by Shawn Collins

In 1996, Amazon.com launched the first affiliate program on the Internet. Since then, the novel idea of affiliate marketing has emerged as one of the most economical and effective means of reaching customers online.

An April 1999 Forrester Research survey of marketing executives (Driving Site Traffic) ranked affiliate programs number one in effectiveness, ahead of e-mail, PR, television, and all other marketing methods.

What Is An Affiliate Program?

So we've all heard how wonderful affiliate programs are, and how they are an invaluable tool for eCommerce, but what are they?

Basically, an affiliate program works as follows: A merchant (ex. Amazon.com) pays a commission to a web site owner for generating sales from either a banner or link from the web site owner's site. The commissions are paid as either a flat fee, or a percentage of the transaction.

Sites that sell physical products (books, toys, etc.) typically have affiliate programs where they pay you when their goods are purchased. Sites that have subscription models (ISPs, online communities, etc.) typically have bounty programs where they pay you a flat fee when someone you referred joins their service.

Does An Affiliate Program Fit My Business Plan?

Ok, so we know what an affiliate program is, but how easily does this model integrate into an existing business plan? According to Tim Choate, CEO of Freeshop.com (Media Metrix top ten shopping site on the web), the affiliate program has played a key role in the growth of his site.

"We started our affiliate program last October (1998), so it's about a year old, and the affiliate program has been extremely important to us, and even more important, it has helped to grow sustained traffic that grows every week and every month," according to Choate.

Choate continued, "For those companies that do not have an affiliate program right now, they are making an active mistake on a daily basis. So, for the people who do not have an affiliate program, it's critical for them to learn as fast as they can about what these programs can do, how they work, and how they function."

Don't Miss The Bus

According to a projection by Forrester Research in November 1998 (Resizing On-line Business Trade), the business-to-consumer market is projected to swell from $7.8 billion in 1998 to $108 billion in 2003. Further, business-to-business trade on the Internet will explode from $43 billion in 1998 to $1.3 trillion in 2003 - rising to 9.4% of business sales.

Surely, you want your company to participate in the meteoric rise of eCommerce in the coming years, and if the leading web sites are any indication, an affiliate program is a fundamental component in online success. Seven of the top ten shopping sites for September 1999, as ranked by Media Metrix, currently utilize affiliate programs.

Does An Affiliate Program Make Sense For Me?

The affiliate program model can be very rewarding for your company, but you're still apprehensive about the feasibility of it working for you. The short answer is that affiliate programs can work effectively for any company.

The slightly longer answer is that it just takes time, attention, and a bit of creativity to operate a successful program.

Bear in mind that any prospective affiliates will assess your company. Do you sell a great product at a competitive price? If not, your affiliate program is doomed. After all, most people will not sell a product they do not believe in themselves.

Also, you must make it easy and appealing to join and just as easy to stay up-to-date as an affiliate. While you can create an affiliate program in-house, the majority of online companies choose to utilize the services of a third party solution, such as Be Free, Commission Junction, or LinkShare.

The third party solutions will handle the administration of the program, such as affiliate registration, commission tracking, and statistics. Beyond these services, you should keep your program fresh with a variety of banners and buttons, and frequent communications with your affiliates in the form of a newsletter and program updates.

Affiliate programs are becoming more and more competitive in the growing eCommerce marketplace, so it is essential to research the competition. Affiliates will constantly measure you and your program against other affiliate programs.

According to a recent survey of 286 affiliates on Refer-it.com, the most valued aspect of an affiliate program is the commission. If your commission does not measure up to that of your competition, your program is going to be more of a struggle than an asset.

The viability of affiliate programs has already been firmly established, but they cannot provide a magic solution for a company founded in a spotty business plan. What is the best type of company for an affiliate program? Well, if you are selling a quality product at a good price, then you are running the best type of company for an affiliate program.