When you are starting a boot-strapped business, money is tight. You usually don’t have a huge marketing or advertising budget – if at all. I’m often asked questions about cost effective marketing strategies that work. In this article, I’m going to share my ultimate low-budget high-impact marketing plan for startups.
But in all honesty, I believe all businesses should use it (no matter how big or how small). Large companies like Amazon, Godaddy, established car dealerships, and others use this marketing tactic.
It is called referral / affiliate marketing.
Affiliate marketing is a proven technique and I have successfully used it, time and time again. And yes, I still do in all of my online businesses.
How does it work?
Basically, you pay a commission to anyone who refer a new customer to you.
For example: At OptinMonster, we pay a 20% referral commission. If the person you referred bought a Pro plan ($199), then you will get $39.80 as a commission (see more details).
The percentage commission you give out really depends on your margins. Amazon starts their program at 4% and reward high-volume affiliates with better commissions.
Car dealerships usually give out anywhere between $100 – $500 in referral fees.
So now the question is why would someone refer customers to you? And more importantly, how will they find out about this program?
Affiliate Marketing vs Referral Marketing
To answer the first question, you have to understand the differences between affiliate marketing vs referral marketing.
While the general concept is the same, there is one key difference.
In referral marketing, the referrer usually knows the customer personally. Think close friends and family. The motivation here is usually altruistic.
For example: Your friend is looking for an accountant, so you recommend him to yours because they are good and honest. In return, your accountant may give you a $25 giftcard, but the financial reward wasn’t your primary motivation.
In affiliate marketing, the referrer doesn’t know each customer personally. This is someone who has your targeted audience. The motivation here is purely financial.
For example: You are looking to buy a good laptop. You landed on a PCMag review that’s comparing the top 10 laptops. You ended up choosing a Dell laptop from their list. In return, Dell will pay PCMag a commission.
Affiliate marketing is a multi-billion dollar industry. Basically there are people and companies who entirely rely on affiliate commissions for a living.
You don’t have to pay these people a salary. You only pay them, when they refer a sale.
Hopefully by now you have the answer to the first question.
This brings me to the second question: how will others find out about your affiliate program?
Affiliate Networks and Outreach
Add this affiliate page on your site and let your existing customers / friends know about it.
After that, make a list of influencers and industry-experts who reach your target audience.
In your outreach email, ask them to try your product and offer them “monetary” benefits to promote it.
If you have a QUALITY product, then you’re already ahead of the game. The monetary benefit that comes with the affiliate program is just icing on the cake.
By doing this, you will save tons in marketing costs.
I almost never recommend having an independent affiliate program. Why? Because you don’t have the network effect.
Yes, you will pay to be part of the network, but you basically offload all the hassles of managing a self-hosted affiliate program.
On top of that, you’ll have tons of new prospects who will apply to your affiliate program.
I personally use ShareASale for my products because it is cost effective for startups and has all the tools you’ll need.
There’s a small setup fee, but there are no monthly fees after that. You only pay them when a transaction occurs. Their UI is outdated though.
Whereas on a platform like ImpactRadius, from what I understand you have monthly minimums.
This all sounds pretty good, so why aren’t mentors / business experts talking about this?
Mainly because a lot of them don’t understand the concept properly.
Why does Affiliate Marketing Have a Bad Reputation?
Being in the industry for over a decade, I have heard just about every reason why someone doesn’t want to do an affiliate program.
Here are some popular reasons:
It costs too much. You can acquire a customer for cheaper via pay-per-click ads.
Yes, this could be true. If you pay 30% commission on a $100 sale, your acquisition cost is $30. It’s very possible that you can spend $15 in Facebook ads to acquire a new customer.
But the reality is most startups don’t have the cash to scale pay-per-click ads. And there is also the cost of hiring a PPC expert or time involved managing the campaign yourself. If you don’t manage the PPC campaigns properly, you’ll ALWAYS lose money!
Whereas you only pay affiliates 45-60 days after the sale. So that’s always nice.
There is too much fraud in affiliate marketing.
Yes, there are tons of shady affiliates trying to earn a quick buck by utilizing scam techniques.
But you can combat that. Remember, you’re not paying affiliates until 45 – 60 days after the sale.
If there was a refund of transaction, then you can void the commission.
There are tons of good affiliate marketing platforms that automate this entire process at a very reasonable cost. Two that I mentioned above.
Affiliates create spammy sites and fake reviews which doesn’t reflect our brand
Ok so make your affiliate program invite-only and don’t invite spammers. Simple enough.
If you are just starting out and want to know a low-budget high-impact marketing plan for your startup, then there’s nothing better than affiliate marketing in my opinion.
I think of affiliates as having an army of sales people that you don’t pay a salary to. If they perform, you pay them. If not, then no harm, no foul.
I hope you will use this tip to grow your startup. You may also want to check out my 6 step guide to improving your domain authority and SEO.