Why Affiliate Programs Are Risky

Colorado residents woke up this past Monday morning to find that their means of earning affiliate income through Amazon.com had been abruptly pulled out from under them. In response to a new Internet tax law passed in the state, Amazon decided to immediately shut down all of its Colorado affiliates.

In essence, Amazon gave all its Colorado affiliates the pink slip.

Amazon claims the new law is burdensome and unconstitutional. The response from the Colorado governor was that:

“Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process.”

This isn’t the first time it’s happened.  Amazon has shut down affiliates in several other states including North Carolina, Hawaii and Rhode Island because of similar tax laws.  This has the potential to become more and more of an issue as other states try to increase their  revenue by collecting tax on Internet sales.

Regardless of who’s to blame – Amazon.com or the government – this situation exposes a risk of doing business as an affiliate.  One can spend a tremendous amount of effort building up an online affiliate business, only to have the affiliate program go “poof” and disappear into thin air.

But, quite frankly, the risk of being an affiliate neither started nor ends with Amazon.com.  Affiliates are completely at the mercy of those running the affiliate program.  It can be pulled at any time for any reason.

While Amazon has promised to pay for any commissions earned prior to the shut down date, sometimes affiliates never get paid for what they earned.

I learned this lesson the hard way.

Some years ago, I teamed up with a friend and joined an affiliate program for a company located in Australia.  My friend was in direct contact with the president of the company.  We had his permission to use the product name in the domain names we purchased.  He was very friendly towards us and my partner spoke on the phone with him on a weekly basis.

We put in long hours and created several web sites that promoted the product.  They were all approved by the company owner.  We quickly rose to the top of the search engines and started making some pretty decent commissions, in the range of $500 – $1000 US/month.

But then the owner of the company got greedy.  He decided that he was losing out on the money he was paying to us affiliates.  We started getting late payments, then partial payments and finally, promises to pay us in the future.

At first, he claimed lack of finances to pay us. Then he claimed we stole his rightful spot in the search engine rankings.  He felt that his company web site – not an affiliate web site – should be the first listing in Google whenever the product name was searched for.

He demanded that we change the wording used on our web sites to reflect that we were affiliates.  He required us to add links from our sites to his as the official company web site.  We complied.  When that didn’t change the search engine rankings to his favor, he shut down our affiliate account.

We never saw the couple grand he owed us.  When we inquired about it, he threatened us with legal action.  A bad experience for us, and a very painful lesson learned.

Does this mean you should shy away from using affiliate programs to supplement your income?  I don’t believe so.  However, there are a couple of things that you can do to help protect yourself.

Tips on Using Affiliate Programs

1. Don’t put all your eggs in one basket. Make use of at least a couple different affiliate programs.   That way if one program goes under, you will at least have a couple others to back you up.
2. Do your research. How long has this company been around?  Do they have a history of paying their affiliates on time?  Research might turn up valuable information and help you decide whether or not you want to do business with this company.
3. Find out what system is being used to track and pay affiliates. Many companies use a 3rd party company to track and pay affiliate earnings.  3rd party companies that issue payments directly to affiliates tend to be more dependable.  Other affiliate tracking methods require the company itself to issue payments to their affiliates.  These are often less dependable as the company may decide to withhold payments or make late payments.
4. Go by your personal experiences. Apply for affiliate programs where you have purchased the product yourself and your overall experience with the company is positive.  Chances are, if they take good care of their customers, they will take good care of their affiliates.

Keep in mind that there are no guarantees when it comes to affiliate programs.  With the economy struggling, many businesses are tightening their belts and some are going under, both of which will affect affiliates.

Affiliate marketing, however, can still a good way to earn extra income.  Treat it as making an investment.  Take the time to choose wisely, don’t rely too heavily on just one source, and be aware of the risk involved.

Have you had a bad experience with an affiliate program?  Let’s talk about it!  Have some tips to share?  Leave them in the comment section below.

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