Paul Jauregui first appeared on this podcast in September 2020. He and Lisa, his wife, had launched BK Beauty, a direct-to-consumer cosmetics brand, the year before to great success.
Since then, many DTC brands have suffered due to iOS 14.5’s impact on Facebook advertising. But not BK Beauty. Jauregui “pulled the plug” on Facebook ads in late April 2021, just before the iOS release.
He told me, “There was a lot of dust that needed to settle with Facebook ads, a lot of questions. I wanted to focus elsewhere.”
“Elsewhere” for BK Beauty is affiliate marketing. He and I recently discussed that channel getting started, recruiting affiliates, assigning commissions, and more.
Our entire audio conversation is embedded below. The transcript is edited for clarity and length.
Eric Bandholz: BK Beauty is one of the few DTC companies that wasn’t hurt by iOS 14.5 and Facebook ads.
Paul Jauregui: It didn’t affect us. We scaled up Facebook ads through March 2021 to roughly $50,000 a month. Then things started getting rocky, and the reporting wasn’t giving me confidence. So we pulled the plug in late April.
Bandholz: Right about when Apple released iOS 14.5.
Jauregui: Yes. I talk to a lot of owner-operators. There was a lot of dust that needed to settle with Facebook ads, a lot of questions. It was a distraction, and I wanted to focus elsewhere.
Bandholz: Beardbrand had the same problem. We reached roughly $120,000 a month in Facebook ad spend during the summer of 2021. We started looking at the numbers and realized we were just giving Zuckerberg money with nothing in return. We ended up blowing a half-million dollars in 2021 in ads that didn’t drive sales.
Jauregui: We acquired customers profitably through Facebook before iOS 14.5, but it wasn’t the ROI we needed. Plus, the customers coming in didn’t connect with the brand because we were focused on cold prospecting. Customer service emails were ticking up.
Our return rate has always been low just under 2%. But it started to creep up, too. There were many signs. They weren’t the ideal customers I wanted to be bringing into the fold. We had other opportunities some brand partnerships and product collaborations. Affiliate marketing with content creators on YouTube was our first flywheel and still is today.
We’ll revisit paid social and paid acquisition, but not for now.
Bandholz: Many of us thought we had to use paid social, but there are many ways to grow a business. Tell us about your affiliate program.
Jauregui: We set up an affiliate program pretty early. Here’s the context. We launched the business in August 2019. But before that, my wife had a popular YouTube channel around makeup and cosmetics for about eight years. She did brand partnerships and included affiliate links in her description box about products she loves. So we had a good deal of insight into the mindset of content creators and how they operate.
So my wife had relationships with folks who supported the brand and our launch. We opted to deliver compensation to those supporters for the sales that they were generating. That was the start of our affiliate program.
Many creators in our niche use rewardStyle, which is a sub-affiliate network. It’s now called LTK. I didn’t know much about the space, but I knew I needed to be on rewardStyle because that is where the folks we wanted to engage with were operating from. So I reached out to rewardStyle to get more info. They pointed me to other affiliate networks that had to be the primary platform.
Sub-affiliate networks piggyback off of primary platforms, such as Shareasale, which is the one we’re on. CJ Affiliate, formerly Commission Junction, is another.
Bandholz: All of that is confusing. Beardbrand just launched an affiliate program using AvantLink. How does a merchant find the right affiliate platform?
Jauregui: Affiliate networks and platforms take care of the back office and the transactional nature of a merchant and its affiliates with payouts, reporting, link tracking, and similar. I didn’t assume Shareasale would bring creators or relationships to us. Certainly rewardStyle and another sub-affiliate in our category, MagicLinks, have programs to connect with influencers and creators. But we have always sourced our own affiliates. We try to develop authentic human relationships.
We do a lot of product seeding. We meet new content creators, send them our collection, and issue a custom-branded 10% discount code that they can share with their audience. We have no expectations. More often than not, they use the product, love it, and talk about it. After that, we introduce them to our affiliate program. We’ll mention, “By the way, we have a 15% off commission through Shareasale and rewardStyle.” We can look in their YouTube description box and see what affiliate platforms they’re on.
Bandholz: So let’s talk about cost. How much are these platforms taking? And how much commission do the affiliates receive? Do you offer them a discount code for their audience?
Jauregui: I’ll start with the last one. Yes, we typically issue a 10% discount code to the creators. For the platform cost, I’ll break it out by working backward from Shareasale to us. In my experience, most primary platforms charge similar amounts, although it’s sometimes calculated differently. Shareasale takes a 20% cut of payouts. And we’re running a 15% commission.
So on a $100 sale, $15 goes to the affiliate. And 20% of that $3 goes to Shareasale.
That said, the sub-affiliate networks, rewardStyle and MagicLinks, take another cut of the creator’s payout. Creators who sign up directly through Shareasale get the full 15%. But creators who sign up through rewardStyle would receive the net amount as much as 40% less. A lot of creators are not aware. Sub-affiliate networks take money from affiliates, not the brands.
Bandholz: Why pay a 15% commission plus a 10% coupon versus a 25% commission and no coupon?
Jauregui: We issue coupon codes for 10%. That’s our baseline. It provides the creators with a branded discount code to entice their audience. In terms of the 15% commission, we wanted to make sure our content creators are getting fair compensation. They drive our business. Fifteen percent is a good middle ground in terms of commissions.
Bandholz: How many affiliates do you have?
Jauregui: We now have over 100 folks who we work with or have some level of engagement. Beyond 100, it’s difficult to manage.
All are in the beauty space. Many people, including coupon sites, apply to our program directly through Shareasale.
Bandholz: Coupon sites they’re essentially stealing money from you. A customer ready to buy will search on Google for a coupon.
Jauregui: Beyond that, they’re stealing money from our content creators and our affiliates. I typically do not approve coupon sites. I’m very selective.
Bandholz: Many listeners are probably on the fence about getting into affiliate marketing. What are realistic expectations? How much business can an affiliate program drive?
Jauregui: Every business and category is unique. For us, affiliates drive 20% of sales, but I can see that increasing. It’s a lot of customer acquisition and lifetime value. Many content creators focus on beauty and makeup. It is endless.
We’ll reach out and engage and seed product to folks who maybe only have 2,000 to 5,000 subscribers. But our sweet spot is 10,000 to 50,000. We can get an early start with content creators in that range. We can come in early, give them a lot of direct attention, and help develop their channel with commissions, product, and support.
Bandholz: How can listeners reach out to you?