Archive for March, 2012

Does affiliate marketing work? Do the math(s)

Posted on 12/03/12 | in ideas, work

I’m a sucker for get-rich-quick schemes, especially when they don’t work. Odd that. If you haunt certain communities such as the Warrior Forum, you will be overwhelmed by offers to make you rich within hours/days/months, These generally focus on affiliate marketing, and the model is usually thus:

  • identify some niche keywords, preferably without competition, or at least competition of a low grade; the usual starting point is the Google AdWords Keyword Tool, which gives a rough idea (possibly) of monthly search traffic for your preferred terms
  • set up a WordPress-based blog, and either cram it with themed articles sourced from desperate places such as Fiverr.com, or use auto-blog plugins such as WP Robot; and link these articles to products at Amazon, ClickBank or wherever in the hope of getting a small cut of any purchases there
  • work on the SEO of the site in the hope of reaching a top-10 Google search position.

Now, I’m not doubting for a moment that there are people out there who make thousands of dollars a month doing this. Many of them sell guides on how you can do it yourself by (in theory, at least) explaining what they do.

But.

Let’s do the numbers, which most of the guides I’ve seen (yes, I’ve paid for some of them, because I’m a sucker curious) gloss over. I present here a quick assessment of the factors which you need to multiply together to work out how much money you will make from your affiliate marketing scheme:

Monthly traffic

Different ‘experts’ vary in how many monthly searches they say the Google Keyword Tool should show to make a niche worth the bother, but they generally fall between 1000 and 10000 (and then there’s the issue of ‘exact’ search vs ‘broad’ search, where the latter is much more focused).

Google SERP (search engine ranking position)

Everyone knows you need to be on the first page of Google’s results – only obsessives (like me) go beyond it. The famously leaked AOL search data in 2006 supposedly revealed that 42% of people click on the top result (see here for more on this) but more recent and reliable data suggests the figure may be as low as 18%. All the surveys agree that even the 10th result gets only 2 or 3% of clickthroughs. Anyway, let’s be realistic and say that if you get on the top page of Google, you should get from 2 to 20% = a factor between 0.02 and 0.2.

CTR (clickthrough rate) and conversions

The clickthrough rate is crucial: the number of people who click through (or ‘hop’) from your website, via your affiliate links (cloaked or otherwise – opinions differ on whether you should do that or not). It’s quite likely this will only be around 2%, maybe more, maybe less.

Conversions means the number of people who then, having reached the actual retailer’s site, actually go on to buy something. Let’s say 3% is typical. In both cases better is certainly possible – I’ve come across 30% CTRs, for example – but let’s assume you’re new to all this, and in any case err on the side of cautious. (Of course, different types of product tend to have different conversion rates, and CTRs will depend on how easy to use your site is and how well you funnel people towards the sale.)

Let’s put these numbers together as fractions and say therefore that CTR x clickthrough is probably somewhere between 0.0001 and 0.01.

Referral fee

This is the cut the retailer gives you for bringing them business. There are lots of different models, eg paying for new signups, per product and so on. Let’s assume a pay-per-purchase percentage, and I’ll focus on Amazon here – others pay better, but there are lots of affiliate gurus out there who say you can make a mint with Amazon because they offer so many niche products. Amazon pay from 4% (the starting rate) to 15%, but the latter rate is very restricted; let’s say in general a retailer will pay you from 4 to 12%, ie between 0.04 and 0.12.

Product price

Finally, there’s the price of the product itself – of course, you may link to many different ones, and again the affiliate experts have strong opinions. Obviously it’s tempting to go for high-ticket products such as plasma TVs, tablet computers and so on, but then fewer people are likely to buy them, so less glamorous, but higher-selling items might do better. Anyway, let’s say you’re most likely to find products between $1 and $1000.

Hatmandu’s amazing unbeatable affiliate marketing formula – make $$$s

So let’s put all this together. All of the above variables need to be multiplied together to reveal how much money you could make each month.

Let’s assume you want to make $30 a month from your website – not exactly an over-ambitious amount, surely? $10 of that would cover your domain name and hosting fees, leaving you a tasty $10 to spend on setting up another site in the same way, and $10 to SPEND!

Let’s assume you’re confident your SEO skills will get you to position 5 in Google, which about 4% of people will click. Let’s also assume that CTRs x conversions come to 0.0005 (ie about 2 or 3% for each, multiplied together), and that you get a referral rate of 4% as a new affiliate marketer. Put it together and you get:

MONTHLY SEARCHES x 0.04 x 0.0005 x 0.04 x PRODUCT PRICE = 30 or, simplified:

MONTHLY SEARCHES x 0.0000008 x PRODUCT PRICE

This means that to make $30, MONTHLY SEARCHES x PRODUCT PRICE needs to total 37,500,000.

Woah, that’s 37.5 million! So if you average a product price of $100 for your ‘greenhouse heaters’ or ‘cheap android tablets’ or whatever your lovely targeted niche is, you need to get around 375,000 monthly searches for your key phrase! Hm, that doesn’t sound very easy. Oh, and greenhouseheaters.com and cheapandroidtablets.com have both been taken, by the way – one by an affiliate marketing site and one by domain parkers. You’ll find one or the other is true of most niches you look for.

And there’s the rub: even if you can find a niche that’s free (they do exist, but they take a lot of work to find), the numbers don’t really stack up. Obviously you can improve your margins along each stage of the path:

  • Monthly searches: maybe there’s a niche attracting 100,000 searches a month that no one has spotted. Yeah, good luck with that. So really you’re stuck with the niches, or going for something popular… which is hugely competitive.
  • Google SERP: from 2% up to 20% is a factor of 10 (or 5 from our example) – if your SEO skills are amazing you could hit the sweet spot and get 20% of the keyword traffic.
  • CTRs and conversions: if you’re really focused you could get a percentage-of-a-percentage of around 1%, maybe even more. But it will take a lot of research and testing to find the right products and the right way of selling them.
  • Referral fee: the more you sell, the more this will go up, or you could target better-paying schemes than Amazon’s. But you can only really improve it roughly threefold.
  • Product price. This is the easiest one to change. Hell, yeah, let’s go for the $10,000 diamond-encrusted watch or a T-shirt hand-woven by Britney Bieber. I’m sure thousands of people a month will by one.

In the course of researching this, I tried looking up various .co.uk niche domains and found most were already taken. And take a look at this. These people have 1500 niche domains! Now, let’s say you want to make a comfortable, but not outrageous living of $80,000 a year. Add on top the $5000 you’d need to register, host and maintain 1500 domains, then divide by 1500 and by 12 months. Hey! Each site only needs to make $4.72 a month. You can give up the day job!

In other words, you can make a living doing this, but you’d need to find hundreds of available niches, and work hard to keep them all optimised and attracting focused traffic. Hang on, that sounds like a full-time job.