In the partner marketing world, lots of articles are published on the channel’s value to marketing and business development leaders. But for chief financial officers (CFOs), not so much. This is unfortunate because CFOs are often much less familiar with the dynamics of this fast-growing sales driver.
In uncertain times, many chief financial officers are asking the digital marketing and ecommerce teams to find ways to drive sales more efficiently, and with less risk. What some CFOs may not be aware of is that partner and affiliate marketing are well-suited to such situations. Further, these channels are highly scalable – many brands have a great deal of untapped sales opportunity available.
In a recent survey our company conducted, we asked 1,200 brand leaders about partnership’s share of total sales. The results were impressive: 54% of those surveyed said that partnership drove more than 20% of their company’s total sales. It’s clear that this is a channel that can deliver real scale to those who fully realize the opportunity.
About a year ago we published an article on Forbes about this topic tailored for the financial officer. We have adapted this finance-centric piece for greater relevance to the current time. So, here are three key takeaways for CFOs who want low-risk ways of rekindling demand for their retail businesses.
1) Revenue and costs for partnerships are predictable and controllable.
According to a 2019 Performance Marketing Association study, affiliate partnerships drive a return of 12 times the advertising investment. A recent UK study showed 16:1. Many other studies show that partner and affiliate marketing are the highest ROAS performers after in-house email marketing. A big reason for this is that such partner programs are paid for on a cost-per-sale (also known as cost-per-acquisition, or CPA) basis. For example, a brand might offer its partners a 6% commission on sales that they drive to the online store. That means the company gets $100 in revenue and subsequently pays out $6 to the partner. Brands pay after they see revenue, not before.
Further, other segments of partnerships that have traditionally been compensated based on activity — like the number of blog posts or mentions — are now moving toward the CPA approach. For example, it is now possible to work with many influencers on a CPA or hybrid basis just like you do with an affiliate.
It’s relatively straightforward to control your sales and costs with the right marketing strategy for this channel. To take action and get your marketing team working on accelerating affiliate or forming new partnerships:
- Make sure that your organization has accurate performance measurement in place before programs launch.
- Work with the marketing and/or ecommerce teams to set the right marketing budget and commissions that ensure the company achieves its margin goals.
- If you need limits on outlays regardless of sales-driven, set a daily, weekly or monthly sales cap to control the outflow of commissions to partners.
Further, through service providers and technology, finance teams can reduce the cost and complexity of making payments to affiliate marketers and other partners. Many solutions providers can deliver just one invoice to you and then manage the payments with all your partners. Some tools can even do this with international partners, further simplifying execution.
2) You can use partner marketing to drive strong net new sales.
Most brands spend significant resources on customer acquisition and driving incremental purchases from existing users. Corporate Visions’ 2017 “State of the Conversation” report, for example, found that “80% of companies spend more than 70% of their budget on demand generation messaging and content.”
Some brands have historically questioned whether most partner sales are net new, based on the perception that affiliates and other partners get unwarranted credit for some purchases, or “subsidize users” by offering discounts on items they might already buy.
The reality is that the choices of partners, strategies and offers go a long way toward determining whether your offers drive net new sales. CFOs can help guide their marketing and sales teams toward acquisitions-focused partners in several ways.
- Certain classes of partners such as influencers and content partners can play an important role in the early stages of a buying funnel. Ask your partner teams to carefully examine these types of partnerships.
- Comparison sites can be valuable to get your brand under consideration by new users. Since most brands recognize that some sort of discount is necessary to drive trial, working with such sites should seem reasonable.
- Work with partner leaders to create offers specifically shaped to drive incremental spend. For example, you can offer an escalating discount that rewards purchases with totals above your customer average. Or reward partners differently based on whether they attract new or existing purchasers. You can do this by passing data back from your customer database to your measurement platform or service provider.
3) You can measure and demonstrate incrementality with partnerships.
Many companies don’t measure incrementality for their partner marketing efforts. The reasons are partly historical, as partner marketing did not always generate enough data granularity on purchases, items, deals, etc. to conduct real incrementality analysis. That has changed over the past several years as new tools have increased the insights available from the channel.
These days, savvy brands are taking this new data and putting it into their existing multichannel, cross-device attribution tools. This allows them to make apples-to-apples ROI comparisons between partnerships and other sales channels.
I’ve done finance analysis for a host of client brands over the years on this topic. Across those studies, the percentage of new customers attracted by partner marketing averages just above one-third. That’s not all that different from most advertising channels. But results for individual programs run the gamut from almost no new users to nearly 100% new users, depending on the brand, partner network, and structure of the offer. It’s all about aligning objectives and programs.
CFOs can help their brand leaders measure incrementality accurately in the following ways:
- Separate the foxes and hens. Entrust incrementality measurement to channel-agnostic tools instead of relying on partner marketing companies to do the money measuring.
- Demand that partner teams get the data necessary to enable accurate analysis. That means having a data strategy that collects all of the points necessary for genuine analysis.
- Ask partner leaders what they are doing to ensure a data- and incrementality-driven approach to the industry. Demand that they review what information and insights are available to help them improve visibility.
To get the most from partnerships, financial executives need to set concrete goals and ensure programs align to key company objectives. Take an active role in guiding your brand’s teams based on the insights and information they — and you — need, in order to bring real transparency to this channel. Many a chief financial officer has learned to love the partner and affiliate channels.