Can Affiliate Generate a Flywheel Effect? #15

Hi Friends 👋!

Parental leave has been a great success!

Lots of new baby boy snuggles, our little girl becoming a baby sister, sleep deprivation, plus some good old love & gratitude!

Let's dive into it!

As you know we have spoken a lot about generating a flywheel effect for your business. The RBL Flywheel 🤌

Ah yes, the flywheel.

Made famous many times over by Jim Collins' Good To Great and of course Jeff Bezos / Amazon.

Source: amazon flywheel

As cliche as it might sound, when a flywheel is created it can be the difference between success and failure. It can (most times will) be the competitive moat your business needs for your market, customer, and competitive set.

Definition : a flywheel is a system generates inputs to create outputs that continue over time. Outputs are reinvested to generate additional inputs and additional output to create compounding gains.

A recent example was shared by a little company headquartered in Austin, TX this week. Maybe you have heard of them ;).

Tesla 2023 Investor Day.

Elon presented this slide as part of "Tesla's Master Plan 3" to illustrate that there are enough natural resources to power a fully electric power grid. Recycling can be a method of creating a flywheel of outputs that can self generate more inputs that create more outputs.

source: Tesla

An exciting message of hope and optimism from Tesla.

Hopefully you can take a bit of this optimism and excitement and apply it to your business.

We have applied this to our business with the RBL Flywheel and the name sake for this newsletter.

TLDR: Businesses can create a flywheel effect by investing in:

1. Conversion Rate Optimization - Experimentation, A/B testing, and conversion rate increases. OUTPUT = higher conversion rate / more conversions

2. Affiliate Marketing - Partners want higher conversions to promote your brand. In particular, whitelisted influencers raving about your product. OUTPUT - third party content to use for social ads.

3. Paid Marketing (utilize whitelisted influencer post as part of your paid social ad mix) OUTPUT - higher Click Through Rates and higher Purchase - -> more traffic and more revenue.

The Cycle Continues! This newly generated traffic allows you to run more conversion rate optimization A/B tests and experiments (the first step in the flywheel) and the cycle repeats itself!

Well, what about AFFILIATE MARKETING?

We know it's the most misunderstood, underrated, and efficient paid marketing channel.

But can it deliver a self sustaining flywheel or growth loop?

Growth Loops are similar to flywheels. Modern businesses require them to grow effectively in a competitive environment. Reforge is the master class for all things growth and have coined the term Growth Loop.

Loops are often a better way to think about growth, acquisition, retention, and monetization than just looking at a traditional marketing funnel.

Source: Reforge

See the paid acquisition (marketing) growth loop in the image above (the Iower right loop)?

This same theory can be applied to affiliate marketing.

Here is how you do it. You build the following for your affiliate program:

1. MarTech foundation - tracking, reporting, attribution. (more detail on this in previous and future writing)

2. Partner Principles - execute best practice & long term thinking putting a collaborative and long term positive relationship at heart of what you do. Being cool with your partners goes a long way.

3. Economic Alignment -  “Show me the incentive and I will show you the outcomes”. - Charlie Munger (complete legend). Paying partners well v. competitors is key, but ensuring payouts are tied to your most high value revenue driving actions is just as important.

4. Partner Diversification - concentration risks can hurt. You will need to eliminate concentration risk and have affiliate partner representation in each business model: content, influencer, tech, coupon/deal, cash back/loyalty, search, email, media buyer, emerging (of course dependent on type of brand). Far too many affiliate programs neglect one or many business model or over index on one partner type (often coupon and loyalty), leaving a gap in the marketing funnel (awareness , consideration , conversion). Diversify or perish.

5. Active management - this ain’t an index fund. Brands that attempt to operate them as such fail. For brands working with teams like ours, we recommend 1-3 hours per week (depending on program size and scope) to review and approve partners, plans. If you are doing it yourself you might invest 10 hours - 40 hours per week. Launching on an affiliate network, setting your payout, tracking and adding creative is only the beginning.

6. Growth is never done - ongoing experiments, offer, landing page, campaign, and appropriate commission increase tests are required to always be looking for ways to improve performance.

To say it more bluntly, if you effectively court, support, and feed your affiliates (influencers and partners) high quality landing pages, offers, exclusives, unique content, ads, brand guidelines, freedom to test, time to learn and optimize and invest in long term relationships with them, your output will be more affiliates, more traffic, more revenue, and higher quality of both.

Take the revenue from the output and reinvest it as the new input!

If you can do that, you just created a specific type of paid marketing growth loop or flywheel, an affiliate marketing flywheel.

Why does this matter?

Once your affiliate program flywheel or growth loop is spinning, it does not stop unless you stop feeding it. It can be a more consistent “channel” with a stronger moat around it versus your competition. It can also mitigate your reliance on paid search and social. 🚀 Yes too many brands are over leveraged on Google & Meta and need another source. If you do it right you and your EComm brand will get:

1. Lower CAC

2. Higher ROAS

3. 20% of your revenue

4. Increased sustainability and diversity.

Yes, while it takes longer, it can be more secure diverse ad predictable than paid search and social.

💥 Conclusion: EComm brands do not understand affiliate marketing, and even worse they have no idea how powerful affiliate marketing can be when you turn it into a flywheel and keep it spinning.

Let me know if you have questions, comments, or want to build a flywheel for your affiliate program.

Have an amazing day!

Tye