Let’s Do The Webmaster Math

Something interesting happened to me today.  A person I have known for a long time told me they wouldn’t do business with an affiliate program because they were only offering a 50% rev-share program instead of the “standard” of 70%.  Then another person said that he would never do business with an affiliate program that offers less than $40 PPS.   Of course both of these guys are owed checks for no less than 10 different affiliate programs and they can’t understand what is going on.  Really?  You can’t understand?  I guess people really just don’t do the webmaster math.

When really established names like Suze Randall and Earl Miller are having trouble paying their affiliates you know things are really bad.  We all know the economy is bad, but is that alone the reason why affiliate program after affiliate program is failing?  Off the cuff it’s easy to blame the economy on our problems but if you look closer, you soon realize we are in a large part to blame too.

How many times have affiliate programs offered things like $100 PPS sign ups on trials and 70% rev share?

Every time I see that it doesn’t make me want to do business with them.  In fact, it does the complete opposite.  It makes me realize how extremely short sided the people running the program is and their bad business decision makes me want to run the other way.  I want to do business with a company who is smart enough to hopefully be around for a long time to come.  With someone making these kind of financial decisions, I know that won’t be the case with these guys.  So that is why I tend to avoid them and as such that is also why I rarely have to chase after money people owe me, because I am smart enough to do business with smart people.

Affiliate programs were originally designed as a partnership between the program owner who has the content and the affiliate who was generating all the traffic.  A real partnership is one where everyone benefits but somewhere along the way things have gotten out of hand and in the end everyone loses.

Let’s say a member joins a website for a $1 trial membership.  The affiliate program for that says pays the affiliate $100.  These $100 PPS promos have been far more common.  Can’t understand it but nonetheless, let’s do the math on that.

On a decent enough site, in a decent enough economy, 1 in 4 of those trials will typically convert to a full membership.  On a decent enough site, in a decent enough economy, the average member will stay a member 4 months.  So if 40 people join the trial, 10 will stay members for an average of 4 months.  $20 * 10 = $200 * 4 = $800.  That means those 40 people that joined, in the end are worth about $800 to that site owner.  But keep in mind, that site owner paid the affiliate $100 PPS on those 40 original joins.  That means they owe $4,000 on the $800 they just made.  The math clearly doesn’t add up.

But not all affiliate programs pay $100 PPS for long.  Looking around $30 to $40 PPS is more common.   In fact out of the 20 affiliate programs I browsed tonight at random while writing this article, every single one of them paid either $30 or $40.  So we’ll call it $35 for example purposes.

You send 40 joins to that website.  $35 PPS * those 40 members = $1,400 you just made.  Great!  But as you seen before, those 40 joins really aren’t worth that much to the website.   They just lost $600.

A lot of websites try and make up the loss in doing up-sales like selling merchandise to their members or cross-sells with memberships being offered to their members, to other sites at a discount.   This money can often be significant but even still, common sense tells you that in the end the math just doesn’t add up.

The whole idea of being in business is to make money, no?

Now let’s look at high end rev-share programs.

A membership to this example website is $25.  The affiliate gets 70%.  That means with each join or re-bill the affiliate earns $17.50, leaving $7.50 left over for the website owner.  This $7.50 per member has to pay at the very basic level, the cost of credit card processing fees, chargeback fees, new content, web hosting including the cost of excessive bandwidth usage, banking fees, including payroll, and customer service costs.  So really what is left over for the program owner?  $7.50 per month, per member quickly is reduced to pretty much nothing.

An affiliate wants to make the most money they can from their traffic but in the end, an affiliate program can’t survive if they keep paying these over inflated fees.  So it is really no surprise that affiliate programs, even the big ones are having a hard time trying to find a way to pay their affiliates – I mean if you pay your sales team more than you are making from a sale, how do you expect them to stay in business for long?

So our lesson is this … you can do business with people all day long that promise you the world, but I want to do business with people that I know will be there to pay me today, tomorrow and next week.  You enjoy your $100 PPS promos or your 70% rev share promises, while I sit back and actually enjoy getting paid by the people I do business with.  I’ll take 50% any day and know for sure I’ll actually be getting paid than the promise of much larger numbers and be left with empty promises when it comes time to actually pay me.

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