We see a lot of people on the AdWords Help Forum who are new to affiliate marketing. Many have bought an eBook, been convinced that they will be able to work from home, spend only a few hours per day working, make a fortune with a small investment and no knowledge, and all they have to do is to “work for Google, typing data into AdWords” or something similar.
When they have difficulties, they turn up on the forum asking questions. Some of them ask for our professional, paid assistance.
Can We Help?
The sad news is that we probably can’t.
Do read the rest of the articles here, but most of you reading this should forget the idea that a paid AdWords professional will be able to rescue you, and earn so much for you, that they and you will be rich. Affiliate Marketing isn’t that easy.
If Affiliate Marketing Was So Easy, Why Aren’t I Doing It?
If I could help you make so much money that you could pay me to do the work, why wouldn’t I make double that money, by just doing it all for myself? I don’t need you to be involved, if I’m doing all the work. I can set up websites (like this one, for example). What stops me from deciding to be an affiliate and getting rich that way?
I have a degree. I’ve founded or co-founded several businesses that are still running or were sold at a profit to another business. I set up my first commercial website in 1994. Google staffers recognise me as an expert in AdWords (a Google Accredited Professional for many years, AdWords Help Forum Top Contributor, and a LinkedIn recommendation for my work from Google staffers). My marketing skills have been used by clients including eBay properties Skype and Gumtree, computer companies like IBM and Hewlett Packard, and so on.
In other words, I do understand something about marketing, and I know something about running profitable businesses, I understand the web, and I understand AdWords quite well.
If it was easy to make large quantities of money as an affiliate, I’m quite well equipped to do it.
But I’m not primarily an affiliate marketer; I manage an agency with several other staff all of whom are also not affiliate marketeers. Neither are the majority of the other top contributors here: Kim, Lakatos, Rich and Tom. We’re not affiliates, because being a good affiliate is harder work than doing what we’re doing, and needs a larger cash pile.
Earnings versus Profit
You’ll often read affiliate stories about how much money people earned. Less common is to reveal how much of that was profit. Unstated in the glowing success stories is that you have to pay for the adverts. That cash comes out of your pocket. It comes out of your pocket *before* you get paid commission. You pay up front for clicks. Someone, sometime later, might buy. If they do, you earn a commission. After some time, your total commissions for that month are calculated. After a delay to make sure that the customer doesn’t return the goods, you will receive the payment, perhaps three months after you paid for the clicks.
The delay is there to protect the vendor from unscrupulous affiliates. Otherwise you could place adverts where no one else clicks on them (to save costs), then buy goods, collect the affiliate revenue and the return the goods for a refund. You’d make money from being an affiliate, selling to yourself. The companies protect themselves by holding on to the money until they are reasonably sure that no-one is doing this scam. It’s a sensible defence against fraud.
To earn millions, you need to pay millions. You get to keep a small fraction of what you earn – the profit. Don’t assume that earnings of millions, are profits of millions.
The use of the word “earnings”, by people who sell to affiliates, is carefully chosen. For most people their earnings are what turns up in the pay packet. Earnings for a business are what they use to fill everyones pay packet and rent the premises and buy the goods the business sells – leaving a much smaller profit behind. “Earnings” appeals to people who think they’ll pocket millions. It is disingenuous, even if technically correct.
Opportunity Costs
Chances are that if you are thinking of becoming an affiliate, you are also planning on spending a dollar a day, or even as much as $5/day. In most high volume markets, that’ll keep you in play for a few minutes, each day.
The problem is that you have to make your adverts capable of working effectively at any time of the day. The same effort is spent to make your advert work well for the short time it shows, as is spent to advertise 100% of the day. Who will make the most money from the effort – the guy advertising for a small fraction of a day, or the guy advertising for the whole day?
If your budget worked *all day*, then our effort invested, earns money for the whole day.
That is, if we have a choice of working for someone who can afford a full, 100% of the day budget, we can make more money for them, than we can make for someone who has a limited budget. However, the amount of time involved is broadly the same; it doesn’t matter whether the advert shows once a day or a million times a day – it has to be effective each time it is shown. Our efforts and costs are the same. Who would you work for – the fractional budget client or the full budget client?
Working for a limited budget learner affiliate is going to be unrewarding for you, and us. You can’t afford to pay a professional to optimise a keyword that is in play for minutes a day, when your competitors are paying for that advert 24×7, for the same costs of managing advertising.
Super Affiliates
A huge fraction of affiliate visitors to most major web sites, is controlled by a double handful of super affiliates. These businesses typically direct around 80% of the affiliate traffic. Even they have problems. What kind of problem do they have?
It is called “cash flow”.
