Someone once asked Warren Buffett what the secret to stock-picking was. “Easy– just buy the undervalued stocks,” he said. The same can be said of affiliate marketing, which also about buying low and selling high. Abritrage is about being the middleman between the buyer and seller– maximizing that difference and finding ways to do it again and again. Understanding that basic concept has been the key to my success so far, whether it be selling diamonds on ebay (what I did a few years ago) to running enterprise PPC campaigns for Fortune 500 clients to doing small business lead generation. This post will go into the basics of understanding arbitrage, focusing mainly on a view from the inside on what it’s like managing a network. I hope it is both simple to understand and also provides some value to you. If you apply this and are able to make some money because of it, you can say thanks by linking to my blog.
THREE VIEWS (Advertiser, Publisher, Network)
Most people in affiliate marketing only understand one half of the equation– as an advertiser or a publisher. Thus, they pay money for ads or they have a website and want to get paid. For example, there is AdWords (buying ads) and AdSense (showing ads to get paid)– two sides of the same coin.
- The advertiser want to get as many leads/sales, given a performance target, typically CPA. Assuming lead quality is the same, they’ll apply the same CPA to all traffic sources.
- The publisher wants to maximize total earnings on his inventory. So if he’s rational (and in my first semester econ class, assuming rationality is a HUGE leap of faith), he’s looking at maximizing eCPM (we’ll talk about that in a second)— not clicks, CPC or CTR.
- The network (defined as anyone who sits in the middle and takes a cut) is balancing between both advertisers and publishers— delivering enough ROI to keep advertisers, high enough eCPM to keep publishers, and having a decent margin left over.
There are 3 methods of paying for ads: by impressions, clicks, or conversions:
- Impressions: They’re paid for based on CPM (cost per thousand– M is “mille”– or latin for thousand). I would have priced it per hundred, but that’s the industry standard. Anyway, CPM buys are great for the publisher— they are paid the same for their inventory regardless of performance. All the risk is on the advertiser, who has to deal with potentially low CTR and bad lead quality. The publisher can claim that they shouldn’t be penalized if the advertiser has bad creatives or a crappy product. But it’s still a lopsided deal in favor of the publisher, who can just reserve the crappy inventory at the advertiser, since they get paid no matter what. If you’re a smart advertiser, then you already know how that traffic will perform and are willing to take the risk. And you won’t allow the publisher to do tricks like show 10 ads on the same page, which will give him 10 times the earnings, all else equal. So if an advertiser is paying a $10 CPM, they are paying a thousand pennies to show the ad a thousand times— thus, it’s a penny per impression, regardless of whether the user clicked.
- Leads: Here, the risk is flipped– it’s all on the publisher now. The site owner (or whoever owns the traffic) is paid only on a conversion. Maybe it’s $4 for a US dating lead to true.com, a $70 payout for a successful credit application, or 6% of sales at an online retail store. Whatever the conversion, the advertiser has no risk– they have complete control over their ROI, but not the volume. In fact, most advertisers and affiliate networks employ “scrubbing”, which is a systematic way of not counting conversions. There is a legitimate scrub, such as when leads are incomplete or have invalid social security numbers. The dirty scrubbing, which is done by pretty much all affiliate networks, is to not always fire the conversion pixel. Maybe they scrub one out of every 10 leads at first and then get greedy and increase it to 1 in 3 leads. When I first got started in affiliate marketing, I didn’t understand the many ways that scrubbing can occur– even still I don’t. That’s probably a topic for another post.
- Clicks: Paying a CPC balances risk between advertisers and publishers. The advertiser has to pay only upon a click, so they are incented to write good ads and target the right inventory. The publisher doesn’t have to worry about a scrub or the offer not performing, but they have to deal with low CTR risk. By the way, if you’re a PPC marketer and are looking for PPC affiliate tracking software (link to tracking202.com), I highly recommend Wes, Larby, Steve, and Rob– they are a class act, and their software incorporates many of the concepts discussed here.
MAXIMIZING NETWORK PROFITS
Ok, now that the basics are out of the way, let’s discuss something that’s rarely talked about– how networks manage between supply (publishers) and demand (advertisers). There is something I call a two-part profit that the affiliate network (insert your favorite affiliate network here) has to manage against. The network is collecting a certain amount of revenue for the traffic they sold and they pay out something less to the publishers. What they pay to the publisher plus the amount they keep as a gross margin adds up to the gross revenue. Thus, if the inventory actually earns a $1 eCPM, they might actually pay out 60 cents and keep 40 cents for themselves.
The amount the network takes is usually a matter of secrecy. Most networks set a particular cut that they take from a publisher, tiered based on volume (you do more leads, they take less of a cut). In the case of someone like a Commision Junction, the network takes about 25% off the top– a fee that an advertiser gladly pays to not have to deal with managing and paying a bunch of affiliates. So usually the network sets a particular percentage cut for pubs and sometimes sets a flat eCPM. AdSense, for comparison, may take 20-30% of your earnings, which can go down to single digits if you’re on a premium tier– if you’re big enough, you get to negotiate this number.
