by Shawn Collins

If you are conducting business online, the question is no longer whether or not you should have an affiliate program. The question now is how to set up a successful affiliate program.

Forrester Research recently published a report (New Affiliate Marketing Models) stating that affiliates deliver 13 percent of online retail sales today. By 2003, this figure is projected to increase to 21 percent of online sales.

When you take this into consideration, along with the fact that affiliate marketing has emerged as the predominate online marketing strategy, it's no surprise that companies are feverishly incorporating affiliate programs into their marketing plans.

On the surface, the concept is very simple: A Webmaster joins your affiliate program; a web surfer visits the site of your affiliate; the surfer clicks your banner and shops at your site; you pay a commission to the affiliate for the sale.

But there is more to affiliate programs than a simple flowchart of success. There is a lot of uncommon knowledge regarding the establishment and operation of an affiliate program, which will make the difference between your program becoming a success or a failure.

For every virtue that contributes to a successful program, there is a vice that can undermine an otherwise successful program. Below, I have outlined the seven deadly sins that can break an otherwise quality affiliate program.

1. No affiliate manager and/or customer service

E-Commerce Exchange runs a very successful affiliate program. They explicitly lay out the way their program works, provide marketing and sales tools, offer a variety of graphics and basically operate a model program. But the key to success for the eCommerce Exchange QuickCommerce affiliate program extends beyond their online presence. eCommerce Exchange follows up with a telephone call to new affiliates to provide one-to-one help and guidance.

Many companies launch a program with the anticipation that it will be a self-administered gold mine. But the truth is that it is a necessity to have a person dedicated to the day-to-day operations of the affiliate program. And this person should be easily reached with customer service questions. If there is no name attached to the program, as well as some level of customer service, your program is doomed from the start.

2. No answers to frequently asked questions

Even though you have a FAQ (frequently asked questions) for your site, that's not enough if you are going to operate an affiliate program. Your main FAQ may cover your site thoroughly, but there are a wide variety of questions that are specific to your affiliate program: Does it cost anything to join your program? How can I sign up for your program? How do I create a link to your site? When will I get paid?

If you don't know what people are going to ask, try asking a handful of friends and employees to navigate through your program and ask them to each write down 2-3 questions. Answer these questions and you've got a FAQ. As your program grows, you will receive questions from your prospective affiliates - whenever you answer a new question, be sure that the question and answer are added to the FAQ.

3. No privacy statement and contract

Do affiliates join your mailing list when they sign up for your program? Do you intend to sell or share your database of affiliates with other companies? If so, it is recommended that you share this information with your affiliates. If you decide not divulge this information, you could seriously harm your credibility.

How often will you be paying your affiliates? How much will you be paying? Is there any reason why your affiliates would forfeit their commission? Although these documents may seem like unnecessary bureaucracy, they are absolutely essential. Spell out your terms in a contract or operating agreement and not only will you gain more credibility, but you will also avoid potential legal disputes.

If you do not currently have a privacy policy, you can refer to the privacy policies of some other companies and adapt as necessary, or you can create one easily with a free service, such as the TRUSTe Privacy Statement Wizard.

4. No investment in the affiliates

Low commissions can be a huge stumbling block for your program. How much is enough? This is a tricky question with many variables. Will you be paying a flat fee on each purchase, a percentage of the sale, or for each click?

In some categories with low margins and high prices, it is reasonable to pay out a low percentage. But in many segments, it is unacceptable to offer less than 5 percent of the gross sale. Flat fees and pay per click models are totally dependent on the product and cost. In order to determine the best commission for your program, research your competitors and try to give a little more than they are giving to the affiliates.

Of course the bottom line is a key factor, and you're not going to give up your entire margin for the sake of the affiliate program, but if you are offering a paltry commission, you will not have any affiliates. On the contrary, a small increase in commission will help to grow your program at a more rapid pace.

5. No way to find your affiliate program

Believe it or not, there are quite a few companies that operate affiliate programs, and they do not link to the program from their homepage. People must be able to find your program if you want them to join you in marketing your product or service. While the affiliate program directories, such as Refer-it and AssociatePrograms.com, will generate some traffic to your program, you cannot expect to operate a successful program if you rely solely on this method.

Not only should you display a prominent link on your homepage, but it is also a good idea to incorporate a blurb in your e-mail signature about your affiliate program. If you have a newsletter, plug the program. When you send out an invoice, plug the program as well.

6. No statistical reporting

Do your affiliates have a means to track their statistics online? They are going to expect this feature and if you do not provide it, your competitor probably does. Don't risk losing affiliates for this reason.

If you utilize a third-party affiliate solution, the online reporting should be a given. At a minimum, you should provide your affiliates with a breakdown of the pay periods, sales, returns, and total balance.

7. No online application

Just as with the online reporting, you should also be provided an online application if you are using a third-party affiliate solution. If you choose to create your online application in-house, note that some potential affiliates will be sensitive about the transmission of their personal information.

Bear this in mind, because if you do not have a secure server for transmission of their personal information, you could be turning away a lot of potential salespeople. Your affiliate program has to reach a certain level of sophistication, and if it fails to do so, you are going to turn away a lot of prospective affiliates.

Affiliate programs are experiencing dramatic growth, and the industry is projected to continue ramping up in the years to come. In the past month, the industry was further validated by the mainstream as Be Free, a third-party affiliate solution, had a very successful IPO, and AOL finally launched an affiliate program.

Quite simply, if you have an online business, you should have an affiliate program. But don't just do it - do it right!