As the consumer media environment evolves, every marketer needs to find new ways of reaching and connecting with people. One area that I’ve noticed has become increasingly popular is performance-based partner marketing.
With this form of marketing, a brand works with another entity (another brand, publisher, influencer, etc.) to drive site traffic and sales. When a person makes a purchase, the referring partner receives a commission or bounty for their efforts.
This is also an area in which we are closely familiar at my company, Partnerize, as we help our clients manage and optimize their partnerships.
So, what types of partners are there?
There are many different kinds of companies you can work with as partners. Affiliate publishers are perhaps the most common, and many can deliver strong volume and revenue. But affiliates are just the beginning.
Influencers are becoming increasingly popular as a marketing and publicity channel. While brands often think of uber-celebs like Kim Kardashian as influencers, there are also thousands of micro-influencers — experts on topics like tech or fashion — who can drive strong sales in many categories. According to measurements by Influencer Marketing Hub, micro-influencers drive much higher engagement rates for content than do uber-celebs.
Loyalty communities make up the third partnerships category, and channel partners or resellers are increasingly popular channels as well. Finally, I am seeing a growing number of brands that are working with other brands to co-promote products and services.
At Partnerize, we recently commissioned a global survey of 1,200 marketers to ask them about the importance of partner sales and which types of partners delivered the strongest results. Survey responses showed that partnerships are now driving a strong percentage of total brand sales. In fact, 54% of respondents said that partnerships drove more than 20% of their sales. In terms of which types of partners were most important to revenue, we found that:
• Traditional affiliate channels account for 46% of partner sales.
• Influencers and niche content bloggers account for 19% of partner sales.
• Pay-for-performance deals with traditional media companies account for 26% of partner sales.
• Brand-to-brand partnerships account for 9% of partner sales.
Thus, while affiliate remains the largest segment, multiple partner classes are now driving strong revenue for leading brands.
What does a partnership cost?
Partners are typically compensated based on a flat rate per sale, or on a percentage basis. But recently, I’ve noticed that many large brands have started setting compensation programs that align to more precise or specific brand key performance indicators (KPIs). Do a quick Google search and you’ll find hundreds of articles on pricing based on gross margin, lifetime value (LTV), penny profit and other models.
For example, a number of companies are now compensating their partners over time based on the LTV of the users that they attract. Others are defining multiple commission rates based on the gross margin of the basket of items sold. Still, others offer different rates for sales made to new versus returning customers. These strategies, to name just a few, ensure that partnerships are well aligned with the overall goals of the company.
As business people, affiliates understand the need to manage for profitability. Many will be open to stockkeeping unit (SKU)-level commissioning and other strategies, provided that your payment models result in a good revenue stream. LTV programs for subscription services, for example, only work if your product has a decent retention rate. The important thing is to be empathetic to partners and their business interests as you formulate your programs.
How are partnerships measured?
I’ve heard some marketing leaders question whether partner sales are incremental, particularly for some sectors of the affiliate channel. While data varies by brand, our research shows that they are often at least as incremental as other channels. The best way to assess this (or any other) channel is to integrate your partner marketing data into your customer analytics database, and put the channel through the same scrutiny as search or video or display advertising. Application programming interfaces (APIs) are making it easier to incorporate partner data into multichannel analytics and business intelligence.
Traditionally, measurement relied on third-party cookie tracking, as did much of the digital marketing world. But since browsers started to tighten up their cookie policies, like Safari recently did with the launch of ITP 2.0 and Firefox did with its tracking protection, companies have started migrating to first-party-cookie or server-to-server-based measurement. Brands have the option to reward the final referring partner or to reward every partner on the customer journey.
Most companies already employ people with some knowledge of the partnership space. To learn more, look to your affiliate marketing or business development teams for additional thoughts on how to proceed. These teams generally have great growth ideas but struggle to get a seat at the table. Give them one and you may unlock an outstanding growth channel for your business.
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