You Make $400,000 A Month? So What.
By on May 17, 2010

roi affiliate

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 flipsitemediaAlex: 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

profit curve graph

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.

affiliate conversion chart

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.

Comments (58)

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  1. "Don’t say sorry just do big volume with nice ROI."

    Beautiful :)

  2. Carl says:

    Interesting info…I'm sure it's easy for some to get so caught up in running some big numbers they fail to look at their bottom line.

    Definitely something to keep in mind.

  3. Feldo says:

    Word… My Russian brother! It's all about finding that right sweet spot. Glad to see you are blogging again.

  4. Dan the Man says:

    This explains why some of the biggest "ballers" are out there setting up coaching programs, selling landing pages, how-to courses, ebooks, and various sundry schemes to generate profit.

    At the end of the day, Steve Wagenheim probably ends up with more cold hard cash in his pocket than many of these "ballers".

  5. Roland says:

    Dude – I really thought that was a picture of Alex! haha.

  6. Josh Todd says:

    My brain hurts now.

  7. Silver says:

    Alex is actually Ukrainian, but for most of you the former Soviet Union is Russia anyways, so Russian he is. Alex, nice to see that you are finally putting your Econ degree to work by drawing those nice graphs, I'm looking forward to guest post #2

  8. medium pie says:

    good article, nice refresher!

  9. Steve says:

    I would be pretty hard to float that much cash on a monthly basis. You would have to have a hefty line of credit somewhere.

  10. Phoenix says:

    I love it. Someone FINALLY talking about the numbers that matter.

    Keep it up!

  11. ScottyB says:

    If someone doesn't understand this concept already they are retarded anyway.

    But take this one step further than just overall spend and look at day, time, month etc and you can probably make that dollar go a bit further.

    Optimize everything!!!!

    • Lots of said "retards" in this industry thats why we wrote this post. A lot of newer guys start seeing money and think its a linear relationship between revenue and profit.

  12. [...] out my guest post on MrGreen.Am (the finest marketing blog out of New Zealand) about marginal profit maximization. Sounds fancy, [...]

  13. Damn. I wish I read this in all the articles and posts I read researching affiliate marketing.

    I am guilty of looking at the traffic numbers more then the bottom line. There has definitely been a few times where I spent more on advertising then I had generated in revenue. Luckily for me I was keeping a close eye on them and was able to pause then campaigns. Beginners luck for sure.

    Time to go back and do some more traffic analysis.

    Great post. Thanks for the info.

  14. [...] You have to click over and at least see the cartoon on top – it’s AWESOME. Young guy: “Ladies check out these sweet stats!” Girls: “So why are you still living at home with your Mom???” You Make $400,000 A Month? So What. [...]

  15. I tell you, it's really a pet peeve of mine that most people are always talking about their gross numbers. I think it's reedonculous. All I ever think about is net. All I ever quote is net with the exception of cash flow issues or talking to an affiliate manager.

  16. This is fair enough but lets say I did 400k a month in revenue with 5k profit… I still might prefer that to your other example of 10k revenue and 8k profit. I would have a lot of data to play with on the 400k revenue, would have made some new keyword discoveries etc etc.

    On top of that, if you are generating loads of traffic to your own sites you will eventually get some organic benefits + potential of capturing your own leads etc

    From the 400k I could e.g. downsize to 150k with 30k profit. And there are countless ways to optimise and lower costs or get more kickback …

    • 1. Data is over rated in some instances. CASH IS KING

      2. Most guys aren't driving traffic to "their own" sites but bridge pages that will never receive organic traffic. Or worse yet a lot of guys are direct linking.

      3. I like how you assume at 150k you'll be making 30k profit in the above example, but that is the point to find the perfect balance for yourself.

      4. RISK – when you're churning that much money any part of the chain breaks (advertiser scrubs, network doesnt pay, etc) you will be out A LOT of money, so is it really worth it?

