used PPC marketing to send potential customers directly to the merchant’s site from Google. But as we’ll see, such strategies are rarely profitable, largely due to their poor competitive structure and inability to fully reward affiliates for the true value they are creating.
Affiliate Perspective: 6 Reasons the PPC Model Is Flawed
You’ve set up your Google AdWords account. You’ve researched highly-relevant long tail keywords which are proven to be cheaper. And you’ve created highly relevant ads to match each ad group’s keywords to stand out from the competition. Heck, you’ve even compiled a comprehensive list of negative keywords and considered whether deep-linking or category-linking would work best for your particular merchant.
So you turn on your campaigns and wait for the affiliate commissions to come rolling in. But after a few days, the only thing rolling is your bank balance – in the wrong direction. You’re getting clicks, relevant ones, but the commissions just aren’t there. Why?
Because you aren’t being awarded for the true value you are creating. You have a fantastic PPC campaign, one that any decent-sized business would be extremely happy with, but the structure of the affiliate remuneration is failing to account for all the positive externalities you are creating:
1. You are building brand equity, but you aren’t being rewarded for it. By targeting searchers who are at the earlier stages of the buying cycle, you are creating interest and awareness of the merchant’s product and services. Many of these visitors are likely to return to the merchant’s site at a later date via a brand search or a direct link, of which you receive no credit. While most merchants understandably prohibit their affiliates from bidding on brand terms, largely due to little value being added, it still does not hide the fact that affiliates are building brand equity for free.
2. You are providing the merchant with lifetime customers, but you aren’t being rewarded for it. Again, most affiliate models do not take into account the lifetime value (LTV) of a new customer when calculating commission payments. Since new customers will often re-purchase again at a later date, or perhaps refer family and friends, there is an added value from new customers which is not being awarded to the affiliate. Affiliates using PPC are investing in the long term, but are only being rewarded for the short term.
3. You don’t have access to analytics data, so can’t see which keywords and ads are working. You can’t see metrics such as average page views, average time on site, bounce rate and returning visits to determine which areas are generating interest and showing promising signs of purchase. In effect, you’re going in blind. You’re living in the Stone Age. The only feedback mechanism you have at your disposal is your affiliate program’s sales data, possibly segmented by keyword if you had the opportunity to set up custom tracking URLs. But even then, that’s not perfect, due to tracking lags.
What’s more, the competitive nature of affiliate marketing creates heap of inefficiencies for PPC affiliates:
4. You need to work with extensive tracking lags. Most affiliate programs update their sales data after manual approval, which could be anything from several days to several weeks. I once ran hotel affiliate program, and only got to see conversion data when customers checked into the hotel. Not when they booked, but when they checked in to the hotel. Knowing 6 months later that a keyword has or hasn’t worked is hardly the most efficient way to manage a PPC campaign.
5. You are competing against other affiliates who have the same idea. You bid on keywords which are most likely to convert, and so do your competitors. You and other eager affiliates are directing traffic to the same website. And since Google only allows one ad per website to show at any one time, you are in effect competing with other affiliates to show ads for the same merchant. You raise your bids, and so do they. You raise your bids again, and they do the same. As Adam Viener points out in an analysis on affiliate PPC last year, you both end up paying over the odds for each click.
6. Your click volume is negligible. All that competition from other affiliates means your ads are only shown for a handful of searches. Your total PPC spend is relatively low – much lower than you’d like it to be. And since Google’s Quality Score is in part based on PPC spending history (of which yours is minimal), you get penalized with poor Quality Scores and higher CPCs. How annoying.
Merchant Perspective: 3 Reasons the PPC Model Is Flawed
Affiliate PPC programs don’t make much sense for the merchant either:
1. Ads for the merchant only appear for keywords at the purchase stage of the buying cycle. Although this makes complete sense for affiliates (as conversion rates for purchase intention keywords such as ‘book Strand hotel New York’ will likely be much higher than ‘New York hotels’), it means the merchant is failing to connect with potential customers at the research and interest stages. The merchant is neglecting researchers and information seekers, and failing to add value at these crucial interest and awareness stages.
2. PPC sales volume for the merchant is low. Since affiliates only bid on keywords that deliver a profit (at least in the long-run), keywords which break even or run at a loss are avoided. While these could still be extremely profitable for the merchant in terms of brand equity and lifetime value, these customers are being missed under the poorly structured affiliate remuneration model.
