What are the best practices & top trends for affiliate marketing in 2023?
Contributors
Lacie Thompson, SVP of Affiliate Marketing
July 2023
A Brief History of Affiliate Marketing
Affiliate marketing has been around for decades, pre-dating the tools and platforms that are synonymous with modern digital advertising. The channel was first conceptualized in 1989 by William J. Tobin, founder of PC Flowers & Gifts, who launched his products on the Prodigy Network and, in turn, paid a commission for products sold on the platform. In 1996, Amazon popularized the model with Amazon Associates, a program that enabled (and continues to enable) members to earn on qualified purchases made in connection to the traffic they drive to Amazon’s website. To put that in perspective, Google AdWords didn’t come on the scene until four years later, in October 2000.
What is Affiliate Marketing?
The foundation of affiliate marketing is a pay-for-performance model, in which businesses pay partners, or affiliates, a commission on sales conversions. The industry has evolved since its inception in the late 80s, and more recent models have steered away from the traditional CPA-commission framework - but more on that later.
Spending on the channel hit $9.1B in 2021, marking a 47% increase compared to 2018. And advertisers aren't slowing down any time soon - 75% of marketers reported plans to increase their investment in the channel this year, and Influencer Marketing Hub projects that global spending on affiliate programs could top $14B in 2023.
With all of that in mind, let’s look at the state of affiliate marketing in 2023: its challenges, the innovations changing the space, and what it all means for marketing leaders (whether they’re operating on the channel or not).
Industry Hurdles
For anyone unfamiliar with affiliate marketing, measurement strategies function much differently here than for other digital channels. As it stands, the industry doesn’t have a dominant tech platform by which it drives the bulk of its volume. Instead, brands can choose from 10+ leading platforms on which to launch their affiliate program, an industry practice that runs the risk of traffic being over-identified.
Another distinguishing factor of affiliate program measurement comes down to attribution. Publishers have built a model that optimizes for last-click credit, and tracking platforms have aligned to it. But a challenge with this conventional, last-click attribution model is that it creates inherently less value for brands. Because browser extension publishers are built to sit in a shopping cart at checkout, they are able to earn commissions for conversions when a shopper clicks on them at the end of their purchase. Alternatively, brands that are able to implement crediting logic that instead rewards partners who introduce the brand to a new audience have an advantage, in that they are better able to credit based on incremental behavior.
LT Partners Leads the Charge in Channel Innovation
Over the last 10 years, affiliate marketing leaders have made strides in their efforts to address the obstacles posed by standardized measurement tools and the last-click attribution model. LT Partners, a New Engen company, has been at the forefront of these efforts, developing solutions to industry pain points surrounding crediting and measurement. Lift from LT Partners, for example, provides brands with custom, enhanced insights across the customer's purchase journey by marrying its data with Google Analytics.
Important advancements have also been made in the way of measurement and attribution, an area that has long been a pain point for the industry. With advanced crediting logic, clicks are recorded along the customer journey rather than just at the final stage. At a high level, this type of waterfall attribution works by measuring clicks within prioritized layers, which allows publishers to credit partners that incorporate additional paid media channels.
Finally, there has been a movement away from strictly evaluating partners on revenue and ROAS. Revenue is an important metric that can identify performance outliers but doesn’t paint a complete picture of the overall health of an affiliate program. For this reason, factoring in other KPIs, like new user (traffic) volume, provides a more holistic understanding of the customer journey and allows brands to make more informed decisions when optimizing their affiliate partnerships.
Affiliate Marketing Best Practices in 2023
We tapped Lacie Thompson, SVP of Affiliate Marketing at LT Partners, a New Engen company, to help us identify the key elements that constitute a successful affiliate marketing program. Below, we’ve mapped out the best practices for operating on the channel - exemplified by real-life success stories from two LT Partners clients, Glasses USA and Madison Reed.
1. Clearly define your goals (and definitions of incrementality) before kick-off
Glasses USA, the largest online eyewear retailer in the US, enlisted LT Partners to help them scale new customer volume on their site. The high-level objective was clear cut: drive new users to the site and convert them into customers. From there, LT Partners was able to construct an approach that leveraged affiliates at the top of the funnel and addressed the nuances that would arise from traffic driven by each type of partner.
