Should you create an Affiliate or Reseller program?
After spending the last 10 years of my life trying to find out if affiliate partnerships or resellers are better for my businesses, I think I am ready to share my reflections with other entrepreneurs that are searching for the perfect model for their company.
I have tried both the affiliate and the reseller models with several companies, products and services. Both models have their strengths and weaknesses.
The basics for any partner program
Both Affiliate programs and Reseller programs are a way of defining a supply chain to the end-users. In today’s open business philosophy we often hear about all type of meaningless partnerships including fancy names like:
- Strategic Alliance Partner
- R&D Partner
- Media Partner
The simple question to ask before start working with a partnership is: Will this partnership affect my sales budget? If the answer is no, the partnership is just a way of saying you fancy another company and it is not worth working with.
A Reseller Based Model
The reseller model is used by almost every single retail supply chain where a vendor establishes a wholesales agreement with a store or a chain that is responsible for all interaction with the end-user.
A similar model is often used in the IT industry but is often decried with other terms like:
- Channel Partner
- Value Added Reseller
- Integration Partner
The reseller approach is often considered to be more clean in terms of letting the end-user understand who benefits from the final sale.
Pros with a Reseller Based partner model
There are many advantages of working on a reseller base with your partners. Depending on the industry you are operating in, you will often find that resellers are more committed to your product than a typical affiliate partner would be. Other advantages include:
- Less invoice management
- Reseller handles the entire sales process
- Reseller handles 1st line support
I personally created my first reseller network with great success back in 2001, inspired by the model used by the retail model of doing business. Back then, the common way of selling hosting services in Norway was through affiliate agreements.
The affiliate agreements were upsetting for many smaller IT consulting firms that the customer often hired to give a single point of contact for all IT related issues. The IT consulting firms wanted to sell their professional services (including hosting support) as an add-on service to our hosting. We had resellers that sold our services with up to 2000% mark-up simply by providing local support to their clients.
Cons with a Reseller Based partner model
There are indeed some cons with the reseller based partner model as well. The most scary for most companies is that they do not own the customer relation nor the customers locality. In situations where the reseller chooses to switch partner or, even worse, totally disappear, it is challenging. Other cons include:
- Not owning the end-user relation
- Less ability to manage the way your product is presented
- More complex legal relation to the end-user
- Resellers want a larger part of the deal than affiliate partners
For service companies with recurring payments schemes, it is also important to remember the challenges that appear when suspending service delivery due to missing payments. The end-user is unaware of the relation between the supplier and the reseller and you might end up suspending the delivery of a service that the end-user actually has paid the reseller for.
An Affiliate Based Partner Model
The affiliate model is a more complex model in terms of the end-user approach; badly executed, this model can make your customers feel like you have fooled them.
If you choose to approach an affiliate model, it is important that your affiliate partners make it clear for the end-user that they actually benefit financially on recommending your product or service; otherwise, it may feel like a bribe for the end-user.
Most of us have experienced badly executed affiliate partnerships at hotels. When we ask the concierge about a restaurant recommendation and he instantly suggests reserving a table on your behalf. At that point, you know that the hotel will receive a commission from the restaurant, and you are likely to ask yourself if this is actually the best restaurant around. This is bad for both the hotel and the restaurant, but they do not care, as you most likely won’t be coming back there anyway.
A good implementation: if an affiliate model can be found at telecom stores. Most stores will have several mobile operators with which they can help you get a contract . They present you with the different options and might give you some guidance and recommendations. You know that their recommendations can reflect what operator pays the best commission, but in the end, it is your decision with which operator you will sign a contract. It is clear that the store will receive a commission from all the different mobile operators with which they “help” you sign contracts .
Pros and Cons with an Affiliate based partner model
The huge advantage of an affiliate based partner model is the ownership to the end-user and everything that comes with actually managing the end-user relation. Another aspect is that affiliate partners at their simplest form do not need any training.
Another important parameter is that affiliate partners often ask for less commission than the discount that resellers get. On the other hand, affiliate partners have one responsibility for post-sales activities and no financial risk.
Recommendation: Reseller or Affiliate partner program?
I have practiced both and learned from both models. In Connection Consulting, we use affiliate based models due to the complexity of the products sold by us and by our partners and because affiliate models are very commonly used in the Brazilian professional service market. In Norway, I have used reseller models with great success with standardized hosting services.
My recommendations are the following:
- Complex products benefit from the affiliate model
- Standardized products benefit from the reseller model
It is not recommended to be a first mover in an industry that does not have a tradition for affiliate based business models. This can create distrust from your end-users as soon as the model is disclosed. Imagine if you find out that your doctor receives commission per prescription from the pharmaceutical company that produces your medicine.
The reseller model can be a great way to differentiate yourself in an affiliate dominated market. Affiliate partners have a less significant role in the distribution channel than a reseller has. If there is a large group of affiliate partners that would like to have a more dominant position, they will come your way by simply offering a reseller status where your competitors only offer an affiliate option.
What do you recommend, or what do you prefer? Please leave a comment below to let me hear your opinion.