These are hard times and a lot of good people are out of work. Some folks, thinking they know a little something about the internet set out to explore affiliate marketing with its promise of, "Make Money While You Sleep!!!" (usually a minimum of three exclamation points,)

There are a lot of people willing to sell you advice on how to make money in this field. I'm going to tell you why you should keep your money in your pocket for free.

Why affiliate marketing is good:

No stock to keep on hand
No credit cards to process
No customers calling you about their stuff

When you look at it, affiliate marketing seems just like having a merchant website with none of the hassles. But when you think that, you're thinking short-term.

Why affiliate marketing is bad:

You pay for clicks (say on Google) but your merchants get them for free (from you.)
You get one commission when the visitor goes through your site and buys something, but if he likes the merchant, he's going to bookmark their site, not yours. The merchant gets a long-term customer, you get one commission.
Affiliate companies set payment thresholds so small numbers of sales do not result in a payment
Some commission brokers (like LinkShare) don't pay you until they've been paid. (And some companies don't pay on time.)
Cash flow: everyone else gets paid up front -- you get paid on the back end. At times I've had hundreds of dollars in receivables and no cash to pay the bills.

How to make a million dollars in one day

Have you ever examined the hype closely? One person offers to tell you how he made a million dollars in a day. Then after you read his e-book it turns out that he already had a list thousands of names long of eager prior customers that he churned up for the week before That Day. How do you get a list like that? You start from scratch. Maybe in five years you'll have built one. I'm not saying you shouldn't do that, I'm just saying you're not going to do it tomorrow.

Sell Turn-key websites

One website offers to sell you a turn-key website that will allow you to make a fortune selling on the internet. What is the product you're supposed to sell? Turn-key websites. Who to? People who want to sell turn-key websites to people who want to sell on the internet. Hmmm.

Sell e-Books

Another website offers to sell you a $17.50 e-book that will allow you to make a fortune selling on the internet. What is the product you're supposed to sell? $17.50 e-books that tell people how to make money selling $17.50 e-books on the internet.

There's a pattern here...

Are you seeing it too? Money is made on the internet every day. Sadly, some of it is made victimizing people who are in tough straights and looking to the internet for a way out. Most are just refinements on pyramid schemes and chain letters.

The short version of the story is that you can't just put up a website and harvest cash. A web business isn't something different from a regular business -- it is a regular business.

There are real businesses in the regular world that make their money victimizing suckers. And there are businesses that make their money providing services to clients. If you want to work the suckers, there's a lot of information out there for you already. If you want to run a legitimate business, there is also help -- it's just harder to find.

Here's something to ponder: I had a run-of-the-mill site that got about 5,000 visitors a month. (It's out of business now and a lot of the links no longer work, but would you like to see it? ) Advertising on Google ran about $300, or six cents a click. The site had multiple "landing pages" that take you to just the kind of product you're interested in. Even so, 50 to 60 percent of the people who went there, looked at one page for less than a minute then left. So $150 to $180 of that money was wasted instantly. But I still had to pay it every month.

Of the people who stayed to look around, only a few percent clicked the link from my site to one of my merchants. And of those, only a few percent bought anything that neted me a commission. Every month, no matter how business has been, I had to pay hosting, e-mail and advertising costs for this site as well as amortize development software, memberships in professional organizations etc. To pay my $300 advertising budget alone, I had to make about $1,800 in sales.

This is not a problem unique to the net -- a kiosk in a mall has the same problem; lots of people walk by, some stop to look, but few make a purchase. The kiosk owners have to make enough in sales to pay their costs, and hopefully get enough extra to live on.

Money to live on

Most people looking to the web are looking to earn "enough money to live on." How much is that? How much would you have to sell to get there? Let's say your goal is modest -- $50,000 per year. That's about $137 per day. That seems an attainable amount. Let's say you want to be an Amazon associate and sell books. At the moment (July 2004,) book sales on Amazon net about 7.5% in commission. How much do you have to sell to make your $137? About $1,957. Every day. Oof.

