Affiliate Marketing is Probably Wrong for Your Business: Here’s Why

The temptation to launch an affiliate marketing program seems logical, and consistent with the theories of network effects and virality to boost sales and brand recognition. (Definition: Affiliate Marketing is a channel through which a company incentivizes existing customers to refer new ones.) You want customers to like your product, and refer others. Referrals seem to fall in the purview of Marketing, so this seems straightforward enough.

In most businesses, referrals are actually more a function of product experience than any clever copy or incentive could create. A request to refer others will either occur naturally when users have a positive experience, or be more effective when requested for intrinsic motivations instead of external reward.

Which is the core of the reason affiliate marketing programs rarely hold up to real data scrutiny or tests of critical thinking. Unfortunately, the presence of an affiliate marketing dashboard tracking shares, clicks, signups and purchases seems to be the only measure of impact that many startup founders and corporate marketing teams reference.

This obscures the fundamental question: how many of these incentivized signups would have happened organically? How many word of mouth referrals were made but never completed because of an interrupted buyer’s journey? Even in businesses with a high reliance on the network effect, organic requests for referrals feel more credible to new users, and are tactically easier for existing customers to make.

Dashboards and revenue metrics need to be analyzed in context to avoid misleading conclusions.

Across dozens of companies in varying industries, we’ve seen no evidence of effectiveness or ROI. Long term, affiliate programs seem to weaken brand reputation and lengthen buying cycles. In the short run, they’re an expensive distraction that yield misleading data.

Here’s why:

1. You’re interrupting an organic viral loop and word of mouth process — lengthening or stalling the decision process.

If it isn’t easy for customers to buy and use your product, fewer will. By creating an affiliate marketing link, which customers need to access by logging into an existing account, you’ve interrupted organic word of mouth — the most credible lead generation source — in exchange for extrinsic incentives that rarely incite referrals that wouldn’t have come organically. There isn’t an incentive that your company could offer (profitably) that customers would feel is worth risking their relationships or reputation on — meaning they either will or won’t refer new customers based on their genuine opinion of your product. What’s more, sharing the affiliate link registers as a new user in most marketing automation platforms if the customer hasn’t been seen by the platform before, but is rarely the first time the two users involved have discussed your product.

Here’s an example: Conversations like these are happening beyond your purview:

Word of mouth referrals more often catalyze a request for a referral code than the other way around.

• Existing customer makes a verbal referral.
• New customer waits for a discount code.
• Your company loses revenue from providing a discount to a customer who would have been created organically, while spending time and money on a platform and staff to manage a low-performing marketing channel.

2. Affiliate marketing metrics are inherently unreliable data.

Only 7% of word of mouth decisions happen online, which means that the data your company can track at scale misses or convolutes the majority of the purchase decision inputs. Misleading data is worse than no data at all because it leads to poor strategic decisions and unmitigated assumptions, while a lack of data prompts further research and calculated conclusions.

You can’t track the in-person word of mouth referrals that would have come organically, or the impact on lengthening the buying cycle for new customers who may have impulse purchased but now wait for a digital referral code to come through the existing customer. Your team is susceptible to weak proxy metrics and undue extrapolation without necessary context of what would have happened without these expensive programs.

A small minority of customers will be incentivized to refer based on affiliate marketing alone, and additional word of mouth context is needed still to convert a new customer. A “batch and blast” approach works just often enough to provide misleading data that seems to suggest revenue is being generated from sources you’d otherwise miss.

3. Affiliate programs cheapen brand referrals and train customers to wait until there’s a discount to purchase your product.

Unicorn shoe company Allbirds is a perfect example — they tell customers that they’re so confident that they’ll love the quality, and the price is already reasonable, that there’s no reason to wait for a sale or promo code to purchase. Allbirds exemplifies an understanding that referrals are a product of customer experience, and don’t weaken sales by removing the impulse to purchase as soon as a new customer learns of the brand.

Allbirds Coupon page.

You can’t track important data that’s foundational to understanding the impact of affiliate marketing programs, obscuring the actual outcomes. And every additional channel you invest resources into has inherent business costs to maintain.

Let me explain:

What you’re tracking:

• Total number of referrals
• Clicks per link
• Signups from referral links
• “ROI”
• Often miscalculated as: New Revenue Generated — (Cost of Program + Cost of Incentive)

What you’re not tracking:

• Organic WOM referrals that would have happened either way, and are now more costly to the business to track and incentivize;
• Changes in buying cycle duration, if users interrupt their word of mouth referrals to come to your site and find a referral code;
• Low-value touch points between the initial referral and additional actions taken.
• Loss of internal focus around high-performing channels, because you’ve dedicated resources to manage the affiliate program;
• Revenue lost from delaying purchases and giving discounts that don’t increase conversions.

You’re a data-driven entrepreneur or marketer. You’re keeping up with best practices and the latest tools. You know all about virality and growth loops. So, affiliate marketing has crossed your radar as a potential way to drive referrals and revenue. You may even have done a demo or two with affiliate marketing platforms that claim to increase sales by XX%, and have plenty of testimonials from excited customers.

CMOs have heard of trendy new platforms that promise to launch a company’s growth and revenue, and jump at the opportunity to implement these costly platforms, often requiring an entire full-time hire to manage and update.

Having seen dozens of affiliate marketing programs up close and comparing data with other industry leaders, we’ve come to the conclusion that they’re almost always wrong for most businesses. If you’re considering it, we highly recommend running controlled experiments before interrupting your customer journey. It’s harder to phase out an existing incentive program than it is to roll one out.

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*Note: Affiliate Marketing is sometimes confused with Influencer Marketing, but they are entirely disparate programs.