3. The merchant’s messages are diluted. One PPC affiliate might use prices and offers in their ads, and take visitors to the merchant’s most relevant landing page, while another affiliate might use cheesy emotional messages in their ads, and take visitors to the merchant’s homepage. Another PPC affiliate may use capitalization and call to actions in ads, while yet another may use lower case or misappropriate promotional codes. There is no consistent message in the merchant’s PPC ads, resulting in confusion and a lack of brand synergy. Conversion rates suffer as a result.
Is there a Solution for Affiliates?
The competitive nature of affiliate marketing means it will always be difficult to use PPC marketing to send visitors directly to a merchant’s website. As keywords become more competitive, it will only become harder to achieve profitable margins from affiliate PPC. While long-tail keyword opportunities still exist, these opportunities are becoming more niche and of a lower search volume.
That said, even if affiliates can uncover these uncompetitive long-tail keyword niches, it still does not account for the poor commission structure of the affiliate model. The better your PPC campaign, the more added value you are creating for the merchant for free, and the more time and effort you are investing without reward. Somehow that doesn’t make sense.
So ultimately, the PPC affiliate model is flawed. It fails to take into account value creation, and fails to provide a means to prevent inefficient PPC competitiveness. And since affiliate PPC advertisers do not have any analytics data to work with, optimization becomes extremely difficult, making it impossible to deliver an efficient PPC campaign.
Is there a Solution for Merchants?
Merchants cannot simply change their affiliate program terms to allow affiliates bid on their brand terms, as this would disproportionally reward affiliates for the negligible value they are creating. However, if the PPC affiliate model wants to be a sustainable long-term model for both affiliates and merchant, the model needs to be tweaked to reward brand equity creation and awareness generation. A model which places value on returning visits over an extended period of time, especially visits from brand searches, would help to close the gap between the brand value created and the brand value rewarded.
But then again, the highly-competitive nature of affiliate programs means there will always be multiple affiliates looking to send PPC traffic directly to the merchant’s site. Inefficient competition against other affiliates will ultimately drive up click costs, lower Quality Scores, and reduce conversion rates.
To overcome this problem of inefficient competition, one option for the merchant is to hire a dedicated third party PPC management agency. However, this can often be expensive, especially if highly-tailored PPC campaigns are built to cater for thousands of specific products.
Hybrid Model Option
Another solution which merchants could look to adopt is to designate only a few select affiliates to manage their PPC campaign, with each select affiliate perhaps looking after only certain parts of the website. The merchant could choose partner PPC affiliates based on a resume or application process, ensuring only dedicated, experienced PPC managers apply.
A camera retailer, for example, could let one affiliate look after the PPC marketing for their SLR cameras category, another affiliate look after their SLR lenses, and a third affiliate look after the PPC marketing for their photo albums. Using only a handful of select affiliates makes this model somewhere in-between hiring a dedicated third party PPC agency, and using hundreds of PPC affiliates in a free-for-all competitive manner. Perhaps this is the balance PPC affiliate marketing desperately needs.
For such a ‘hybrid’ model to work, there also needs to be more sharing of sales and analytics data. As long as the affiliate is trusted (which will be determined during the application process), the affiliate being able to see which keywords and ads are delivering sales in real time, and also which keywords and ads are engaging visitors (metrics such as average time on site, average page views, and returning visits), would allow the affiliate to better optimize their PPC campaigns to deliver long-term value from PPC. Clear guidelines will also need to be written up to prevent any overlap in keywords between affiliates, and guidelines for messages in ads. If there are only a handful of key affiliates running a merchant’s PPC campaigns, such measures would be relatively easy to enforce.
But while the merchant no doubt has a role to play in creating a model which better rewards affiliates for the true value they are creating, perhaps affiliates also have a role to play in putting pressure on merchants for better sharing of real-time information, faster payment models, and taking on landing page and website recommendations. Perhaps something in the way of an ‘Affiliate PPC Best Practice Methodology’ is needed to clearly specify how the PPC affiliate marketing model should be structured to provide incentives which work for both parties.
Happy Medium
Either way, it is clear that having multiple PPC affiliates competing against each other is a recipe for disaster for all involved. Similarly, hiring a dedicated third party PPC agency is not always the best solution for merchants, as this can often be very expensive.
Something in the middle, therefore, is needed. A delicate balance, which realizes the benefits of healthy competition while at the same time limiting inefficient over-competition, is arguably a happy medium. Four or five carefully chosen, dedicated, and hard-working PPC affiliates, each with real-time reporting and analytics data at hand, would no doubt provide a recipe for long-term success. Allowing competition, but only the right kind of competition, is surely the key to a long-term sustainable PPC affiliate model for both affiliates and merchants.
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