So as an ad network, you want to be as big as you can, but also have the largest cut you can. If you drop your cut, then publishers are making more money and, all else equal, your network will grow. The simple equation to describe this is: Volume x Margin = Profit. It’s the shape of a demand curve– so for those of you who are aspiring affiliates and haven’t taken economics, go pick up Economics in One Lesson or Freakonomics. I’m reading the Wealth of Nations by Adam Smith for my econ class right now and it’s teaching me concepts that I already learned doing affiliate marketing. But anyway, there is a trade-off between volume and margin. You find the right balance where the increase in your cut is only partially offset by how the percentage of much your network volume declines by. For math people out there, it’s where the slope of the elasticity curve is equal to minus one.
I’ve run a private network for a couple years now and just this month have opened it to the public. I know other network owners and can tell you what a shady affiliate network will do upon launch. They’ll start with high payouts, because their cut is low to perhaps even negative (if they’re VC-funded and can weather a loss). Once they have sufficient volume, they can start to increase their cut, but using the scrub to balance out the perceived effects. For example, they could raise the payout per lead from $4 to $6, but have a 50% scrub. In other words, that $6 payout is really only $3 were there not a 50% scrub. So while the payout looks like it went up, really, the network increased their earnings by a buck a lead— as payout dropped from $4 to $3. Ever been to the mall, where some department store has everything 50% off? You know they just doubled the price and said everything was half off.
BEING A SMART PUBLISHER
Are you with me so far? Let’s talk about some other ways that you can be street-smart as a publisher. And by the way, the reason I’m telling you this is that I believe my social ad network (link to leaderclicks) will be the eventual winner in a truly competitive market. And if you’re not a Facebook application developer, then you can still follow along here and hopefully gain some insight that will help you with your traffic optimization. For example, if you use AdWords, Google will show the ads that make them the most money– based on eCPM, not based necessarily on what makes you more money. So back to the topic of what behavior to watch for in a network:
- Priority or boost factors: When an ad network determines delivery priority strictly based on eCPM (which ads are earning the most revenue per thousand impressions), then you have a fair competition. The ads with the highest eCPM get shown first and on down the line until the crappy ads are shown. In this case, “crappy” is defined as ads that don’t monetize well. In the context of social network traffic, branded ads are typically bottom of the barrel– the CTR’s are low and the revenue per click is also bad. So if you’re an ad network trying to masquerade as a promoter of big brands, you have to give the brand ads a multiplier— maybe give it a 4x or 5x boost, else those ads would never get shown. Your branded advertisers are happy, but this comes at the expense of the publisher.
- Frequency capping: If you see the ad network running the same ads again and again— then so are your users. If you aren’t interested in what the ad has to offer the first few times it was shown, it’s not likely that you’ll be interested the 184th time around that day. The Power Law (or 80/20 rule) says that 20% of your users consumer 80% of your impressions. Thus, there are a small group of users who comprise the bulk of your impressions. If you frequency cap at 4, for instance, then that user who has 200 impressions per day (quite common in dating sites and social networks, where some folks “live” all day), then you’d be able to show 50 different offers, instead of just one offer 200 times. The net effect of smart frequency capping can be effectively doubling or tripling your inventory, because those heavy users are the bulk of your inventory. So where you see the same ads over and over, you know your ad network is wasting your inventory. Google AdSense recently implemented frequency capping,in fact— curious to hear of anyone’s early experiences.
- Extravagant marketing: Are you impressed by the size of their booth at AdTech New York (yes, I think I’m going to get a booth this year- so come see me). Or maybe one of the executives is bragging about how lavishly they are living, how fancy their offices are, or how many employees they have around the world? Remember that it’s your earnings that are paying for this. And if they are VC-funded, then remember that the firms bankrolling the company are expecting a pretty hefty return on their investment, too. If you are fortunate enough to be near super-affiliate status and have an ad network executive take you out on a nice trip or buy you some expensive toys— you should ask for a better payout instead. That $2,500 plasma TV might actually be costing you $10k. I can’t tell you how many affiliate marketers act more like rappers than shrewed businessmen. Take that higher payout and buy the fancy watch or whatever item yourself. But some folks are more concerned about the perception of making money than actually making money— yeah, it makes no sense. But you can probably supply your own example of friends who are like that, eating steak dinners on maxed out credit cards.
ECPM IS KING
We talked earlier about how economics is based upon people making rational decisions. And in this case— advertisers, publishers, and networks “should” be boiling things down to eCPM. But not always. And where they don’t, you have a great opportunity to jump in and profit off that ignorance. For example, consider a publisher who has a fascination with what he’s earning per click. Say he’s earning 6 cents per click and getting a 1% CTR— that’s a 60 cent eCPM (6 cents x 1% x 1000). So you tell him you have an offer that earns 8 cents per click– and knowing his preference to manage by CPC, he goes for it. Perhaps that offer is 8 cents CPC but gets only a 1/2% CTR– for an eCPM of only 40 cents (8 cents x 1/2% x 1000). He’s happy, since he’s getting 2 cents more per click. You’re happy, since now you’re paying 40 cents per thousand impressions versus 60 cents.
