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What's the Offer? Some Napkin Math Fun

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Average: 5 (1 vote)

I was recently talking with an affiliate manager for a company. I've been talking with them for many months trying to work something out. This particular day I was informed of a special bonus, they were more than doubling their signup bonus for the first action an account took. Sounds great? Not so fast.

I haven't actually used this affiliate program yet because I feel the payouts are too low compared to other companies in the industry, but here I was being informed of a 1-time 150% bonus on certain actions on new accounts I refer. That should make the offer a lot more competitive, and it does, but is it enough? I thought this was an interesting exercise in doing some quick math and figuring out if this really changed anything. There is also a logical reasoning to look at as well.

First, the napkin math. It was an area I have worked with quite a few companies and know what others are paying and how much on average an account earns me. Each of the other companies have very different payment structures - some offer lifetime commissions, some offer 1 time, some offer hybrids and performance models, there is a lot of variation. However, I was able to take a look at all the accounts I signed up and how many actions they took. Now I simply compared lifetime commissions to one time bonus this company was offering. This is what came out:
Average of 4.91 actions per account.
Minimum commission per action of $4.40.
So the one time bonus would have to exceed $21.60 to be worthwhile (this discounts the fact that those averages and accounts will probably continue to rise as time goes by). There was also some other interesting bits, the mode was 3. The range was from 1-26. What it came out to show was that about half the accounts performed a few actions <=3, about a quarter fell into 3-6 range. And then another quarter (the bread and butter) performed a lot of actions, 6+.

Secondly, the logical look at the offer. If you are being offered 150% bonus (1-time) for something there can only be a couple reasons behind this: they have very large margins or are using a loss leader strategy. Either way, their expected result is earning more than they are offering. This means you are getting screwed at the base commission rate. This doesn't exactly inspire confidence in dealing with a company (I am not sure if it is a degree thing thing - 150% is a lot - or if it is something else entirely).

In conclusion, the offer simply wasn't enough to make it worthwhile. However, if one could filter/separate traffic by expected buyer class, it would certainly be very valuable. Another thing to carefully note is that this sort of analysis assumes ceteris paribus payout is the only factor. Some sites will absolutely convert better, track better (or just be more honest), etc and without empirical testing you can't make these comparisons with certainty. However, it does make a good starting point for negotiations.

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