# Doing The Math...

1. Doing The Math...
For CPA is an interesting exercise. Since Google & Yahoo control the PPC space, let's see how things play out if we actually do the math.

Suppose a CPA merchant pays you 15% and is on SAS. SAS charges 20% of the commission earned so the merchant is on the hook for 18% over all.

So lets say you sell \$50 worth of stuff ... you earn the 15% or \$7.50. SAS
earns \$1.50. The merchant pays out \$9.00.

Suppose you pay 10 cents per click since that is the minimum on Yahoo and unless you pay at least 10 cents on Google, you might not even get a click thru to you site although the minimum is 5 cents.

If you convert 1% of your visitors into a sale, for every 100 visitors you earn \$7.50. But at 10 cents per PPC you payout \$10 for every 100 visitors. OOPS.
The merchant makes \$41 in revenue, SAS makes \$1.50 and it costs you \$2.50 to make them their cut.

At 2% conversion, you are plus \$8. Now if you extend it out to 1,000 clicks you will make \$80 IF the conversion is 2% and lose \$25 if the conversion is 1%. So to make the minimal profit on 1,000 clicks, you need a conversion ratio of 1.4% for which you will profit a whole \$5.

Now suppose you don't have to pay an affiliate and as a merchant you can
get the same 1.4% closing ratio on the 1,000 click thrus for \$100. You earn \$50 x 14 orders for \$700 in revenue and save \$126 in commissions.

As a result the marginal utility of having affiliates is that as a merchant you earn \$26 more from NOT having an affiliate all things being equal over 1,000 click thrus.

It's only if your closing ratio is above 1.4% that it may or may not be worth having affiliates but that depends on the comission rate and the network take out. If you use CJ as your network with it's 30% vig, the affiliate earnings are the same, but you pay \$.75 more per order as a merchant.

So, what it all comes down to is that it is marginal at best to have affiliates unless the overall conversion rate is above 1.5% and it only becomes viable if the cost of clicks rises, since the expense falls on the affiliate.

If the cost per click goes to 20 cents, that's \$200 per 1,000. So to make a profit an affiliate needs to see 27 orders or a 2.7% closing rate to make a profit. At 50 cents per click, you are now spending \$500 for 1,000 click thrus,
and you need 67 orders to make a profit ... a 6.7% closing ratio.

If a merchant has a 6.7% closing ratio, it would be more profitable NOT having affiliate if that merchant is also using PPCSE. But if the merchant did not do PPCSE and left it all to the affiliates, they would make more money.

Competing with affiliates raises cost and lowers profits in general. Having NO or marginal number of affiliates is where the profit is located ASSUMING traffic must be paid for thru PPCSE.

For most affiliates it is totally insane to do CPA ... except for higher comission offers with proven conversion ratios of greater than 3%.

If I were a merchant I would do PPCSE in house and use an affiliate program to brand my site or offers by paying a slotting fee or CPM. If you are paying CJ the \$750 per month plus 30%, you are probably going to sell more if you put the whole thing into PPC search and forget about the affiliates.

On the other hand, you could pay \$1 CPM to affiliates and your offer seen 750,000 times in one month for the same amount of money. You would need
only 15 orders at the \$50 number out of 750,000 to cover the cost a conversion ratio of 1 in every 50,000 impressions.

So there you go ... which posion do you prefer?

2. Seo

3. I make money with CPA. If you didn't and something else works better, great. Find what works for you.

4. Your premise appears to assume that the merchant is capable of running an effective PPC campaign. There are many affiliates that have been experienced with PPC from the beginning - most merchants are not.

With that said, I admit that I am still an SEO player. I use PPC only to introduce a new site until a few bookmarks are placed and/or a few back-links established.

5. Until you have Natural SERPs next to PPC sponsor Ads you'll never see a good steady conversion ratio. So as a merchant SEO is the key to sustained online business. Let the affiliates run with the risky PPCSE campaigns because it's easier to get SERPs if your a shopping cart merchant.

6. Originally Posted by Druid
For CPA is an interesting exercise.

Suppose a CPA merchant pays you....
What is CPA , is it Cost Per Action , like Cost Per Sale or Cost Per Lead ?

CJ, SAS, LS, GAN and other affiliate networks have CPA - cost per action , don't they ?

Cost Per Sale Action is good for merchants because there's no click fraud while PPC is prone to click fraud.

Cost Per Lead Action can be a little tricky if all the leads are useless, but merchants are already taking care of this.