How about the publisher who has tunnel vision about the CPA? They think that the dating site offer that pays $6 is better than the one that pays $5. But how well does it convert? As a publisher, you should be ranking what offers you run based on eCPM (earnings per thousand impressions). Something that pays out 10 times more per lead (like certain financial offers) might have 1/20th the conversion rate. So you still want to look at how many cents you’re getting per thousand impressions. Anything other metric, and there is a distortion where others can take advantage of your ignorance.
What about the advertiser? A smart advertiser will calculate, by traffic source, the cost of their traffic (a cost eCPM) and the revenue ( a revenue eCPM based on a CPA), with the difference being the margin. So perhaps that Google content network traffic is earning you a $2 eCPM (because that’s what you calculate for your traffic being sent to Webfetti toolbars). And maybe you’re buying it at 80 cents eCPM (though the method you paid for it was based on CPC). In this case, you made a profit of $1.20 per thousand impressions. Now you could look at intermediate metrics (eCPC, conversion rate, landing page bounce rates), but the final word is eCPM.
And what if you’re an ad network? You should be agnostic to how advertisers pay or how publishers are paid. Some advertisers want to pay based on CPM, others have a fascination for CPC or CPA. You don’t care– since you back it out to eCPM anyway. Same is true for publishers— they want to be paid based on whatever metric preference? Fine– don’t try to convince them that eCPM is what matters (which, ironically, is what I’m trying to do here). Let them have their way and profit on their misunderstanding. Believe me, I’ve tried this many a time— people either get tangled up in the math or they just stubbornly stick to that one metric they like for whatever reason. I’ve been to Vegas a few times now– and though I can’t gamble legally (in the United States) for another 5 years, I have to believe that casinos and the lottery are just a tax on people who are bad at math.
Oh, and for the math crowd, here’s how the formula breaks down:
eCPM= earnings per thousand impressions
= CTR x eCPC x 1000
= (impressions/clicks) x eCPC x 1000
= Iimpressions/click) x (CPA/clicks per conversion) x 1000
The eCPC is how much you are earning per click. So if you’re promoting Netflix DVD’s by mail and get paid $20 per signup and it take you 40 clicks on average to generate a signup— then your eCPC is 50 cents. In other words, 50 cents x 40 clicks = $20 for one signup.
CONCLUSION
If you’ve suffered this far with me, then my hat’s off to you– yes, I did get a new hat — do you like it? If you’ve been doing affiliate marketing for a long time or are lucky to be an uber affiliate then this is probably tediously boring stuff. I hope you’ve enjoyed it. And I appreciate any feedback you have for me— although please keep it constructive and make sure it adds value for the readers here. I’ve received a number of article requests for my affiliate blog, so I will keep writing so long as people are finding it worthwhile. If I made an error here, my apologies– just let me know.
May 31, 2009 at 8:43 pm
I love every word of it.!!!
long story short, i bought book by gurbaksh chakhal “the dream” he describes super vaguely his humble beginnings of running an ad network, well now he is $300 mil richer and owns blue lithium ad network. I got inspired to learn and to run my own ad network. Your post is very informative, but it would be cool if you had either ebook course/ private membership site of how to from scratch run an adnetwork would be cool, i really mean it.
April 10, 2009 at 8:40 am
I completely agree with the eCPM part but what maybe needs to also be factored into this is what types of keywords you’re ads are targeting (if any). I mean not all people visitng the search engines, or any other website (their fav. blogs, social networks, etc) are ready to make a purchase, take a trial offer, apply for a payday loan. Som eneed pre-selling first (as I’m sure most of you all know). Pre-selling has it’s own type of keywords. So a 1000 impressions for an ad (banner or text-link) for one of these offers may not yield a true and accurate picture of what a given offer is really worth.
The point: An offer must be made:
1) At the right time (when a prospect is ready to make a purchase/trial offer/etc) or…
2) Using the right type of keyword (for direct-linking to offers).
That’s my take.
But I must say Harrison I really enjoyed this post.
October 13, 2008 at 5:15 am
This blog is really nice and informative. We are pleased to know this blog is really helping people and it’s our pleasure to post informative content on this useful blog created by webmaster.
Here’s our market view on American stock market for 10th October, 2008
The stock market has collapsed – since Sept. 19 the DJIA is down 25% and the S&P 500 is down 28% and down 42% from a year ago.
How can this happen so quickly and so dramatically when so many good things have occurred? Oil is down to $82 a barrel; interest rates are very low; the dollar is up; valuation levels are extremely attractive among many blue chip stocks.
What’s the real problem? The problem that is killing the stock market is a lack of hope about the future.
Hope springs from optimism that is based on facts and history. Look at the history of America and really all of mankind. Life is full of setbacks and problems – that’s just the deal. But this too shall pass, as all scary periods have.
Doomsayers have been around forever and their batting average is zero. Buying stock is based on hope – hope for the future. If one doesn’t have hope, they shouldn’t be in this business.
So what is the best service we, as professionals, can provide for our clients?
