Paul Jauregui first appeared on this podcast in September 2020. He and his wife Lisa had launched BK Beauty, a direct-to-consumer cosmetics brand, the previous year to great success.
Since then, many DTC brands have suffered from the impact of iOS 14.5 on Facebook advertising. But not BK Beauty. Jauregui “unplugged” Facebook ads at the end of April 2021, just before the release of iOS.
He told me, “There was a lot of dust 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 this channel – getting started, recruiting affiliates, awarding commissions, etc.
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 was unaffected by iOS 14.5 and Facebook ads.
Paul Jauregui: It didn’t affect us. We’ve increased Facebook Ads through March 2021 to approximately $50,000 per month. Then things started to go wrong and the reports didn’t give me confidence. So we disconnected at the end of April.
Bandholz: Just when Apple released iOS 14.5.
Jauregui: Yes. I talk to a lot of owner-operators. There was a lot of dust 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 hit about $120,000 a month in Facebook ad spend in the summer of 2021. We started looking at the numbers and realized we were just giving Zuckerberg money for nothing in return. We ended up wasting half a million dollars in 2021 on ads that didn’t drive sales.
Jauregui: We gained customers profitably through Facebook before iOS 14.5, but it wasn’t the ROI we needed. Also, incoming customers weren’t connecting with the brand because we were focused on cold prospecting. Customer service emails were spinning.
Our return rate has always been low — just under 2%. But it started to climb too. There were many signs. These weren’t the ideal clients I wanted to attract. We had other opportunities – brand partnerships and product collaborations. Affiliate marketing with content creators on YouTube was our first flywheel and still is today.
We’ll come back to paid and paid social acquisition, but not for now.
Bandholz: Many of us thought we should use paid social media, but there are plenty of ways to grow a business. Tell us about your affiliate program.
Jauregui: We set up an affiliate program quite early. Here is the context. We started the business in August 2019. But before that, my wife had a popular YouTube channel around makeup and cosmetics for about eight years. She has entered into brand partnerships and included affiliate links in her description box on products she likes. So we had a good idea of the mindset of content creators and how they operate.
So my wife had relationships with people who supported the brand and our launch. We chose to compensate these supporters for the sales they generated. This was the start of our affiliate program.
Many creators in our niche use rewardStyle, which is a sub-affiliate network. It is now called LTK. I didn’t know much about the space, but I knew I had to be on rewardStyle because that’s where the people we wanted to engage with operated. So I contacted Reward Style for more information. They pointed me to other affiliate networks that were to be the main platform.
Sub-affiliate networks are on top of the main platforms, such as Shareasale, which we work on. CJ Affiliate, formerly Commission Junction, is another.
Bandholz: All of this is confusing. Beardbrand has 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 transactional nature of a merchant and their affiliates with payments, reporting, link tracking, etc. I didn’t think Shareasale would bring us creators or connections. Granted, rewardStyle and another sub-affiliate in our category, MagicLinks, have programs for connecting with influencers and creators. But we have always sought out our own affiliates. We try to develop authentic human relationships.
We do a lot of product stocking. We meet new content creators, send them our collection, and issue a personalized 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% commission on Shareasale and rewardStyle.” We can look in their YouTube description box and see what affiliate platforms they are on.
Bandholz: So let’s talk about the cost. How much do these platforms cost? And how much commission do affiliates get? Do you offer them a discount code for their audience?
Jauregui: I’ll start with the last one. Yes, we usually issue a 10% creator discount code. For the cost of the platform, I’ll break it down by working backwards from Shareasale to us. In my experience, most major platforms charge similar amounts, although sometimes it is calculated differently. Shareasale takes a 20% payout cut. And we handle a 15% commission.
So, out of a sale of $100, $15 comes back to the affiliate. And 20% of that – $3 – goes to Shareasale.
That said, the sub-affiliate networks, rewardStyle and MagicLinks, take another slice 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 – up to 40% less. Many creators are unaware of this. Sub-affiliate networks take money from affiliates, not brands.
Bandholz: Why pay 15% commission plus 10% coupon versus 25% commission and no coupon?
Jauregui: We issue coupon codes for 10%. This is our baseline. It provides creators with a branded discount code to attract their audience. Regarding the 15% commission, we wanted to make sure that our content creators receive fair compensation. They drive our business. Fifteen percent is a good compromise in terms of commissions.
Bandholz: How many affiliates do you have?
Jauregui: We now have over 100 people that we work with or have some level of commitment. Beyond 100, it is difficult to manage.
All are in the beauty area. Many people, including coupon sites, sign up for our program directly through Shareasale.
Bandholz: Coupon sites – they basically steal money from you. A customer who is ready to buy will search Google for a coupon.
Jauregui: Beyond that, they steal money from our content creators and our affiliates. I generally don’t approve of coupon sites. I am very selective.
Bandholz: Many listeners are probably hesitant to get into affiliate marketing. What are realistic expectations? How much business can an affiliate program generate?
Jauregui: Each company and each category is unique. For us, affiliates drive 20% of sales, but I see that growing. That’s a lot of customer acquisition and lifetime value. Many content creators focus on beauty and makeup. It’s endless.
We will contact, engage, and produce products to people who may only have 2,000-5,000 followers. But our sweet spot is 10,000 to 50,000. We can start early with content creators in that range. We can step in early, give them lots of direct attention, and help them grow their channel with commissions, products, and support.
Bandholz: How can listeners contact you?