Is a Content-first Affiliate Strategy Optimal for Agencies and Brands?

AM2.0 #1

Welcome to issue number one of the “Affiliate Marketing 2.0” newsletter.

— “Let’s start with a risk analysis,” said no one, ever.

This newsletter issue intends to examine the content-first methodology in affiliate marketing for agencies.

The point of a risk analysis is not to promote or condemn a particular strategy.

A risk analysis aims to consider possible risks and rewards so that one can make an informed decision about whether to pursue it and at what potential cost.

In this instance, I am encouraging agencies to critically evaluate a “content-first” strategy, which I believe to be the predominating strategy in the affiliate and partner marketing industry.

The “Holy Grail” of affiliate partnerships and strategy, so to speak.

But is it the right approach?

My goal is to provide context to answer questions like:

1) Is a content-first affiliate strategy optimal for agencies?
2) Is a content-first affiliate strategy sustainable and scalable?
3) What are the risks associated with a content-first affiliate strategy?
4) If risks are present, what steps can be taken to reduce risk?

Specifically, agencies who strategically position themselves as a “Performance PR” service, may want to take a risk evaluation into consideration.

So too do brands that hedge their affiliate strategy on “upper funnel” or “top of funnel” partnerships.

Background

I have worked in the affiliate industry for about seven years. During that time period, I worked as a salesperson, affiliate strategist, and publisher development manager for a “Performance PR” type of affiliate agency that was acquired by a larger agency group.

One of the largest value propositions the company I worked for represented to the acquirer was its “top-of-funnel” approach to affiliate marketing and the media placements it was able to acquire for its clients.

The acquiring group felt like that particular operational skillset would be a great asset for its portfolio.

That is, I have day-to-day work experience in a “Performance PR” service environment, both selling and delivering the service.

Defining Risk

Agency Risk

For “Performance PR” agencies, or agencies that lead with a content pitch, their risk comes down to the following:

1) Client Retention

What is the risk on client retention by positioning ourselves as a Performance PR service?

2) Optimal Strategy

Is a content-first methodology the optimal strategy for launching, growing, and scaling client affiliate programs?

3) Business Growth

How will a PR-dominant positioning affect the long-term growth of my business and my personal security?

4) Reputation Management

How will this strategy positively or negatively affect my reputation as a service provider?

How quickly will a determination be made about my reputation with this strategy?

5) Opportunity Costs

What is the opportunity cost of leading with this strategy? What positive business opportunities is my agency missing out on with a different positioning?

Risk Factors

Agencies

1) Risk Isn’t Spread

When agencies market themselves as a one-service shop, it makes them more vulnerable because their risk isn’t being spread across different deliverables.

In this thought experiment, you can see how positioning yourself as a “one service” provider can enhance risk because it is less spread across deliverables (and client expectations).

Agencies with a narrow strategic positioning, like Performance PR-only, open themselves up to similar risks.

2) Increased Expectations of Specialization

Specialization is a catch-22.

As a specialized service provider, you may offer a superior service and access clients that you would not be able to without being specialized.

On the other hand, clients will expect an excellent, specialized service when they engage with you.

You expect more from a PhD graduate in Biology than you do from a BS graduate in Biology.

If you are positioning yourself or your agency as an “expert service provider” in a specific field, higher expectations will follow.

In a world of false, exaggerated marketing, agencies should understand the risks involved in specialization.

3) Editor and Writer Dependency

Content placements, especially organic placements, are not turnkey, reliable, or consistent.

Sure, some brands will be better received by editors and agency personal relationships can definitely make a difference securing content placements.

However, editors and publishers have a responsibility for integrity and a commitment to editorial direction.

If your client and their products do not fit into a publisher’s content strategy, then little can be done.

4) It’s Harder to Test a Content Strategy

While descriptive metrics like clicks, conversions, EPC, and conversion rate, can describe the performance of content placement, it’s harder to “test” a content strategy like other types of campaigns.

Whereas in a display or media buying campaign, a brand or agency can deliberately A/B or multivariate test copy, images, and calls-to-action, content is more difficult to test.

It’s much more challenging to test content that you are not the owner and operator of.

Any testing to copy, images, and calls to action are ultimately up to the discretion of the publisher, making testing more difficult and time-consuming.

5) Content is Slow to Develop

Content is a much slower channel to develop than other self-serve services like media buying, search, and programmatic.

When an agency offers a “Performance PR” service, they are usually not able to deliver a placement within the first 30 days of an engagement or a full retainer period.

The industry standard is “it takes three months or more” after beginning work with a brand to see meaningful content placements.

The time delays occur because:

• It takes time for editors to respond, if at all

• Samples have to be shipped from the brand

• Samples have to be delivered and received

• The article has to be written (if the brand is featured)

• The article has to pass through editing

• The article is scheduled to be published

• The article is published

A similar process follows for mass media publishers, review sites, and blog sites.