When you make a profit, you invest it in advertising that leads to a 60-90 day commission cycle, and an 80-120 day payment cycle for the retained profit to be passed on. That’s a peak of about 4 inventory turns a year. That is, if you invested all your money, now, in adverts, you’ll see the last profit from that in about 90 days. The first profit you achieve depends on the margin. In an efficient market, margins will be squeezed, so you’ll tend to be competing on similar margins and the key margin is the final 10% retention typical of ClickBank and similar affiliate networks. So the first point at which you start to make a real profit, is about 80 days after the first advert. So your reinvestment period is restrained to that 4 times a year interval.
A company like Dell can make a dozen or more inventory turns each year. The faster the inventory turns over, the lower the profit you have to earn on each cycle. Or, if you make the same profit margin as a slower cycle business, in each faster cycle, a higher total profit from the business. Cash flow is crucial to a successful business and largely determines the profitability – it isn’t just how much margin you make, but how long it takes to realise that margin.
Affiliate marketing usually has an intrinsically slow cycle. So you need to make huge profits. But your new and less calculating competitors will often be assuming a shorter time cycle and will outbid you if you bid at the right level to sustain a profitable business. You will find that bidding correctly is a major problem. Made worse, because when you start with AdWords, you are learning – and you won’t get the same level of Click Through Rate that an experienced advertiser can achieve. Google will also remember that poor click rate history, and applies it to you, for ages – meaning that you’ll pay more than an experienced advertiser pays, even for the exact same keyword and advert.
The super-affiliates have *very* smart people who probably know much more than you do about marketing, web site design, bidding strategies and web analytics. They know tricks that you don’t – and many more tricks than you find in eBooks with titles like “Google Ca$h”, and “Secrets of the AdWords Masters”. The super affiliates build lots of effective sites very cheaply. And they use *lots* of techniques, including mailing lists, search engine optimisation, AdSense and so on. They don’t have just one way to generate leads. That multiplicity of methods means that each click is worth more, because they have many ways to make the most out of each and every click, refined as techniques over many years.
What’s stopping you?
You could learn all that, but that also needs cash – you need spending cash to set up and run an account and make many mistakes. Or you need to spend the money on training. And you need living money while you do that. Getting started as an effective affiliate is expensive, or slow, or both.
So… domestic economics. If you already know AdWords and marketing and web site design and web analytics, and you have several months cash in hand, you could probably be a good affiliate. If you are desperate to earn money, and don’t know how AdWords works – that is, you don’t know it well enough that you could work for other people effectively – and don’t have several months spending money in hand, and don’t know how to inexpensively set up effective websites and manage mailing lists and earn money from AdSense as well as affiliate clicks – you are probably going to lose money.
A paid professional isn’t going to make as much money from helping you, as they could make helping a business primary product producer to sell. That’s why we don’t work on revenue shares for affiliate marketers. Even if we took the whole commission, it is still a lower rate of profit generation than our current businesses.
It gets worse for us, if you control the website, as a learner. We’ve spent years, not just writing adverts and bidding, but also working with clients to make their web sites work better. It is quite common that even with a large and well known company, we can increase the “second click rate” – the click that takes the visitor from the advert and deeper into the website – by hundreds of percent, because we’ve seen so many examples of what works and what doesn’t.
Working with a learner affiliate, who has an ineffective site, a limited budget, and a single bite at the revenue stream, and is trying to learn from us as we do the work – is a poor money making opportunity for us, and expensive for the affiliate.
Summary
Some people will make money as an affiliate. More people won’t. If you turn up in the AdWords Help Forum, without having taken advantage of free learning courses, and you plan to spend a few dollars a day, you might spend an entertaining few months learning how it works… But you most likely won’t earn back what you spent.
A professional advertising agency can make more money working directly for the client company, than splitting revenue share with a low budget affiliate. We don’t wake up every morning, excited to help you spend $5/day, in the hope that our hours of work will yield earnings of a few dollars a day, months later.
Please do read the posts here and on the AdWords Help Forum. We’ll help you as much as we can with public answers, to public questions. Put aside the idea that a paid professional will be able to rescue you. Thousands of other people, for years before you, have had that idea, and you won’t hear many success stories, if any, about that model for developing as an affiliate.
I wonder how many new affiliate marketers understand Google’s policy and how it changed in 2005:
https://adwords.google.com/select/news/sa_jan05.html
Excerpt from that announcement: “With this new affiliate policy, we’ll only display one ad per search query for affiliates and parent companies sharing the same URL.”
So, affiliates are actually competing against each other as well as the parent company in the AdWords auction. That really stacks the deck against affiliates learning the ropes.
Also, Google has a pretty good help page, What should I know as an affiliate advertiser, here:
http://adwords.google.com/support/bin/answer.py?answer=45068