Affiliate Profit: Are You Losing Money?
I have bad news for you: You are probably losing money and you didn't pay attention to it! Let me explain...
When you joined affiliate programs you probably considered the following factors:
- The commission
- The conversion rate
The profit formula looks like a child play:
Commission x Conversion Rate = Your Profit
In fact there are three big pitfalls here and if you don't manage them properly, your profit is at risk. Let consider them:
- Price: A high price means a higher affiliate commission for every sale but it may result also in a lower conversion rate? If the product is too expensive, nobody will buy. You shouldn't be blinded by the promise of a very high commission. You should keep in mind that the best price is not the one that gives you the highest commission but the one that makes the highest profit. An optimized pricing that makes satisfied customers and satisfied affiliates is what you should look for.
- Refund Rate: Refunds can kill your marketing efforts! What are worth the sales you see in your account if customers request their money back? A lot of sales mean nothing unless you keep the money!
This is the whole responsibility of the merchant to keep refunds as low as possible. A site that sells well is good. A site that also keeps refunds very low is much better! There is only one way to keep refunds very low: To deliver very high quality services meeting customers' expectations or going beyond what they could expect!
- Product quality: Quality is king! Quality makes superior conversion rates! Quality enables higher prices and better commissions! Quality keeps refunds as low as possible! In a word: Quality should be your compass. Don't associate your business with low quality products or services. On the top of your list, promote only the very best. It will also keep your profit on top.
How much money are you losing today?
The money you earn and lose is significantly determined by the quality of the affiliate program you have selected as your top pick.
The question is: How do you measure what is more qualitative and what is less?
There is an objective criterion to use for answering this question and for optimizing your profit: The refund rate of your top affiliate program!
A high refund rate express clearly that lots of customers are not satisfied with what they get and that affiliates lose money on their sales. On the contrary, a low refund rates indicates a high level of satisfaction among customers and safe earning for affiliates.
If you get many refunds with your top affiliate program, you should understand that the quality of this program isn't sufficient for keeping these customers satisfied and it doesn't do the necessary job for securing your profit? You are losing money!
What are good, medium and poor refund rates?
Refunds can't be totally avoided. There will always be customers that are not satisfied even for the most qualitative product or service. So, expecting a zero refund rate on the long run is not realistic. You should wish a refund rate as low as possible in your industry. It's important to consider that there can be significant variations from one industry to another but as a rule of thumb you can use the following scale:
2% or less: Excellent
3% - 5%: Good
6% - 10%: Medium
11% - 15%: Poor
16% - 20%: Very Poor
21% or higher: Run away!
With a 5% or less refund rate you can be happy. Your affiliate program is reliable and your profit is secured. With a 6%-10% refund rate, you should monitor closely your merchant performance to ensure it doesn't get worst. It would be advised to scan the market for a better alternative if you can find one. With an 11%-20% (or higher) refund rate you should be very concerned with your profit. Whatever your industry is, you are bleeding and there is probably a better affiliate program to promote.
What is the refund rate of your top affiliate program?
There are two ways to find the refund rate of an affiliate program:
1) Look at the stats supplied by your affiliate program
Do your math as following: Refunds / Sales = Refund Rate
Let say you make 1000 sales per month, you get a $23.50 commission per sale and about 160 customers request their money back every month. Your refund rate is 160 / 1000 = 16%. In that case it means that you should have earned $23,500 for your sales but you will get only $19,740 because of the refunds. You lost here 16% of your profit or $3,760!
You can ask yourself: Is it only I or all affiliates for this program get similar numbers? If you use Clickbank to promote affiliate programs, you can get the big picture about the whole community of affiliates that promote an affiliate program.
2) Using Clickbank payout stats to calculate the average refund rate of a program.
In its marketplace, Clickbank publishes payout stats for affiliate programs. The $Earned/Sale factor gives us exactly what we need to calculate the average refund rate of a program.
The $Earned/Sale is the average net amount earned per affiliate per referred sale. This number is mainly impacted by refunds and it reveals the real commission earned by affiliates. With this number, you can have an inner look at the real performance of affiliates programs.
The average refund rate of an affiliate program is:
(Commission - $Earned)/Commission = Average Refund Rate
What is the refund rate of popular affiliate programs at Clickbank?
As an example, we have looked at three affiliate programs selling paid surveys databases. We have found their refund rates very high! You will be surprised at discovering how much money affiliates can lose when promoting these programs:
- SurveyScout: 16.2% refund rate!
- Survey Platinum: 20.9% refund rate!
- My Consumer Survey: 35.2% refund rate!
To get into the details, on November 29th 2005 figures were as following:
Affiliate Commission: $23.50
Average $Earned/Sale: $19.69
Refund Rate: (23.50 - 19.69) / 23.50 = 16.2%
Example: For 100 referred sales you should earn $2,350. In fact you will get only $1,969 because 16 customers out of 100 have requested their money back!
Affiliate Commission: $23.50
Average $Earned/Sale: $18.58
Refund Rate: (23.50 - 18.58) / 23.50 = 20.9%
Example: For 100 referred sales you should earn $2,350. In fact you will get only $1,858 because 21 customers out of 100 have requested their money back!
My Consumer Survey
Affiliate Commission: $40.84
Average $Earned/Sale: $26.43
Refund Rate: (40.84 - 26.43) / 40.84 = 35.2%
Example: For 100 referred sales you should earn $4,084. In fact you will get only $2,643 because 35 customers out of 100 have requested their money back!
Remark: My Consumer Survey has a poorly designed site and a higher price for buyers. We estimate its conversion rate to be significantly lower than other paid surveys programs. Despite its high commission, affiliates will lose the most money with this program.
We learn three lessons about these paid surveys affiliate programs:
- A lot of customers are dissatisfied.
- Affiliates lose big money.
- The quality of these programs is very questionable.
What should you do to stop the bleeding?
You have no influence on the quality of the affiliate programs you promote. Your only real influence is on the quality of your recommendation!
Giving your top recommendation to a very professional affiliate program that delivers the utmost quality services to customers will keep your profit as high and as safe as possible.
In the field of paid surveys and mystery shopping jobs, the most professional program available today is Maximum Paid Surveys.
Maximum Paid Surveys is a premium database of paid surveys and mystery shopping jobs. It delivers a superior value to both registered users and affiliate partners due to its very high quality.
How to identify quality in affiliate programs?
Defining quality is a difficult job. In general, people can't define clearly what quality is but they recognize it when they see it. So what should you look at in affiliate programs?
The most qualitative affiliate programs find the right balance between the value they offer to customers and the value they generate to affiliates:
1. Value to customers ? It includes:
- Rich content
- Good looking website
- State-of-the-art organization
- Friendly functionality
- Affordable Price for most visitors
- Detailed documentation
- Bonuses strengthening the main offer
- Timely Customer Support
2. Value to affiliates ? It includes:
- High conversion rate
- High commission
- Low refund rate
- Commission paid on time
- Good affiliate support
About the Author: Sam Parker is a managing partner at Maximum Paid Surveys, a premium database of paid surveys and mystery shopping jobs. Maximum Paid Surveys brings superior value to affiliate partners and to registered members by delivering the most professional resource of paid opportunities on the Internet. http://www.maximumpaidsurveys.com