Many successful internet marketers decide that after going solo and being successful, the obvious next step is to start and build an affiliate network. If a solid network of partners were created through the solo years, this could be a good option. However, it’s important to understand the risks and rewards of starting an affiliate network. It is also important to really figure out if a network is the right model for you.
Deciding if the affiliate network model is right for you, starts with understanding what your goals are for the network. What do you want the affiliate network to look like financially and physically in the next three years? Do you have a business plan? Typically, goals should extend out at least three years with a conservative outlook. If you are prepared mentally and have a plan, then the next question should be concerning money.
Having enough capital is a tough one to understand because you are not aware of your financial cash flow until you start bringing on affiliates and advertisers into your network. Many multi-million dollar networks have come and gone because of one bad campaign, advertiser, or affiliate. Recently many networks were heavily promoting continuity programs and once the FTC cracked down on these, they were left with a huge loss from advertisers going out of business.
When building a network, many advertisers are going to want to pay you on net terms and not prepay. This could pose a challenge for you and a decision on if you want to work with a particular advertiser or not. Larger more established networks would have an advantage working with advertisers on prepay or better terms, so this is why cash flow is really important. Once you are able to prove the quality of your leads or sales, you can then build negotiating power for better terms. Until you build this relationship, you need to manage your cash flow almost daily.
A conservative “rule of thumb” for managing cash flow is similar to buying a house. The general “rule of thumb” for buying a house is that the price of the house should be no more than 3 times your household income. Similarly, if you applied this rule to your network, you should not lend out more than 1/3 of your cash on hand. For example if you have $100,000 in the bank, you should not let your receivables go over $33,000. This is not a set rule and will vary with each situation, but it is a good general rule.
As the owner of an affiliate network you are going to wear many “hats.” It is important to ask yourself if you are going to be able to effectively manage building a network while building your business. Are you good at managing time? One of the most beneficial aspects of an affiliate network is that it is making money 365 days a year, 7 days a week, 24 hours a day. But, this is also one of the biggest challenges. You might have advertisers or affiliates all over the world who require assistance at various times throughout the day and night. A successful affiliate network has systems in place to monitor campaigns at all times and resources to fix any issue as they arise.
There are currently thousands of affiliate networks in the industry. How are you going to differentiate yourself from these networks? Do you have a particular niche or vertical you plan to focus on? Do you have contacts in a specific industry?
Many entrepreneurs believe that they can run a business better than some of the business people they know in the industry. This is probably one of the most deceptive reasons for starting a network or business. Michael Gerber, Author of The E Myth Revisited and The World’s #1 business guru stated “Contrary to popular belief, my experience has shown me that the people who are exceptionally good in business aren’t so because of what they know but because of their insatiable need to know more.” It is important to define the focus of your affiliate network and what you are going to do to differentiate yourself.
Finally, if you have a solid business plan with adequate resources, it’s time to decide on a software platform to build your affiliate network. There are quite a few choices of affiliate tracking platforms on the market today. The great thing is that most of these tracking platforms are running successful affiliate networks and have great resources and tools to help build your network. A few things to consider when choosing a platform:
1. How long has the company been in business?
2. Are there any long term contracts or hidden fees?
3. What Features are most important to you?
4. Can it be white-labeled with your brand?
5. What type of support is offered?
6. What is your monthly budget for the software?
There are many successful affiliate networks that are paving the way and increasing recognition of online and performance based marketing. As a result, the online advertising industry has seen incredible growth and is predicted to continue this growth pattern. This growth has spurred an increase in affiliate networks looking to help advertisers generate leads and sales online. Affiliate Networks have an incredible opportunity to build successful companies. But, if you’re starting one it’s important to address the questions above to ensure your place in this market.