First, discuss the fact that we are dealing with serious problems but it is not at all like 1929. The Federal Reserve and the Treasury Department are doing many things to restore confidence in the financial system. There is global coordination in attacking the problem, which is lack of confidence.
Tell your clients to look at history of our great nation and what has happened since 1776 when we faced very serious problems. The stock market actually rose steadily about six months after Pearl Harbor and until the end of WWII even though the outcome was not at all clear for several years.
No one knows when the stock market will bottom and a new bull will commence. We do know that stocks and mutual funds offer the best values we have seen since Black Monday, Oct. 19, 1987.
Almost all Americans have hope about the future of our nation, but they need help to control their normal fears.
ThePowerStocks.com Team
Get 56 days free trial on our exclusive newsletter. Offer Limited.
http://www.thepowerstocks.com
October 3, 2008 at 6:32 pm
Affiliate Networks are so COMPLICATED!!
September 27, 2008 at 7:47 am
This post includes really great informations, thanks a lot. Now i wll try to do some useful things with the knowledges you gave here.
September 25, 2008 at 11:15 am
I love Affiliate marketing
September 24, 2008 at 3:18 pm
That was a nice post. I am glad i took the time to read it. It’s always good to view the stuff from different viewpoints … as long as you don’t lose track of the big picture.
September 24, 2008 at 1:36 pm
Typically the ones that do well in any market are the ones who understand the market. No matter what you think of a business the #1 rule to buying stocks is to know what you are getting yourself into. Buffet even said that invest in stocks as if you are going to make a one time investment and then leave not to see the stock for 10 years.
Thanks for the post and giving me more than enough information to make the best profitable decision. no need in wasting time and money when someone else did the work for you. Remember Newton….paraphrase, “I’m great only because of the work of others.”
September 23, 2008 at 5:04 pm
A lot of good information in one post. I am just getting into affiliate programs and marketing, so this was helpful.
September 23, 2008 at 5:00 pm
I scanned this lengthy post and it does look promising to me. I bookmarked it and I will read it later. I liked reading about business and numbers.
Thanks for sharing!
September 23, 2008 at 2:34 pm
Fascinating.
September 22, 2008 at 3:19 pm
Very imformative and high-quality post. Keep up the awesome work
September 22, 2008 at 8:14 am
This is absolutely an excellent read! I’ve never analyzed affilliate marketing the way you just have, you definately opened my mind to something much bigger than the ordinary. I have printed this article if you don’t mind, I’ll use it as a reference whenever I need it.
September 21, 2008 at 9:06 pm
I do agree with Warren Buffett and you about the secret to succeed in any market. “Easy– just buy the undervalued stocks” Im applying the same theory to domaining
I havent got much experience with affiliate marketing yet, but gonna try that too. Thanks for the nice article!!
September 21, 2008 at 10:39 am
Great Article. Thanks a lot. I havent had any luck with affiliate marketing yet though.
September 21, 2008 at 8:03 am
Harrison you have great post! It’s great to see you posting on shoemoney!
September 20, 2008 at 11:33 pm
Nice post. This kid obviously knows his stuff. I like these guest posts, keep it up Shoe.
September 20, 2008 at 10:56 pm
Hey Harrison! Great post! It’s great to see you posting on shoemoney! I check your site all the time man! You are an SEO genius! Keep up the work broski!
September 20, 2008 at 8:51 pm
Quality post. You really know your stuff. Thanks for the information. There were some things I wasn’t sure about.
September 23, 2008 at 4:19 am
Check out cpashare.com for a continuation of the article.
H
September 20, 2008 at 7:13 pm
I recently launched an affiliate network and I agree with Harrison a lot and am becoming a fan.
I agree that shady/unethical/(illegal?) scrubbing can’t be tolerated. (Advertisers shouldn’t have to pay for real fraud so that is a legitimate removal but just stealing leads to cover higher payouts or boost profit margins is terrible.) I think that the cream rises to the top and like Harrison was saying in a recent post, there will be a “shake-out” over time.
September 20, 2008 at 5:36 pm
another great post by the kid.. big fan.
September 20, 2008 at 11:44 am
I’m known for my lack in patience, but believe me I have read every word and thank you, great article, alot of math and economics that are crucial in my opinion.
Cheers,
Scorpiono
September 21, 2008 at 11:54 am
Scorpiono,
Thanks for the kind words!
H
September 20, 2008 at 7:38 am
This is a very good article. I received a lot of new information. Thank you very much.
September 20, 2008 at 6:00 am
Good read. It was long but very well written and I will be reading it over again to digest it better. Thanks for all the info.
September 20, 2008 at 4:41 am
Nicely explained summary there. especially the link to tracking202, thanks for that !
September 20, 2008 at 4:08 am
Good Show!
September 20, 2008 at 3:21 am
I have a question about scrubbing if anyone knows the answer. Is scrubbing something that’s done manually or by script? I swear. Every time my AM goes to a conference my conversion rate goes up 10-20%.
September 20, 2008 at 8:56 am
Scrubbing can happen both manually and automatically. If a script detects that a lead has already signed up for a program or that lead has already filled out the lead for it will scrub that lead. Then there are the scammy program managers that manually scrub leads because of greed!
