Affiliate programs: webmaster profit margins?
 

Lately we've been toying with the idea of starting an affiliate program for our various Kastle Archives sites.

We'll likely go with the typical 50/50 revshare split.

But after crunching a few numbers, subtracting our various expenses (hosting, Verotel fees, etc.) and whatnot, it came down to only a 15% net profit for ourselves.

So for example, on every $100 in affiliate sales, we'd only see $15 of that.

Is this typical?

Yeah. It is. But add in 100 webmasters sending sales, and that 15 quickly becomes 150 and then 1500. And that is all MONEY you did not have before.

True enough. We initially looked at it that way as well.

But then I looked at it from the aspect of comparing it to a retail operation, and considered that no business would consider only a 15% profit return on sales.

Besides that, everyone else in the equation would be gaining a greater profit margin than ourselves as producers of the original content.

Plus, being in the niche genre - affiliate sales would eat in to the finite number of potential customers that are out there. The more members that sign up through affiliates would mean the less potential members we'd have through direct sales (at a higher profit margin).

We're thinking it may be akin to slowly giving away the golden goose, so to speak.

Just a few things I've been mulling over. 'Preciate the input czarina. :)

You are getting hosed somewhere.
First off very few webmasters will want to nor promote a paysite that uses Verotel as the primary.
Now some numbers to play with:

• CCbill fee's 12.5% or so, often split with affiliates on revshare.
• Bandwidth cost per member per month: $2.69 for myself
• Content production & purchases per month: $3.54 per member.
• Affiliate cut: 50%
• Average membership price: $30.00

Affiliate earns $13.13 per sale (no ccbill split fee)
Owner earns $7.75 per sale

As you will see that is more than 15% profit for yourself. Of course as your member numbers go up your content costs per members go down. Also depending on your hosting often the more you use the less you pay per MBPS.

This also does not include any self generated traffic and sales.

Interesting numbers, thanks ASM.

Although we're using Verotel as our primary @ 15% - we also have the option of handling the affiliate transactions through our hosting service, which I'm told is as low as 4% (unconfirmed at this stage). So we'd have to sort that part out first.

The biggest concern is that we're currently on a revshare deal with the webhosting - so a significant percentage of the affiliate sales is eaten up right there.

just a few comments:

- as far as I know his content is more europe friendly than usa friendly, so verotel might be a smart choice..

- 12.5% to ccbill requires a volum of atleast $12500 a week.. a new niche program won't hit that quickly..

- a 50/50 program should cover the fee so affiliates should get $15 in your example..

If this is what I think it is, this deal is basicly insane. You should kill this ASAP

You are correct about the math error in the 15. Though I feel on revshare/partnership the fee should be split. Personal choice of course. No reason the program should have to cover it since it is a partnership afterall, though it can be a good marketing tool.

True people will more than likely end up paying a few percent higher with ccbill.

Even Epoch EU would be better than verotel as far as affiliates are concerned.

Much appreciate all the feedback so far guys. :)

As I said, we're still mulling it all over at this point. We're eager to take advantage of affiliate sales...but not if it means tossin' the baby out with the bathwater.

I quite agree ASM that with the figures I quoted above, we'd be getting hosed. At this point we're fairly inclined to say no to the deal, and instead see what other arrangements we can make ourselves.

Consider an invite only program and be very limited.

That's a thought, yep.

We may hold off a wee bit longer until the revamp on the site is complete. I'm currently overhaulin' the graphics and tidying the place up, fresh new samples, links...yadda, yadda.

if you have enough traffic you can keep it inhouse worked for quiet

The real money in paysites is you get to keep 100% - expenses of the sales you genereate yourself. So the affiliattes sending you sales is good money and free advertising.

There is an economy of scale at work and there comes a point where the cost of generating the traffic in house is greater than the cost of buying the traffic from affiliates (PPS, revshare, whatever), it is simply impossible to generate the traffic in-house because there arent enough hours in the day (ie you dont have access to enough man-hours of work through yourself and your employees.. and thus you leverage the man-hours of an affiliate network)


sooo.. profits from the affiliates (no matter what the %age) is profit that you would otherwise not be able to generate.

I don't what numbers you could crunch before actually getting affiliates in -
Look at the biz now and you know what profit you are making - Paying an affiliate 50% doesn't mean 50% for you, for sure - But it should be much more that 15%
Every partner sale is a bonus - But if you want to stay a smallish company (I don't mean that to belittle you - ) You can grow very nicely with a programme and by looking after your partners, see them earn cash as well as you -
If, you still do your own marketing and budgeting, you will see your sales grow and your partner sales grow, and you will also see ways of ensuring that growth at the right costs -

and think about this too . . . the cookie has say a 3 day life from the affilates . . the surfer book marks yer site, doesn't join for 2 weeks . . . the affilate cookie is dead and the join is 100% yers

That part is BS and I check cookie times. If it is anything less than 30 days I never send traffic, and I always try to find ones that last 90.

3 days is just an evil way to fuck affiliates.

how do you check?

The equation is pretty simple. Say right now you charge $30 per month and you do 250 sales per month. Right now you get $7500 per month minus expenses (hosting, content etc.)

If you do 50/50 revshare, instead of 250 sales per month, you might get 500 sales more. So you would get your original 7500 (on the 250 sales you create in house) and another 500 sales at 50% minus expenses (processing). So say those 500 sales only generated you $10 each after processing. That leaves you with an extra $5,000 per month that you did not have before. However, because it is recurring, basically every month you will make more than the month before even if you only had the same # of sales because some people will recur. Your recurring database grows faster than you doing it yourself. So why leave that money on the table? Why not do it? With millions of people on the net do you think a few hundred sales per month is really going to saturate the market?

hey!!! I shot lots of that stuff in yer sig :)

good post

is this 2 to 1 equation realistic?

for example if you do 500 self generated sales/month and setup (for example) a ccbill affiliate program could you reasonably expect an additional 1000 new signups per month?

i was under the impression that the vast majority of affiliates don't send many sales, correct me if i'm wrong.

and to take that further---how many affilates would you need to signup to get an additional 1000 sales/month?

bump for good thread

a thread worth reading. bump.

you have to keep in mind the future money you can generate from the newly found member base. Upsells/cross-sells should be a huge factor in there as well.

Good thread indeed, bump for you.

It's actually possible to lose money by opening an affiliate program, for example, lets say you get your traffic by submitting galleries daily. When you open an afflil program, what may happen is tgp owner may start using hosted galleries on his tgp, or create some galleries by himself, so you end up getting same amount of traffic, but now you have to share the profits with an affil. Also, it seems like it's free money, but the truth is now a days affiliates are very demanding, they want free hosting, free hosted galleries, 50 different banners, custom tours, icq support, ability to use any content from members area etc... So even if you get few extra sales, there is now addtional work you have to do..

You have also missed that members will cancel and sign up again after a few months. Plus additional typeins that the extra brand recognition generates.