For example, top-funnel partners are key to this program because they drive a higher volume of new users and thus align with the primary goal. They were awarded a higher Cost per Action (CPA) to account for the higher new-user volume. Bottom-funnel partners, on the other hand, tend to drive fewer net-new customers yet have a higher revenue potential, and as such they were assigned a much lower CPA.
LT Partners also identified Buy Now, Pay Later (BNPL) partners as a top growth opportunity for the brand and offered them aggressive CPA rates in exchange for quarterly exposure.
Ultimately, even the simplest topline goal can be honed and refined into something more complex that informs every facet of a program. LT Partners translated Glasses USA’s aim for new customer acquisition into a layered, robust strategy that played to the strengths of each key stakeholder.
2. Prioritize comprehensive, accurate data (and make sure you understand it)
When Madison Reed, a hair care brand, expressed interest in testing into influencer whitelisting, LT Partners facilitated a partnership with 3rd-party marketing partner, GrapevineAI. GrapevineAI’s innovative approach to whitelisting, with their 400+ creator network and frictionless campaign building feature via their portal, allowed Madison Reed to outsource content creation, gain access to creator handles within the GV network, and leverage key learnings to inform creative iteration.
Because of this partnership, Madison Reed was able to marry their own Facebook learnings with Grapevine’s Google Analytics data to unlock a more in-depth view of campaign performance. The combined data sets revealed important creative insights that enabled more strategic, data-driven optimization.
3. Create simple logic and don’t over-identify traffic
Publishers should operate on a single platform to eliminate the risk of over-identifying traffic, i.e., paying two partners for the same conversion.
4. Break out channels with identifying parameters
Identify remarketing and prospecting audiences, and differentiate brand and non-branded campaigns with distinct crediting preferences.
5. Track deeper KPIs when moving to a full-funnel approach
Another important component of LT Partners’ strategy to scale growth for Glasses USA involved monitoring auxiliary KPIs like orders, clicks, active publishers, and Average Order Value (AOV). In doing so, they measured positive year-over-year growth in each area.
Their focused efforts on top-funnel activity resulted in:
- A 22% increase in the program's total publisher revenue contributions, up from 16% the year prior.
- An incremental decrease in bottom-funnel activity, with loyalty contributions dropping to 21% from 22% the year before.
- The share of coupon revenue falling to 16% of the total program, down from 20%.
By pulling levers across the funnel and tracking the impact of these decisions, LT Partners was able to meaningfully move the needle on Glasses USA’s goal of new customer growth.
6. Cultivate real, lasting relationships
This one may seem simple, but it’s impossible to overstate the importance of investing time and resources into cultivating authentic connections with partners.
In telling the story of their success with Glasses USA, LT Partners makes a point of calling out the ways that they built personal relationships with their client. Monthly and quarterly calls served as an important touch point between LT Partners and top publishers, and attending in-person conferences created space for valuable facetime - a practice that has radically changed in the Zoom era.
Apart from transparency and creating strong channels for communication, trust can be instilled by making decisions that consider the people on the other end, rather than just solving for the immediate issue at hand. After all, Lacie Thompson says, “Affiliate marketing is a partnership-based business.” So next time you’re confronting an issue like over-spending, don’t opt for an easy out and pause your program or drop commission to zero. Instead develop contingency plans and re-evaluate pacing. Decisions like this can convey your values, inspire trust, and set you apart in the industry.
7. Bonus: If you’re not yet operating on the channel, you should be
Partnerships are a meaningful part of most businesses. The role that partners play in reaching new audiences, validating your business and products with their audience, and influencing purchase behavior is undeniable. The challenge is in understanding how to position each partner in the ecosystem based on the value they can bring and the methodologies they have to optimize. When asked what her main takeaway would be for anyone not yet running an affiliate program, Lacie Thompson says,
The industry has matured out of its bottom-of-the-funnel era, and it’s imperative that brands and marketers unlearn this narrative so that they can embrace the innovative, out-of-the-box opportunities that affiliate marketing has to offer in 2023.