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How would you structure this affiliate deal? (20)

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Hey guys,

I have an interesting situation on my hand, and I'd love some input...

A friend of mine runs an offline business. Every customer is worth between 1k - 1.5k profit to him on the front end, and between 8k - 12k on the back end, and potentially even more (30k+).

He knows nothing about advertising for lead generation, and got all his leads from real life referrals in the past. He got very excited when I told him what kind of lead flow I might be able to generate from online.

How would you

(1) negotiate a commission structure, and
(2) set up accountable revenue tracking, if you were in my shoes?

Appreciate all thoughts!

John Galt

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Easiest would be to set up a per lead agreement, where he agrees to pay you a certain amount, say $25 or so per qualified lead. Since you would presumably be sending him the leads though your own website and form, I don't think tracking will really be a major issue.

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Thanks for the input cmdeal. CPL that was my first suggestion as well. He was hesitant though, since he doesn't have those numbers, and even if he figures it out, the leads I send will be worth less since they're cold (his previous leads were all referrals).

Furthermore, his sales cycle is long (could be weeks or months)... and if we figure out a way to structure this as a CPS deal I might get a lot more out of it, since the back end is huge.

This would, however, make tracking more difficult, and raise the question about a fair commission on back end transactions.

That's what's got me stumped right now...

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If he doesn't have his metrics right you're going to be taking most of the risk.

To get started why not start with with a small CPL test. Then pause. See how/if your leads back-out then tweak the deal. At least you can get the ball rolling easily this way.

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Thanks Mr. Green, that's probably a good idea! Start small and see how it goes... get some momentum!

And if you were to structure it as a straight commission on sale, how would you track then, and what commission would you think is fair?
Anyone?

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Would need more info around the product to know how to track it and what commission structure to wrap around it.

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Hmm... hesitant to give away details to be honest. Has anyone on STM done anything like this?

1. Brick and mortar business
2. 4 to 5 figure net per sale
3. Cost-per-sale based commission structure

If so, let's talk in private - happy to pay a consulting fee if anyone can show me past success with a similar setup!

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Really, just agree on a CPL deal to start. It will make your life a lot simpler.

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Yes, CPL or a revshare deal. The tracking will be a bitch tho, since its online promotion and offline monetization. You really need to trust the guy.

I have done something similar with a local brick&mortar shop, what we did was advertise a coupon code, promising a small discount when they show the code. The idea was that they will indeed mention the code to get better price and we advertised the discount only on the net. So any customer with the code was mine.

You will need to come up with something similar, give the people some kind of unique identificator that they need to show up with. It should be something of value, otherwise they wont care. Try a gift, discount, special deal ... whatever will motivate them to identify themselves as the leads from your online promotions. A small TIP, if you decide to do this, mention in UPPER CASE that the code is transferable to anyone - their mom, son, grandpa, neigbor and their favorite hooker. Its pretty much impossible to support this with real data, but when I did this, the sales went up a bit.

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That's a good idea matuloo. Do you think it's reasonable to ask for 50% of his net? With the argument that these are clients he wouldn't otherwise have at all. His team does most the work. (In similar online JVs with high ticket stuff, the commission is often 50% of gross or more, but usually only on the front end).

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This is hard to say man, I went for 10% + ad spent, but there were physical products involved so I already took a large part of their margin. Is this a service your friend is selling or a tangible product? This is important for the size of possible commision.

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It's a service... 1000 to 1500 on the front end is already net profit, he charges about 5k and takes home 1500. Back end I assume the margins are higher.

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Since the value of the service is so high, I'm assuming its a B2B product. Is that correct?

Generally for B2B products or services the affiliate marketing channel is not a good channel as its 99.9% on consumer products and services.
Most affiliates do push marketing and try to convince the user to buy a product or service that has a low user value (<50$) and with the additional fact that most purchases are "impulsive buys" by the user.

That being said, I think the best way to market your product would be search and a CPL campaign.