So the best thing for any merchant is to learn from their experience, let them try everything and see what works for them.

7. The Question What Make Money ...
I make money from CPA ... but I also make money from PPC and CPM.
The real hard thing is to get a good SEO listing and keep it since Google is always tinkering with the system.

The thing Trust always leaves out, is that UNLESS you play in both the SEO and PPCSE game, you are probably going to be marginal at best. If you stumble on a good niche with few competitors and have a converting merchant you can do very nicely ... I have been killing them on eBay for at least 8 years ... sometimes a big killing, sometimes a small one, but very few weeks is it not profitable.

On the other hand ... lots of people make money from CPA, but do they make a profit and is it enough pay for the time and equipment needed to be in the game?

It's really not that hard to get in the business and make some spare change,
banner. 7. Sign up with SAS and go look for a merchant with a high 30 day CPC that you can plug into your niche. 7. Submit to search engines. 8. Buy some targetted traffic. 9. Buy some junk traffic. 10. Keep good stats so you know the exact cost per visitor and the exact amount of revenue per visitor.
You only need to make ONE CENT more than you spend per visitor to make serious money, since you can scale it up to make whatever you wish to make.

If you don't seem to be doing well, change the layout and see if that helps.
Check out how the BIG time players lay out their site and where they put
what they want to sell. Do the same thing. ASK FOR THE SALE.

The junk traffic rises your Alexa rating and brands your site. The Targetted traffic is where you nail down the sales ... The CPM and Adsense money should cover all your costs. Any sales you make then are pure profit.

But, if you want to make serious money. Sell your own products. If you make two sales per day of a \$19 product, you take in \$38 per day or \$1,140/mo. If you sell 5 'widgets' per day, you make \$2,850/month.

Net 25% and clear a bit more than \$700 per month. How long does it take to put 5 packages in the mail or give them to UPS? A hour at most.

Think of it like this: the net is open for business 24 hours a day, 7 days a week, EVERY day of the year. If you sell one 'widget' per hour that is 24 sales per day. If you clear \$5 per sale that is \$120 per day profit - which ads up to \$43, 800 per month in SPENDABLE income. Maybe you work 4 hours per day max. Get the shipping down to 10 units per hour and you work 3 hours per day. What is really strange that simply flies over most people's head is that IF you make \$15 net per 'widget' and you sell just one 'widget' per hour on average, you make \$131,400 a year.

8. "The thing Trust always leaves out, is that UNLESS you play in both the SEO and PPCSE game, you are probably going to be marginal at best."

What? There are people making great money just doing SEO. There are people making great money just doing PPC. There are people making great money doing both of that and lots more. So not following what you're saying with that.

"But, if you want to make serious money. Sell your own products."

If you want to become a merchant, great. But for me, I don't want that, I like affiliate marketing and there are plenty of people making serious money doing that.

Realize one persons experience with something it not going to be everybody's experience with it.

Your posts seem familiar, you used to post under another nickname here correct? There was somebody that used to post here that always threw all these numbers all over the place and weren't the biggest fans of CPA, don't remember your past nickname.

9. I think it's a narrow view and you're not taking many important things into consideration.

There are many other advantages for a merchant to have an affiliate program, too many to list and I wouldn't want to leave anything out. You make it sound like PPC is the only choice or reason.

About your "become a merchant and get rich" you left out many many important factors. There's a big difference between gross income and net income. You left out so many important things about being a merchant, fraud, product liability, customer service and support, insurance, and generally everything else associated with the cost of doing business. It's not nearly as easy as you make it sound.

There's so much to it that many people decide to be an affiliate rather than a merchant. Take into account all the risks and costs associated with being a merchant, and you may find you'll make as much money as an affiliate, except you can sleep easier at night, or daytime, because you don't have to answer the phone as an affiliate.

I keep waiting for the linkdrop. You're putting so much spin on this it's like your trying to sell something, or an idea. I don't get the point.

10. "Your posts seem familiar, you used to post under another nickname here correct? There was somebody that used to post here that always threw all these numbers all over the place and weren't the biggest fans of CPA, don't remember your past nickname."

Nevermind, I figured it out. The problem was always more on your end. If you want, I would have no problem linking to those past threads, so you know what I'm talking about. Like I said, if you found something that works for you, great. But there are plenty of people where CPA works out just fine.