September 20, 2008 at 1:03 am
The econ stuff you’re learning and passing on gives a great perspective of the entire marketplace, compared to other bloggers. This may be “tedious”, but don’t change! I want to be in am “school” here man, and proper intelligence transmission takes effort and clarity of terms…
September 20, 2008 at 4:52 am
Chris,
Thanks for the kind words. This is my first “long” post, so I wasn’t sure how many folks would react with feedback that this is too much to digest, too dense, or somehow not clear. I’ve felt that few bloggers tackle these kinds of issues because the issues are too complex to be explained in a paragraph. Ideally, ad serving deserves its own book– but I haven’t seen it out on the market yet (but it may exist somewhere). Then again, there aren’t that many people either running ad networks or build ad serving software, so the audience for such a book would be limited.
There are a lot more issues to cover– we just skimmed some of the basics. My goal for the post was just to give publishers and advertisers an appreciation for the network view. It may also educate folks in the process and make them smarter– something that I think will benefit my network, LeaderClicks.com, in the long run.
H
September 19, 2008 at 11:36 pm
Outstanding post about arbitrage. Very fitting that you’re discussing this topic given the epic meltdown occuring on Wall Street. These commercial banks were the kings of arbitrage as they leveraged each dollar into 100 more w/ debt and made kings ransoms as the housing market and stock market soared. When the housing market came down so did their positions in bad debt and it came down lightning fast.
September 21, 2008 at 5:31 am
The situation is very bad impact in the world.
September 19, 2008 at 11:11 pm
an affiliate network is now roaming around everywere,are this guys that a running a nethwork websites needs to know this beacause I am sure some did’nt.thanks for your great psot Harrison
September 19, 2008 at 10:53 pm
Harrison, you are truly an amazing person. For you to be so young and understand so many complicated things is truly awe-inspiring. Today, I just realized again like so many other days over the last two years how incredible this blog is and how much I’ve learned by reading it. I am so lucky to have been introduced to it two years ago by a co-worker–almost on a lark. Until then, I had such a fragmented understanding of how the puzzle fit together. Loren Feldman is right. You are a visionary, my man. Again, thanks so much for all of your amazing insight and inspiration. I’ve never given a fuck about your naysayers. You are the most visible internet/affiliate blogger for a reason. You are the real deal–and a funny motherfucker too. Thanks again so much for being who you are and sharing all you know from so many areas. You fucking rock!
September 21, 2008 at 5:30 am
This is a little crude, but generally true.
September 19, 2008 at 10:05 pm
Good insights. I’d like to know more about scrubbing. If I read it right, scrubbing is the deletion of leads that have been converted previously, which seems logical for the network to do. I’m not sure where the scammy part comes from.
September 19, 2008 at 10:39 pm
I believe that networks employ scrubbing for a variety of situations and many of them make sense. The “scammy” part comes in when they’re scrubbing for greed rather than need. I would like to hear more on the topic as well, especially as it relates to detecting “greedy” scrubbing (if possible)… I try to keep some rudimentary stats, but I’m sure there are more elegant tools out there. Maybe Harrison can address that on his own blog sometime, if not here.
September 20, 2008 at 4:48 am
Legitimate scrubbing is for invalid leads– those that are incomplete or have bogus information or don’t meet certain criteria. The unethical scrubbing is when ad networks and advertisers purposely don’t count a certain share of leads, in the hopes of tricking pubs who are unaware that such practices occur– and frequently occur.
That said, look at eCPM as the ultimate measure– not on who has the highest payout or even the highest eCPC. So what if they pay you twice as much if they scrub 50%?
H
September 19, 2008 at 9:13 pm
Affiliate bloggers blog because they do not make much money anymore as affiliate marketers. Their traffic comes from an endless supply of greedy noobs just ripe for a good hosing.
September 19, 2008 at 10:03 pm
That all depends on how you look at things. There will always be a majority of people that don’t succeed, especially when compared to the few that become spectacularly successful. I would say it’s true that most noobs can’t jump right into a highly competitive niche and make good money as an affiliate (due to lack of experience, if nothing else). On the other hand, there are still niches out there little competition. They may not be as lucrative, but for a noob small money is better than no money – if you manage to find several such niches, you can start to make an appreciable income. In the meantime you’re starting a revenue stream and gaining experience, both of which can help you succeed in more competitive areas.
That said, the experience gained as an affiliate marketer lends itself well to *other* types of online ventures… blogs, online sales, marketing, ad sales, domaining, whatever – those are all just forms of diversification that can build off of prior success. Those might end up making a person more money than aff. marketing did, but the aff. marketing helped them get there.
September 19, 2008 at 10:46 pm
Great points!
September 20, 2008 at 4:45 am
SuperStar,
While what you say may often be true, it would be unkind to broadbrush folks like me with that moniker. There are a number of us like Shoe who honestly spend a good portion of their time trying to help others make a living at affiliate marketing. You don’t have to be a *super* affiliate to make a decent living– nor be an *expert* to be able to share your learnings. If a 16 year old can do it, then clearly it can’t require something like a college degree.