OK, but there are goods you can sell with higher commissions. There's always clubwear, for instance -- sexy clothing can fetch 20% in commissions. There you only have to sell $685 of clothing per day to meet your goal. That's over $20,000 per month. I'll be honest with you -- my best merchant was one for whom I sold about $12,000 per year.

The truth is, you're not going to make your living off one merchant. Even a small website will end up dealing with dozens of merchants paying out at various commission rates. (Where do you find them? LinkShare.com or CJ.com are the most popular. More on these guys later) It's this mix, the fabled "Multiple Streams of Revenue" that bring in the money. But how much money? There are legends of people who live off affiliate revenue, but for the most part, you have to consider affiliate revenue as a "kicker" -- something to help pay the bills, but not your main focus.

Selling Hard Product

Remember the mall kiosks I mentioned before? Do they just direct you to another store in the mall? No. They buy stock of their own and they sell it. They might also have some impulse items next to the register that they get small markups on, but their business is built around selling you something they own. It's hard product.

Hard product doesn't actually have to be hard. It can be a service or some intangible. What makes it a hard product is that it's yours. You're not getting a 7% commission -- in retail, you generally want to sell your product for three to four times what you bought it for. So if you want to sell $20 t-shirts, for example, you need to be able to get them around $5 each. Not only do you get enough money to live on, but you get enough that you can afford to give 20% off when you feel like having a sale. (Or when you feel like taking on affiliates.)

So, let's go back to that $137 a day. To make that, you'd only have to sell 9 or 10 t-shirts a day, right? That again seems pretty achievable. Except now we have to deal with the difference between revenue and profit. Your 10 t-shirts represent a gross revenue of $200. You paid $50 to get those 10 t-shirts, so after you pay that money back to yourself, you have $150 in the cash register. But the cash register cost you something. And the space for the kiosk cost you something and you have a business license and insurance and the bank wants 3% of each sale to process a credit card and on and on. What's left after all that is profit. Your $137 per day needs to be profit.

The good news is that even after all the costs come out, you still make a lot more selling hard product than you ever will from an affiliate commission. It stands to reason, right? Those companies you're affiliated with can afford to pay your commission and stay in business.

Your primary stream of revenue should come from a hard product.

Exclusive Deals

True story: When I decided I had to kill off ProvocativeClothing.com, I sent a good-bye notice to my mailing list and got a nice response back from a woman who had liked my site so much she had started a website of her own doing the same business and had signed up as an affiliate with every merchant I had on my site. Our sites were virtual twins.

It takes about ten minutes to become an Affiliate of Amazon. (They like to call them "associates.") Once you've become an affiliate, you can sell Amazon goods on your site. Like almost every other site on the web. Why, exactly, should people come to your site?

You need something that sets you apart. Everyone says "Content" and that's a base you have to cover. But you also need to arrange some kind of exclusive deals. You have to offer something your competition doesn't have and can't get.

If you affiliate with smaller merchants, contact them and ask for some kind of special deal. It might be a coupon code for a special price or it might be some package of their goods available to your customers at a savings. It has to be something that differentiates you from the other guy. You'd be surprised how easy it is to convince merchants to go along with you -- remember the "hard product" above -- they have space to maneuver with their pricing.

Exclusive deals are what set you apart from all the other sites out there in your space.

Improve your odds

There are certain things you should do to improve your odds of getting return customers.

Develop good content so people come back. You don't have to write it all yourself -- there are "free content" sites that provide articles you can use to pad your site out. (In return, the authors of the articles get clicks from your visitors and page ranking because now your site points to theirs.)

Start a mailing list. I'll get into mail strategies later, but there will be some number of people who want to hear from you over and over. Don't turn these return visitors away. These are the guys I used -- (And, yes, that's an affiliate link.)

Always set your links up so they open a new window to the merchant's site. Never allow the link to take you visitor off your site. Most link providers have them set to whisk your visitor off your site. I don't think they're being evil, they just thinking of their business and not yours. In the short-attention span web world, if they leave your site they'll probably never come back. If you pop a new window, then your window is always going to be lurking on their desktop waiting for them.