11. Originally Posted by Druid
As a result the marginal utility of having affiliates is that as a merchant you earn \$26 more from NOT having an affiliate all things being equal over 1,000 click thrus.
You're assuming that affiliates will be doing PPC in place of the merchant, and that everyone is on the same keywords, and only one ad per merchant (no affiliates creating their own pages, so only 1 display URL/ad is shown) can appear per page. You're wrong on all accounts. With some of the merchants that I currently do PPC for in CJ and SAS, I'm pretty sure I have a higher search engine reach than their own campaigns do.
Originally Posted by Druid
If a merchant has a 6.7% closing ratio, it would be more profitable NOT having affiliate if that merchant is also using PPCSE. But if the merchant did not do PPCSE and left it all to the affiliates, they would make more money.
Since when are the only affiliates those who use PPC to generate sales?
Originally Posted by Druid
Competing with affiliates raises cost and lowers profits in general. Having NO or marginal number of affiliates is where the profit is located ASSUMING traffic must be paid for thru PPCSE.

For most affiliates it is totally insane to do CPA ... except for higher comission offers with proven conversion ratios of greater than 3%.

If I were a merchant I would do PPCSE in house and use an affiliate program to brand my site or offers by paying a slotting fee or CPM. If you are paying CJ the \$750 per month plus 30%, you are probably going to sell more if you put the whole thing into PPC search and forget about the affiliates.

On the other hand, you could pay \$1 CPM to affiliates and your offer seen 750,000 times in one month for the same amount of money. You would need
only 15 orders at the \$50 number out of 750,000 to cover the cost a conversion ratio of 1 in every 50,000 impressions.

So there you go ... which posion do you prefer?
Paying affiliates CPM is the worst idea I've heard as a "solution". How about run your own search campaign, have search affiliates but not let affiliates use your URL (so they cannot replace your own ads), and have affiliates who do not do PPC as well? Your way of thinking implies that the merchants and affiliates will be working off of the same exact search terms, same ads, and same landing pages. I generally drive traffic from PPC where the merchant's own ads don't even exist.

Who are you and what is your agenda? Your posts have been pretty much just complaining about affiliate issues since you started posting here again, and they don't make much sense, though the rambling is amusing.

12. Originally Posted by Mack
I think it's a narrow view and you're not taking many important things into consideration.

There are many other advantages for a merchant to have an affiliate program, too many to list and I wouldn't want to leave anything out. You make it sound like PPC is the only choice or reason.

About your "become a merchant and get rich" you left out many many important factors. There's a big difference between gross income and net income. You left out so many important things about being a merchant, fraud, product liability, customer service and support, insurance, and generally everything else associated with the cost of doing business. It's not nearly as easy as you make it sound.

There's so much to it that many people decide to be an affiliate rather than a merchant. Take into account all the risks and costs associated with being a merchant, and you may find you'll make as much money as an affiliate, except you can sleep easier at night, or daytime, because you don't have to answer the phone as an affiliate.

I keep waiting for the linkdrop. You're putting so much spin on this it's like your trying to sell something, or an idea. I don't get the point.
Mack

I think he is just a smart guy. His numbers are solid. Any biz person would reaise these are GROSS NOT NET. Though he did broach net a little.

I think it is strange that a smart guy is considered a potentially shady character. I noticed that hereabouts.

I just hope that when I start plastering the numbers on the board I am not derided as having some evil "INTENTIONS" so on so on.

As far as my understanding of this goes, I can have the stuff made for 8 USD each and sell them for 100 USD ea plus. The units that relail for 2300 USD & 1134 USD respectively will cost me the same 8 USD each to make or 24 USD each if my volume is low.....

The difference between being a Merchant & an affiliate is the difference between 20% & 60%. Most truckers are abosolutely powerless to make this happen even when they are the Motor Carrier themselves so this is a very very powerfull tool indeed. In trucking this equates 869 USD per day just to reach homlessness. Basically just to eeek out an existance. In affiliate marketing this basically means that if you had 2m USD in earnings you you would keep a lot more of the money if you chose to be a mercahnt and to me I can see that the risk is not big enough to out weigh the reward esp. when you consider the risk of other stuff like in this scenerio being a trucker.

In this case, this has really opened my eyes and thanks a great deal for the help. I'm starting to get an idea what a fish actually looks like. ~ Hopefully I'll be able to invest in a 2400ft. "NET" so I can catch many of them at some point.

Very good thread guys. Thank you.

Steve