H
September 21, 2008 at 10:42 am
I agree with you. Young people are doing it, so it cannot be that tough. Just the right ideas and knowledge. Work hard and you can do it too.
September 22, 2008 at 1:17 pm
I am sick of the “if young people can do it anyone can do it” bullshit. Obviously Harrison is very bright, talented, and dedicated. After all, you don’t see all 16 year olds doing 100k+/mo spends on ppc. Shit, when I was 16 I was pretty much convinced I was smarter than everyone else on the planet. I’ve been getting dumber ever since.
September 19, 2008 at 8:38 pm
Thanks for the great insight, Harrison.
September 19, 2008 at 7:49 pm
Hey Harrison, great post. Would love more details on how you are targeting sites outside of your Facebook platform to maximize eCPM.
September 20, 2008 at 4:41 am
Hi fthead9,
We are doing standard things like country, frequency capping, and basic demo targeting. Then we have a few advanced items, such as look-alike models and CPM/eCPC/CPA balancing. Our ad server takes the highest performing ads for each bucket of inventory and serves based on eCPM rank, taking into account that new ads (which have no performance data) must be included in the mix to test. The calculation of this is somewhat complex, plus it has to be calculated in real-time, as ad serving speed has to be under 2 tenths of a second.
Sign up as a pub on LeaderClicks, if you’re interested. Make sure to tell me what kind of traffic you have and your experience with other offers.
H
September 19, 2008 at 7:00 pm
lengthy but useful content.
September 20, 2008 at 4:09 am
lengthy would be an understatement
September 21, 2008 at 10:41 am
haha I totally agree. It took me a long time to read. But it was worthy enough ! :p
September 29, 2008 at 9:19 pm
It is pretty long but its useful nontheless
September 19, 2008 at 6:50 pm
Great post Harrison!
I use Adsense, which does pretty well, but I always wondered how the whole things works and why some advertisers would pay me $3.56 (my highest Adsense click so far) for just one click. (Wondering how much Google made on this one and how much total that click cost the advertiser.)
Thanks for shining some light on this.
I read Freakonomics when it first came out – one of the best books to give you a broad view of what’s going on not just with US economics, but the world.
Can’t believe your only 16!! Keep up the good work!
September 20, 2008 at 4:36 am
Marita,
AdSense typically takes about a third of your gross revenue– less if you’re on a premium tier. So that $3.56 click was probably sold for $5.
H
September 22, 2008 at 12:29 pm
Thanks for the info! You think Google is trustworthy in
counting all clicks?
It also seems that the more traffic I get, the more
higher paying ads I get on my site. But maybe it’s just
because I get more ads in general.
September 22, 2008 at 1:15 pm
Harrison you basing this off comparing your AdWords content network spends to your AdSense earnings for similar keywords?
September 23, 2008 at 4:21 am
Based on what I see for my own earnings– but primarily in talking to Googlers.
September 19, 2008 at 6:17 pm
Good info there for sure. I still find the most difficult part of this entire equation is finding a decent affiliate product to promote that people will actually buy. So many of the ClickBank type products are promoted on those long, single page sites that just look like crap. Most of it is junk that my shopping addicted sister wouldn’t even fork over the cash to buy. Wading through the ClickBank refuse bin to find something worth promoting is the key.
September 19, 2008 at 5:57 pm
Great information, best I’ve seen on the subject. Thanks!
September 19, 2008 at 4:50 pm
Yes, I like your hat!
September 20, 2008 at 4:09 am
u bet!
September 21, 2008 at 1:59 am
what kind of a response is that, but yeah, what hat?
September 22, 2008 at 3:20 pm
The New Hat he mentioned in his post at the last paragraph (“hats off to you”).
September 23, 2008 at 4:22 am
it’s my fedora– I’ve now bought a a few others, I like them so much!
H
September 19, 2008 at 4:29 pm
Very interesting article. I have to agree with Daehee: The formula should be
eCPM = (Clicks / Impressions) x (CPA/clicks per conversion) x 1000
so that clicks are both in the numerator and denominator, and cancel each other out.
September 19, 2008 at 4:18 pm
Wow. I don’t think I’ve ever seen such a large piece on the inner workings of affiliate marketing. As a publisher, I have found this post to be extremely insightful. The concept of scrubbing is new to me. I had never considered that a network would purposefully alter your link so u don’t get paid. Kind of scary when you think about it.
September 20, 2008 at 4:35 am
CoolProducts,
Thanks for the comments.
Have you considered joining LeaderClicks as a pub?
We do more than just monetize social traffic.
Harrison
September 19, 2008 at 4:01 pm
Thanks Harrison… You really put up awesome points on your post. I have bookmarked this post and the one you did before here.
September 19, 2008 at 3:47 pm
Way to go Harrison, posting on the old shoe
September 20, 2008 at 4:10 am
one of shoe’s fav’s i guess…
September 19, 2008 at 3:14 pm
Harrison,
Thanks for all the great information, I’m impressed at level of intelligence at such a young age. BTW, I’ve read your entire blog, awesome; prodigy or does it run in the family?
Thanks for sharing,
David G.
