In response to a several inquiries about the EclipseHosters.com Sales Program, and why it we implemented it, the simple answer is effectiveness. The primary motive for the incentive program was to offer an economically viable way to pay back the community that made WhatTheFork.org what it is. Help us grow this as a business, and we’ll put some money in your pockets (proportional to what you bring).
In addition, an affiliate campaign such as this is probably the safest (in terms of risk vs reward) single investment we could undertake in marketing. It offers us the assurance that we do not throw away money on ads that may not pan out, and it frees us from the ancient marketing formula of X sales from Y visitors who clicked on Y out of Z ads we paid for.
Let’s assume some optimistic numbers here, to illustrate the point. 1 in 20 visitors makes a purchase of $8 (5% conversion rate), and 1 in 100 ‘impressions’ clicks an ad (1% click-thru rate), and the cost of the ads is $5 per 1000 impressions…
Based on these numbers, a $50 advertising budget should result in 50,000 ads, or 500 visitors. 1 in 20 buys, which should mean 25 sales. At $8 each, generating $200 in revenue from $50 in advertising. A 4:1 return, which (depending on the market) is good, or not so hot. Viewed from slightly different angle, it cost 25% of the value of each sale to acquire it.
That is assuming good results, which would need a solid ad with highly visible placement on the right site(s). It can go a lot worse: At a conversion rate of 1%, $50 in advertising generates $40 in revenue. A loss, even before processing fees.
Pay-Per-Impression and Pay-Per-Click models are a crapshoot because of this. The amount of resources invested into devising the right ads, and finding the right sites for them (this step is largely automated by most popular advertising systems), not to mention the series of trial runs needed to learn what works, and what doesn’t (for each product, no less)… all of this translates into risk, and potentially unrecoverable cost.
An affiliate campaign offers a different approach. On the surface, it is a way to Pay-Per-Result. Any leads that do not result in sales, cost nothing. Affiliates assume the risks of advertising, and are free to exercise creativity with little to no restraint.
The only cost occurs when a transaction completes, effectively increasing the price of a given transaction. Additionally, there is the cost of tracking and managing affiliates, their payouts, and details such as conversion rates, and average revenue per unit sold. This is a management cost, which is not directly recoverable.
To simplify, affiliate programs involve expenditure to build and support, but allow for a very predictable Cost of Acquisition. CPC or CPM campaigns have similar costs (though more controllable), but Cost of Acquisition is difficult to accurately determine beforehand, and may vary greatly during multiple runs of the same ad.