1. Search - Adwords: this is a pull channel. Only people that look for your product are targeted. Have you tested this out already for your friend's service? What are the metrics?

2. There's a lot of solar panel advertisers out there that make big money online - they never sell the product online though in a direct way. They have a two step process whereby step 1 is to get detailed user info (+10 fields) for which they pay affiliates between 20 and 50 USD. Then step 2 is they have a call center that calls these leads and then tries to make the sale via the phone or even go from step 2 to 3 which would be to schedule a visit from a sales rep to the user's house. Usually 1 out of 2 sales close.

Given that I don't know your friend's service but knowing the volume and $$$ amounts are more or less in line with solar panels (ballpark numbers), I would go for these two channels to get this going online.
Setting up an adwords campaign is the easy part, optimizing it will take you some time but is easy as well. The second channel (2 or 3 step sales funnel) is harder to set up as you need to build a good website, contract a call center, and hire some sales reps.

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Hm, I doubt he will agree to give you 50% of the net profit. As you say his profit is about 1500 from 5000 now, this way it would go down to 750 and that where he will hit the psychological barrier, he will consider it too much Im afraid. 30% sounds like a better deal. One way or another, you need to run some tests to determine the cost of sale and move from there.

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Glad I started this thread... good stuff guys!

It is B2C.

Yeah I think Adwords might be a great channel. I was thinking Facebook first, since I can target by interest and I'm quite experienced with Facebook ads. Not so experienced with Adwords. But it should probably be included in this campaign.

That's pretty cool... I was thinking native Facebook ad (pure content) leads to free report or webinar with information and invitation for a consulting call. Might be 100 dollar refundable deposit on the call or free... then close on the phone.

Cool, thanks for the suggestion. Now I have a better idea what kind of numbers to negotiate with.

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Make sure you fully understand the fundamental difference between profit and cash flow.

There is an economic reason why lead generation (pay per lead) model has developed into a full fledged industry, just as there is a economic reason why very few employees are willing to work on a purely commission basis even for established companies on long sales cycle industries.

If you are not careful, you can easily become insolvent if the timing of when you get paid gets drawn out for a very long period, even if the activity is profitable on an accounting basis.

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Good point... yeah I have that problem in my own business, as I have a 5 to 9 week sales cycle... so when I started running ads I had to scale very slowly and often wait 2 months to see if something was working before I was able to scale it up...

I'm gonna see what kind of figures he can come up with, and then I'll discuss with him based on that... and start with a small test.

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Very true! Did you notice how I said I was getting 10% + ADSPEND in that similar deal? Thats how I was protecting myself against becoming insolvent, as I was charging them for the adspend every 2 weeks. Funny thing is, I didnt even think about this as a protection, they offered it as a part of the deal and now Im very lucky they did

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I'd look at getting his setup with SalesForce or Leads360 or something like that. Where you can real time post leads into his system and he can accurately track metrics. I've done this 100 times and sold to some guy that isn't used to internet leads.... most of the time it's going to be a fail without the right systems being setup.

With that said I'd only sell him leads. Don't do revshare or anything like that because you're expecting him to be able to close. Your job is to get him qualified leads and you should get paid for that.

Also, a world of warning. If you send him leads without the system I mentioned above setup. And honestly even if he does get them setup it's going to take him a while to learn to work internet leads properly. They're a different animal. So there's a good chance he's going to get the leads, close nothing and then say they were garbage and stiff you. Therefore protect yourself and get a prepay up front. Made this mistake a lot of times as well.

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That's a cool structure matuloo, I'll definitely try that.

Jason, thanks for the input. I've worked with salesforce before, that's a good idea. I'm actually pretty confident in his ability to close. I also believe he's a standup guy, not too worried about getting stiffed. But, I'm aware that money has ruined many a good friendship. And consensus here seems to be to do CPL regardless... point definitely taken.

Thanks!

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