September 20, 2008 at 4:34 am
David,
You are too kind! I’ve had the benefit of learning from many other affiliates, not just in forums, but in person. My mom and dad don’t have anything to do with internet marketing, by the way. I work 14 hours per day, so the earnings don’t come easy. Keep at it.
Harrison
September 22, 2008 at 8:19 am
Yup, this is an incredibly marvellous youngster. This article is so well written and structuered, and the information is worth the read. Harrison you are a flippin genius!
September 19, 2008 at 3:08 pm
Have a question on what you think about all these affiliate networks wanting to charge all these setup fee and monthly min to get access to there network. Setup fees of $5,000 or Setup free of $3,000 or $500 plus monthly min of like $500.
Seems like they’re more interested in making the profit off these frees rather than trying to get more good advertisers to offer more offers to there affiliates.
What is the best way to approach this and can some of these fees be dropped.
Seems to me free money to companies like Cj.com and Linkshare and so on to charge these startup fees. they act like they have to do so much to get you started and cost them so much. In reality all they do is plug you in and do a email newsetter to publish you.
when you have all the cost to setup. build ad banners, textlink ads, manage all the affilaites and keep updating the offers. Doesn’t the 25% or 30% they get enough!!!!
Any help or discuss on this would be great. We want to join some of these, but think $5,000 or $3, 000 and a year contract is stipud and just shows me they only want to make money on the upfront and garrantee $500 min month and 12 month contract.
Let me see what incentive do any of these network have after they get their upfront money and 12 month contract!!!
Plus they’ll not show you before hand how big the network is in your category.
Just a thought and wanted to here from others.
September 21, 2008 at 8:43 pm
Craig,
Yes, the fees on CJ and Linkshare are high, but not necessarily unjustified. These networks provide a lot of value to advertisers that don’t want to deal with the pain of managing a bunch of affiliates, tracking them, paying them, and so forth. Most of the participants are name brands that can afford this spend and have the national brand to make it work. If you’re a small player and don’t have the cash, then you may want to try another network or manage pubs yourself. They clearly have reach and you’re also paying for that.
H
September 23, 2008 at 12:21 am
Thank you for your reply back.
September 22, 2008 at 1:14 pm
As an affiliate would I want to spend a bunch promoting an advertiser that can’t afford a $5,000 setup fee?
September 23, 2008 at 12:14 am
It’s not about affording, it’s about why give $5,000 that we’ve worked hard for and have to sign a 1 year deal with no garrantee back to you.
Seem silly to just give $5,000 or any amount of money to anyone for nothing.
It’s not being Cheap, just what does $5,000 get you and don’t they make enough money off the Comission %.
It’s also not jsut $5,000. It’s the $5,000, plus, $3,000 – $5,000 to pay affiliates, the monthly min they put on ya plus a 1 year contract. What incentive do they have to really help you out and push your program.
It could take awhile to make the $10,000 loss just to get started with these programs that offer nothing in return. Except access to a network that you are only guessing they have enough affiliates in your category to promote your program
September 23, 2008 at 4:26 am
True, at the same time you have to make big bets now and the. The catch 22 of affiliate marketing is that if $5k is a lot of money for you, then you’re probably not making the earnings at the level of folks who can comfortably make such bets. That’s not to say that you should ever be dumb about investments, no matter what the price. I have several done employees and have to make bets, just like with CJ. But the main question to you is how much is $5k to you? Honestly, if it’s a lot, you shouldn’t do it. And even if it is a lot, then you should still seriously consider if it’s right for you.
H
September 19, 2008 at 2:48 pm
Definitely an awesome post. Learned quite a bit Harrison. All I can say is a BIG thanks, as I’m still just starting out in this whole affiliate marketing stuff.
September 19, 2008 at 2:45 pm
Oh My God! I think my head is about to explode. Very good information… a bit detailed. I will have to re-read many times in order to better grasp the details.
September 20, 2008 at 4:10 am
steven… you do that…
September 19, 2008 at 2:37 pm
Good info for sure. Why not post it on your blog?
September 19, 2008 at 2:18 pm
hey harrison, small error with the formula ->
CTR = clicks / impressions
September 20, 2008 at 4:32 am
Daehee,
You’re right— sharp eye!
Looking forward to working with your GOMA team.
Harrison
September 21, 2008 at 10:40 am
Didnt knew that actually. Thanks for correction.
September 19, 2008 at 2:02 pm
Affiliate marketing has never worked for me.
September 19, 2008 at 1:55 pm
that’s some good information.
September 19, 2008 at 1:00 pm
wooo.. thats a BIGGG post..
very well explained..
would love to read more..
September 20, 2008 at 4:11 am
would love to ready more of him or would love to read it over and over again?
September 21, 2008 at 1:58 am
Read more of harrison, he’s a great guy and knows his shit.
September 21, 2008 at 10:25 am
I agree. Knows so much!
September 22, 2008 at 3:22 pm
I agree, I skimmed the post and it was huge, wonder what people reading word to word would have thought.
Packed with knowledge for sure though.
September 19, 2008 at 12:42 pm
Harrison – that’s an impressive post, and I appreciate the info! I’m going to have to read through the whole thing again later to give it due justice.