By the three-month mark, agencies and brands already have an ROI deficit to overcome to justify the cost of working together.

6) It’s Harder to Evaluate ROI

For a brand or agency leading a content-first strategy, it’s hard to evaluate a true ROI.

Partnership marketing has traditionally been seen as a direct-response performance channel.

In scenarios one and two, it’s easier to set KPIs and evaluate them as successes or failures.

Setting KPIs to evaluate the success of a “Performance PR” channel, like in scenario number 3, is difficult for several reasons:

a) The performance from content is highly variable in terms of revenue and clicks.

A niche blog site ranking for the right keywords might generate many more clicks and conversions than a “top-tier” publication.

However, many brands place a higher value on “tier 1” or “top tier” publications than they do on more niche content sites.

If an agency secures five article publications a month but generates a cumulative 200 clicks and three sales for its client, is that considered a success?

From what I have seen, KPIs with content publishers primarily revolve around a number of placements, which seems to be a poor metric.

b) Performance is “ambiguous” and not clearly defined

As raised in point number one, what puts the “performance” in “Performance PR?”

Is it just the fact that affiliate links track clicks and conversions?

We can track publisher performance via UTMs in Google Analytics.

The difference between Google Analytics and your affiliate network is that it isn’t incentivizing publishers through additional compensation.

The hope is that this additional incentive will incentivize more placements that lead to more coverage, more clicks, and ultimately, more revenue.

As well as the belief publishers should be rewarded for their content-creation efforts.

The issue I have seen with PR companies crossing over into performance marketing is they think that bolting tracking onto the same service is enough to advertise their service as a performance service.

At the very least, “Performance PR” agencies should be able to provide an additional reason their service is performance-oriented on top of tracking.

Some suggestions could be:

• Bring a level of sophistication to data analysis

  • New vs return customers, CLV, incrementality (MMM), SKU-level analysis

• Talk about cross-channel implications

• Report back to profit

• Focus on efficiency (lowering acquisition costs)

Ultimately, agencies and brands can define what KPIs mean to them.

However, it is wise for both agencies and brands to have a clear framework for setting KPIs, measuring performance, and evaluating ROI.

c) Top-tier placements do not always generate significant traffic and sales

While top-tier media placements (the kinds most clients are looking for) are highly coveted, they do not always generate meaningful bottom-line impact.

This can be for several reasons:

• An article may never be visible on the home page

• It can be pushed down to the bottom of a category section

• It may not be a topic that has strong organic traffic on the publisher’s site

For an agency, this can be especially dangerous.

You did your job by securing your client's top-tier media coverage, but the results were lackluster.

Will the client still be satisfied with the campaign?

This is why I would always suggest to agencies and brands, especially before committing to a flat fee with a publisher, to establish minimums.

“In order to pay x dollars in a flat fee, the brand needs a minimum of y clicks and z sales.”

d) A lack of predictability

Because coverage is up to publishers and performance (clicks and revenue) can vary wildly, a Performance PR service is especially hard to forecast.

An agency needs some level of predictability to create long-term stability in client satisfaction, reputation, and client retention.

How the agency creates predictability is up to them.

But “Performance PR” service providers should be cognizant that content coverage is inherently unpredictable.

e) “Top-of-Funnel” value is hard to quantify

I mentioned the ambiguity in performance measurement for content.

Part of the reason for the ambiguity is the difficulty of trying to place a business value on “top-of-funnel” placements.

“Top-of-funnel” typically means “first customer touchpoint.”

This is the first interaction a consumer has had with a product or brand.

New customer acquisition is the lifeblood of a growing online business, so very important.

But as the first touchpoint, this means the customer is likely to either not convert at all or convert some time from now.

In the day-to-day management of agency and client programs, it’s difficult to assign a value to the first customer touchpoint.

More straightforwardly, what is the value of a click that doesn’t convert?

Again, would your client be satisfied if your program had 50,000 referred visits from content but zero sales?

That’s a lot of “awareness.”

But awareness doesn’t keep food on the table.

Real money is going out to agencies in retainer fees - is real money coming back into your client’s bank account?

When you run a “Performance PR” service, it’s imperative you assign some value to clicks that don’t convert, for you and your client.

Given that you’re operating in the “top-of-funnel” world, you need to communicate value to the client that is not based on sales and revenue alone, because you’re the customer touchpoint that’s furthest away from those outcomes.

f) Customers may not buy in the attribution window

Standard cookie windows are between 15-45 days, with the most common setting being 30 days.

According to Erik Huberman’s deep dive into purchase cycles, based on agency data from over 8,000 brands, brands with AOVs over $100 take, on average, five weeks to convert or more, which would not fall inside of the normal affiliate cookie window period.