  17. Adrian M says:

    ROI is all that matters to me — unless i'm just straight up trying to gather data. =)

  18. liquidmoney says:

    this article masks the true point. and the whole vestige that is 'the affiliate lifestyle'. running these amounts of money through creditcards allows affiliates and network owners to fund airplane travel, hotel stays, car rentals etc. (essentially anything you can buy from an airmiles® catalog) through sheer creditcard membership points. due to so much revenue –and thus payment fee income for the card company– being generated through them. i am not in affiliate marketing. my air travel is paid by me, not membership rewards on my card. my payments are 90% wired as well, so i don't apply for it. but i do meet affiliate marketers in real life from time to time. funny situations. they fly first and business class, stay at $500 a night hotels, but outside of flight companies and hotel chains that are Not sponsored by their creditcard's rewards programs, they struggle to pay up! reason- they have little to no Actual Cash! ive been with Top affiliates who could not sit with me in Coach even if we had to, because a Coach ticket must be purchased with Real Money, which he did not have(!), so he sat in Business because that's his Affiliate Revenue Generated reward on his creditcard!

    it's a lot of "smoke and mirrors" little to no money among 90% of affiliates. but a good lifestyle, i suppose, earned by churning as much fee-worthy revenue through creditcards as possible. actual profit from said revenue can take a backseat, because hey, who cares as long as the ticket and hotel with 3 meals a day are free?

    greetings from a 23yo earning 18000usd a month Wired, not in marketing.

    • I've met a lot of "super" affiliates in my day and I can honestly tell you there are only a few true ballers in the game, most guys are full of crap.

      Mr. Green being on of the true ballers in the game.

  19. Heh this reminds me of the old double down trick in roulette where one believes that you can win forever in roulette by just playing black or red and doubling down your previous bet. The idea being that you would eventually win…which you will if you had a crazy bankroll and there were no table limits. However this philosophy doesn't put you in a position to come out on top it just put you in a position to exponentially increase your potentially losses. Good post Green.

  20. I never thought about it that way. That makes so much sense. Not that I have to worry about it yet, I'm just starting to see revenue coming in period. But, this is in the memory bank.

    Thank You-

    Matthew Zinda

  21. Ryan Eagle says:

    If I shared my network revenue it's sure look pretty, but the profit is an ultra-small fraction of it – exactly why I still run as an affiliate.

  22. andrew wee says:

    "Thanks for that Mr Green, but this is my post so can you please keep to yourself. Now back to me"

    Alex, represent!

  23. Gregg_Sugerman says:

    Speaking not from internet experience but from being around super successful business owners in the apparel industry (guys who owned 200 mil/year companies)- they would all tell me the same thing repeatedly- if I could do it again I'd do it much smaller. Lower overhead, much higher profit margin, way fewer problems/headaches

  24. Laura says:

    Good post. Newbies would do well to keep in mind that the numbers thrown about are often gross, not net, in order to impress.

  25. Lance says:

    Great format, Alex and Lorenzo! It's good to have a post like this sprinkled in the mix. We recently talked about "statistical significance" of campaigns in a meeting and how many affiliates are not familiar with this. In order to decide if a campaign is a complete failure, you must have consistent, high volume data sets to analyze. The affs are always quick to blame the offer, not their lack of stat-sig data. Lastly, Alex, you one of the smartest Russian bboys I know. See you in August.

  26. Great insight, something to keep in mind-It's all about the NET profits. Thanks for post.

  27. d3so says:

    Mr. Green did bring up a good point regarding a higher volume = higher payouts & cheaper traffic.

    Alex shouldve built off that concept more.

    Regardless, great info presented!

  28. Chris says:

    A very interesting and amusing article indeed! I'm no economist but I guess the secret is to only market products, services, whatever it maybe that have a decent profit margin. Therefore you can do as much volume as you can handle and make bundles of cash. Have I got that right or not? Ahhhh, my head hurts!

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  30. Lorne Fade says:

    Mr. Green for Affiliate Blog of the year 2010, give this man the prize~

  31. sorry got the wrong post :P still this is a good post

  32. PLR says:

    An interesting post and it is all about ROI which is why SEO is a good investment but adwords is a good primer for such a course. Anyway keeping things on track is sometimes tricky when dealing with all these different mediums.

  33. Natalia says:

    Great article and several key points to keep in mind.

    "I have enough money to last me the rest of my life, unless I buy something."

  34. Buyipad2 says:

    Now Im doing my first bucks all that from Mr green topics
    Thank you

  35. ynasir says:

    Great share for me, mrgreen, i make my dream with your article.

  36. ynasir says:

    Great share for me,mrgreen, i will make my dream with your posting.

    gracias.

  37. nice article, I did learn lots. The more money you spend in this business, I think the more you will get out. Keep at it and you will make big money over time.

  38. Harshad says:

    AM: One guy did 10K today with this offer… you got to run this NOW!!!
    Me: How much do you think is his profit?

    AM is Away

  39. smaxor says:

    Love it Green! Thanks for the refresher ;)

    m/

  40. florin5kim says:

    Somebody give this man a prize

  41. Mr Green once again giving great insights. Kudos

  42. And how we will know that we have reached that point Mr Green?

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