September 19, 2008 at 10:21 pm
So I just read through the whole article again and was still thoroughly impressed. As mentioned in other comments, giving the perspectives of all three parties (advertiser/publisher/network) in one place made this unique compared to anything else I can recall reading. Thanks again – I’ll have to keep an eye on your blog from now on.
September 20, 2008 at 4:31 am
Mrkbsm,
Thanks– let me know if there are other topics you’d like to see!
Harrison
September 19, 2008 at 12:36 pm
I am always envying people running one’s own ad networks, really ! Stumbled!
September 19, 2008 at 12:24 pm
I scrolled through this post without noticing that Jeremy was not the writer … and was wondering .. how can he write such a long post
Good information here Harrison… pretty basic tough ..
September 19, 2008 at 11:21 am
Arbitrage by definition is taking advantage of different prices in two different markets for the same asset
.
September 19, 2008 at 11:11 am
I’ve been doing lead gen for years and I never thought to look at it the way you described. Bookmark worthy post.
September 20, 2008 at 4:30 am
Michael,
Thanks for the kind words!
Harrison
September 19, 2008 at 11:08 am
Thank you very much for some new insight.
September 19, 2008 at 10:54 am
It was quite a long read, but it was very informative. I have only ever looked at it from one side, it is good to see the other side from time to time!
September 19, 2008 at 10:22 am
Awesome post! Is there a “How-to-start version” ?
September 19, 2008 at 9:36 pm
he can’t tell you everything lol
September 22, 2008 at 3:22 pm
There are thousands of blogs giving tips. Search around if you need extra help.
September 19, 2008 at 10:12 am
That is one long guest post for shoemoney. Will skim through the pertinent points a bit later.
September 22, 2008 at 1:12 pm
Push pause on your ADD for a minute and educate yourself.
September 19, 2008 at 9:57 am
Great stuff indeed. Thanks for sharing it with us.
September 19, 2008 at 9:56 am
Great stuff. I will have to re-read it again later, but is it really an arbitrage when you buy PPC to profit on leads/sales? I have always thought that arbitrage is playing within the same environment, whether you do stock trading, or currency trading, or traffic trading when you buy a click to profit on selling a click.
September 19, 2008 at 11:09 am
Yes, it is still arb. Arb is when you buy and sell assets that are substantially the same thing. For example, bond arb often involves “creating” a bond to buy from multiple bonds to emulate the income stream from the one you’re selling. The “insignificant’ differences between them (or between clicks & leads) are often what creates the opportunity. Of course, as LTCM learned, just because asset prices should converge, that doesn’t mean they will do so quickly.
September 19, 2008 at 4:21 pm
So technically… is it considered more difficult/challenging to be an arbitrageur within a single network, i.e. buying Adwords to sell on Adsense?
September 19, 2008 at 9:45 am
Hey Harrison,
Thanks for sharing those insights. We always tend to view things from one side, but it’s good to get the perspective of all 3 – advertiser, network, and publisher. Pretty cool how you brought in your Economics lessons as well. I feel like I’m in high school again. Haha, good stuff. I remember seeing you at Elite Retreat. I’ll check out your blog now.
September 22, 2008 at 8:20 am
I also loved the way he broke it down. Pure genius. I’m a fan!
September 19, 2008 at 9:40 am
I don’t think I’ve ever read such a comprehensive post which dives into the minute analytical details and presents something worthwhile for everyone- a publisher, advertiser or the middleman.
Excellent post Harrison ! Some of my fundamentals were a bit shaky but you’ve now made everything clear. Cool !
September 19, 2008 at 9:39 am
Good post shoe-man.
September 19, 2008 at 11:28 pm
It was actually Harrison who wrote it…
But still a great post
Stanley Tang
September 19, 2008 at 9:10 am
Well, personally, I am not a fan of affiliate programs period. I keep saying it over and over again that there is no way possibe that you can track exactly how many sales you have made. You have to take the owner of the affiliate program word for it.
But, on the other note, I was interested in buying stocks and trading them…I just have no clue on how to get started. I have heard of programs in which they tell you exactly what stock to buy and when to sell them, but I should investigate further into just how effective these stocks are.
Erica
EDIT:ShoeMoney – I appreciate your comment but I removed all the urls to your website. You can feel free to place your url in the box marked url and people know how to find you. If you continue to spam your site you will be blacklisted by akismet and unable to leave comments on any blog that uses wordpress.
September 21, 2008 at 4:10 am
The stock exchange? Haven’t you been watching the news lately. It’s worse than a game of Russian roulette.
But you do have a point here. In the affiliate game, the publishers get the worst cut. Which still leaves two more options: build your own product and sell it or build your own affiliate network and be the middleman.
Just my humble 2c.
Regards, George
September 23, 2008 at 4:28 am
See the continuation of the article on cpashare.com– what was NOT said in the Shoemoney post.
H
September 24, 2008 at 3:17 pm
George,
The stock market is the best place to build wealth over long periods of time. Now is also a perfect time to start accumulating shares of quality dividend companies.