Another thing you should do is learn about running a business. Many people will tell you the web changes everything. I'll tell you that the web changes nothing. It's just a different way to get your message out. Underneath it is a business that runs like any other business; subject to the same laws and regulations that all other businesses are. To succeed on the net, you need the same tools and skills that any other businessman needs. Here's a place to get a light intro to business: Free Business Course - My Own Business.org (And, no, that's not an affiliate link. )

Advertising

Everyone has to advertise. Even huge operations that everybody already knows about, like Amazon and Google, have to advertise. Most of the articles on Affiliate Marketing advise you to register with Google and Overture at the very least and buy pay-per-click advertising. So what's that all about?

First of all, if you advertise on Google, you're going to show up on a dozen or more search engines, not just Google. You'll show up as "featured links" ro something similar. You'll also show up as "related links" on dozens or hundreds of merchant sites. These sites are paid by Google for providing advertising space. You've seen them around the net --they all look alike; three or four little ads grouped into a banner-sized section somewhere on a product page.

If someone clicks on one of those adverts, the person comes to your site and you pay money. How does Google know when to put your ad up? You provide a list of keywords that you feel describe what your site provides. Then for each keyword, you say how much you're willing to pay for someone to click through to your site if they match on that keyword. The amount you're willing to pay per click determines if you're first, second, third or three-hundredth in the list of links. Then you say how much you're willing to pay per day for clicks in that category. So you might say you're willing to pay a dollar a click for a particular keyword and you'll pay up to $100 per day. Then the advertising engine spreads your ads over the course of the day so that over time, you achieve a $100/day average. Usually it's the average over 30 days, so some days you might pay more than $100, some days less. If you go over the average, the advertiser will usually credit you for the extra clicks. If you're under, you only pay for what you used.

In my ProvocativeClothing.com example, I was paying about a nickel a click for 5,000 clicks per month. That's 5,000 x $0.05 = $250. Some keywords were worth more to me -- I paid a quarter for a click from a search on "Clubwear" for example, because that brought people to a very effective page on my website. And that's one of the keys to effective advertising using pay-per-click: Don't bring people to your home page. Your home page may be very nice, but if they're looking for clubwear, take them directly to the page that sells clubwear. A common newbie mistake is to think that they can find clubwear from the huge, obvious "clubwear" link on your home page. You have to turn that thinking around and realize if they found what they were looking for (clubwear) on your site, they'll find your home page from the "Home" link on your clubwear page.

The next thing you have to understand is efficiency of advertising dollars. Position in pay-per-click advertising is like an auction. If you say you're willing to pay a dollar for a click on "clubwear" then you're always going to be ahead of my listing which only bid a quarter for the same keyword. But if someone clicks your ad, you don't necessarily have to pay the dollar. If my 25-cent bid was enough to get second in the list, you'll only be billed 26 cents to be first, because you only have to beat my bid. If someone else came in at 75 cents, he'd get listed second and it would cost him 75 cents if someone clicks on his ad. I'd get listed third, for a quarter you'd still be listed first, but the click would cost you 76 cents. The mix of advertisers keeps changing because people have caps on the amount they spend per day.

Conventional wisdom says you want to bid so that you'll be first in the list of advertisers, but I disagree. To me, third or fourth place seemed to be just as effective in getting sales (that is, my conversion rate did not go up dramatically if I was first) while being much less expensive, which meant I could afford more clicks per day for a given budget. Your mileage may vary, but in general, I'd suggest experimenting a bit so you're not over-paying for your clicks. I used to pick an amount that would place me second or third in line, then set a huge budget to see how many clicks were available for that position. For example, I'd set a daily budget of $20 worth of 25-cent clicks. That's at least 80 clicks (maybe more because you don't always spend your maximum.) If I consistently hit the $20 budget, then I knew there were more than 80 clicks available. If I rarely hit the budget, then I knew that I was getting all the clicks there were to get at that position. Then I could raise or lower the bid to see if there were more clicks to be had by raising the position or if I lost any clicks by lowering the position (just because someone's higher in the list than you, doesn't mean their ad is appealing.) Finally, you need to watch your sales to see if you're selling more clubwear (or whatever) if you get more clicks. Often, an increase in number of clicks only meant more surfers, not more sales. In the end, it was possible to find a "most efficient" place to be. It was never first place.

{to be continued}

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