If I told you last month I did over $400,000/month in sales would you be impressed? How about if you found out that it cost me $395,000 in advertising to hit that – would you still be impressed?
Mr Green: This is a guest post from my Russian comrade Alex of FlipSiteMedia feat. Mr Green. You could say in this case Alex is like Justin Timberlake (he’s got the content) and I’m Timberland (doing the producing).
Alex: There is this mindset in the affiliate mentality saying that “with volume must come profit”. However all that matters to affiliates is how much money they keep, not what their affiliate network keeps. I’d rather have a month where I generate only $10,000 spending $2,000 rather than the above example. Not only will I make a higher profit, I’ll also sleep better at night knowing if something goes wrong (such as the network not paying me) I won’t be completely wiped out. I’ll talk about risk management in a future post.
I can hear you all hollering at your boy saying that you need volume to get statistically significant data. Yes, doing volume gets you more points on your credit card. Yes, doing volume can get you to the Playboy Mansion. Yes, making a tweet about it can make you look cool. But like everything in this world there’s a happy balance, and so I introduce to you something I learned in one of my economics classes:
The Profit Maximization Curve
Mr Green: This graph is ugly. Why use it?
Alex: This graph is very relevant to affiliates. As you can see initially, you need to produce more volume to make profit which is the distance between the Total Cost (TC) and Total Revenue (TR) curves. That distance widens with more volume or Quantity (Q). At a certain point, that distance is at its maximum represented by QB. As you can see, after that point, that distance between TC and TR narrows leaving you with less total profit.
Mr Green: Riiight…
Alex: Well let’s look at a more practical example. I’ll use Facebook since most of you are fairly familiar with it. Let’s take out all the variables like time of day, conversion rates, click through rate, and “gaming” the system and just look at the the bidding in the long run.
Mr Green: Ahh yes that makes complete sense! I remember Riley Pool did a similar case study like this.
Alex: As you can see, at a certain point your increase in bid does not yield the same increase in traffic. You would be paying more per visitor but will not receive enough volume to warrant that higher price, reducing lower overall profit. For this example your best bet is to keep your bid around $0.30 even though your total revenue might be lower. So you can chose to be a “baller” making $4000 a day (profiting $800/day) or maybe you care about how much money you get to put in your pocket and opt for making $2,500 (profit $1000). Think about that next to you run a campaign.
Mr Green: Alex I have a comment.When you run a high volume campaign, you are more likely to open up new options e.g higher payouts, cheaper traffic (depending on the network). This will open up ROI again, to what extent, it depends. Just something to think about…
Alex: Thanks for that Mr Green, but this is my post so can you please keep to yourself. Now back to me…the key is to play with your bid prices to find that sweet spot where you are maximizing your profit not the total volume. Yes, this may be so blindingly obvious for some of you, but sometimes we get so caught up in the nitty gritty things of affiliate marketing and forget about the actual point of it.
To all the affiliate managers out there… sorry.
Mr Green: Don’t say sorry just do big volume with nice ROI.
Alex: I hate you.