Affiliate marketing is one of the fastest growing industries in the Western world. According to a report published by e-Consultancy in January 2008, the UK market for affiliate marketing grew by an estimated 45% in 2007. The £2.16/$4.32 billion of sales through the affiliate channel in 2006 rocketed to £3.13/$6.26 billion just a year later. The topic on everyone’s lips in the sector is how it will cope with the economic downturn. Nadeem Azam shares his opinions.

Even while the economy was supposedly strong, the rate of affiliate marketing’s mindboggling growth was tapering off slightly, from 60% in 2006 to 45% in 2007. We will not continue to see the industry doubling every two years, but that’s because the base from which the increases are happening is so much higher. Aligned with the squeeze in the economy, people will not buy either online or offline with the same eagerness as they did previously, but one cannot draw the conclusion that affiliate marketing businesses will suffer.

Medium CPA Rev. per $1 spent
Radio $1457 $0.07
Print $ 958 $0.10
PR $ 82 $1.16
Email $ 24 $2.54
Online Ads $ 21 $4.61
Affiliate $ 9 $7.15

The simple fact is affiliate marketing is the most accountable and cost-effective form of marketing there is. Period. And, when marketing budgets are being carefully scrutinised, organisations will be looking to focus their spend on the channels that have the lowest cost per acquisition (CPA).

An art.com Cost of Acquisition study in August 2005 revealed the following CPAs across different advertising media: radio £766, print £504, public relations £43, email £13, online ads £11 and affiliate £5 (figures localised for the UK market; US dollar figures in chart above).

When profit margins are squeezed and advertising budgets are reduced, marketers will be under pressure to produce results, and the switched on ones will be looking at the affiliate channel with even more enthusiasm to drive sales and leads. Aligned with the trend towards more people buying online because prices are usually lower than the high street, the net impact will be that affiliate marketing will enjoy its heyday over the next two to three years. Affiliate business models like cashback and comparison sites are particularly well placed to benefit.  

I have been asked several times in the last month how I envisage the forthcoming recession will impact on our own digital marketing and design business and, while it undoubtedly causes concern and I am making sure that I am keeping a closer eye on economic data than ever, for years now I have sown seeds that I strategised would allow us to not only survive but dare I say it profit from a recessionary climate.

I have the experience: unlike most online agencies which have only existed for a few years, we experienced the fall-out from the dot.com crash seven years ago, an e-recession which was far worse than anything we will see over the coming three years, and came out of it fighting while companies in many sectors were unfortunately left slumbering on the canvas.

I have been rabbiting on about and preparing our business for the so-called credit crunch for a long time. The day before yesterday I was chatting on the phone to my longest standing friend, from Weisbaden in Germany, and she said to me, "the economic downturn you were forewarning about for years and said would effect the USA and UK is indeed finally here".

As the economies supposedly kept on booming, people may have seen me as a doomsdayer when I’d go on about how the flaky economic foundations of the Anglo-Saxon economies and the absurd situation where folk kept buying stuff with huge amounts of other people’s money would lead to a slump. I wanted them to be prepared for an economic downturn as much I have hopefully made sure Azam Marketing was.

 

Fingers crossed everybody will keep smiling over the coming seven years of famine. For those with at least one of those fingers dipped in the affiliate marketing pie, the impact of the pressing economic times will probably not be too bad: as James Marciano, the founder of the affiliate marketing directory Refer-it, once said, it is "a recession-proof marketing channel".

What do you think: how will channels like affiliate and search marketing fair in the coming recession? Will online businesses go to the wall as many did in the dot.com crash? Your views are welcome below.

Recommended Reading:

Recession-Proofing: 101 Tips to Survive the Credit Crunch

JupiterResearch: Affiliate Marketing Spend to Grow to $3.3 Billion by 2012

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