For agencies, this means conversions from content placements may not be tracked unless you have a 45-day minimum cookie or more.

Here are tactics agencies can implement to help protect their interests:

• Transparently, recommend and set the longest cookie window a client will permit

  • “We want to capture conversions and performance from our content campaigns and to reward publishers for the work. We recommend a 90-day cookie window.”

• Have a playbook for “high AOV brands,” especially as a “Performance PR” service.

  • Understand the long purchase cycle and have that conversation with your client

  • Set long cookie periods and attribution windows

  • Consider “quarterly reporting” as well as weekly and monthly reporting

  • Set expectations around buying cycles and expected time to performance

g) Attribution challenges (assisted conversions)

Another challenge presented with top-of-funnel services (and affiliate marketing in general), is assigning fair attribution credit to different partners in the purchase journey.

“Last click” is probably the most common attribution method, assigning full credit to the last partner in the purchase path. However, it’s probably not the optimal attribution model, especially for high-consideration purchases.

It’s also a terrible model for “Performance PR” service agencies.

That’s because your entire service attempts to build placements to engage the customer on the “first click” or first touchpoint.

Agencies that operate mainly in the “top-of-funnel” would be best served to consider attribution methods and platforms that favor introducers and a first-click model.

Partnerize, for example, has multi-touch attribution reporting. That would be a better platform to measure attribution for a Performance PR agency than a platform or tracking tool that relies on last-click.

A performance PR agency's goal should be to maximize the value of top-of-funnel clicks and implement an attribution tool that assigns value to them.

7) Content is difficult to scale

Content, as a channel, is not scalable in the same way paid media channels are.

Growing a content strategy involves a lot of manually-intensive tasks, like:

• Doing more outreach

• Having more conversations with editors

• Sending out more samples

• Requesting more samples to be sent to editorial teams

When you scale your content efforts, you scale your manual efforts.

Comparatively, advertising networks and technologies remove the manual component and make scale easier.

Perhaps the most “scalable” thing an agency can do from a content perspective is to get the brand to a point of visibility and positioning where it secures “organic” coverage, meaning editors are writing about the brand without being pitched.

8) PR is Expensive

 PR tends to be expensive all the way around.

Performance PR agencies tend to charge a hefty retainer, and mass media publishers charge a nice whack for flat-fee placements.

Content publishers place some of the highest commission demands on brands, often 15% or more.

Brands are expected to pay for all of these expenses in some way, shape, or form.

Given some of the challenges around ROI measurement, the expensive nature of the PR world presents risks for agencies.

With such a costly partnership channel, you would expect more attention paid to its real return on investment.

Cash-out reconciled against cash-in.

9) Most Affiliate Agencies Don’t Report on Profit

I have not seen many, if any, affiliate agencies report on bottom-line profit.

The most common reporting I have seen focuses on total affiliate revenue or net revenue (subtracting affiliate commissions from revenue).

The problem with reporting on affiliate revenue and net affiliate revenue is that a brand can have significant affiliate revenue and still lose money, making their affiliate channel a cost center for their business.

Consider what affiliate revenue is:

A common way of approaching customer acquisition for online businesses is to set target CPAs or cost-per-acquisition targets.

For instance, a skincare brand sets a target CPA OF $50 across all of its online marketing efforts.

The key to setting up an insightful CPA is to know a marketing channel well enough that you factor in all of its associated costs.

For instance, a brand that has an elementary understanding of affiliate marketing may think a CPA equals commissions paid out to affiliates only.

But is that really all of the costs associated with enabling that affiliate transaction? 

What about the fee to the affiliate network you are paying monthly and per transaction?

What about the agency retainer fee and commission being paid?

What about any returns or reversal costs incurred over a reporting period?

Admittedly, intangible value (halo effects, brand awareness, retail effects) from a performance PR service is not captured in the revenue data. Still, it’s important to consider a profit-based view of this service.

Given the high costs of publisher fees and retainers in Performance PR, one would think there would be a greater desire to relate affiliate performance back to profitability.

However, because it is unclear how to evaluate the “performance” of Performance PR, profit reporting is probably less reported on than affiliate revenue, net affiliate revenue, and total number of placements.

Client retention is at risk without a grounded view of profitability, especially with the costs of the Performance PR channel.

Closing Thoughts

I was planning to speak on ways to mitigate these risks as an agency and made some suggestions, but this first newsletter got too long-winded.

In future newsletters, I will embrace the brand perspective on risk and discuss possible mitigation steps for agencies in more depth.

If you’re reading this and are an owner, employee, or other stakeholder at a “Performance PR” agency, please take note of the conversation around determining ROI and attribution methods.

I believe those are critical to your success.