In a nutshell, the affiliate marketing model is simple. Because of its inherent simplicity, many affiliates don’t take the time to understand it. Thus, they are not aware of the potential negative financial repercussions of this model.
This article addresses the reasons why most affiliate marketers struggle to make a profit. The most prominent reason is linked to the economics of the business model.
Many affiliate marketers struggle financially. They fail because they don’t sell high ticket items.
As a matter of fact, do you know that more than 90% of affiliate marketers make less than $100 a year?
This startling figure vastly conflicts with the hundreds of advice blogs and advice columns. Many of them suggest you can earn multiple figures through clever affiliate marketing.
As with most online-money-making opportunities, there is a disparity between reality and ideals. This article aims to explore such disparity. It also provides a viable solution to solving the problem so that you can become successful at your marketing endeavors.
The affiliate marketing business model
William J. Tobin designed and patented this model. In 1989, he implemented the first affiliate program for his own company, PC Flowers & Gifts.
Amazon was one of the first to use this model. In 1996, they launched their Associates Program. Since then, many online marketers have adopted the affiliate marketing model.
This model is very appealing. It offers the promise of big rewards versus the low risk involved.
In fact, an affiliate marketer doesn’t need to:
- Develop products.
- Maintain inventory.
- Process orders (order fulfillment).
- Offer customer service and support.
The main activities of an affiliate are:
- Find a good offer that has a great demand in the marketplace.
- Join an affiliate network (it cost nothing to join) and promote the product.
- Send traffic (prospective customers or potential leads) to the offer.
- Earn a commission for referring a customer or a lead. The prospect clicks on the offer and performs the desired action (known as conversion).
Why do most affiliate marketers fail?
Most affiliate marketers end up quitting before they can truly get started.
But what contributes to this trend?
Reason#1 – Information overload and misinformation
There are two conflicting realities online. A startling information overload and a lack of credible information both coexist on the Internet. This is a pressing and important challenge when you start your affiliate marketing career.
The problem is that few (if any) of these information sources are actually credible.
Even less can be traced back to having generated any actual wealth using their own techniques.
The plethora of information available online holds many affiliate marketers back. The lack of credible information creates resistance and frustrations. It stops many people from taking action.
Reason #2 – Misunderstanding the Market
Understanding the market you wish to sell to is vital. Niche marketing can be a very effective tool. But you need to understand what your potential customers want and need. Not knowing what people want and are searching for online will screw your business for sure.
Reason #3 – Acquisition Syndrome
Many affiliate marketers keep looking for the next shiny objects. As a result, they never take action. They can be addicted to purchasing new systems which promise increasing amounts of wealth. This habit can form a pattern in which you continually purchase materials you may never use. You keep hoping for the mystical unicorn which will supply endless wealth with little to no work. I have to admit that I’ve been guilty of this type of behavior.
Reason #4 – Traffic and Conversion Troubles
You’ve done the research. And checked it twice only to find that your links aren’t getting any exposure.
Many marketers suffer from not being able to effectively drive traffic to their website/article/links. This in effect vastly decreases the number of potential customers they get.
But the reality about traffic is that you don’t need just traffic, but the right traffic.
If you’re promoting winter coats, don’t get traffic from a tropical country. There is only one reason someone from a tropical country would buy. During Christmas time, he will visit an acquaintance or family member living in Canada.
Last but not the least, having a sales funnel that works for you is critical if you want to make more profits.
Reason #5 – Economics of the business model
This is the most important reason why affiliate marketers fail. Most marketers have an unsustainable business due to many of the challenges mentioned previously.
In the long run, the bad economics of the business model drives the final nail into the coffin of the business.
So why is the economics of your affiliate marketing business so poor?
Below are listed the main drawbacks as they relate to your inability to generate profits in the long run.
1. You don’t own the customers
Most affiliate marketers get paid only once when the first sale occurs (a one-time deal). As an affiliate marketer, you focus on earning a linear income. It is a one-shot compensation and you get paid a commission. The company whose product you are promoting owns the customer. This rather simple fact will have serious effects on your bottom line in the long run. Read on!
2. You don’t know what customer lifetime value means
It is important as an affiliate marketer that you understand the value of a customer. Subsequent sales that happen during the lifetime of a customer generate profits. You got your affiliate commission with the first sale. But repeat customers generate profits for the company that owns the customer exclusively.
A happy customer is more likely to promote the product or service to friends, families. Even to associates. It’s free advertisement. You don’t earn commissions from these extra sales as well. If you don’t own the customers, you cannot create a residual income and increase your profits.
When you get paid only once for your early involvement, you cannot tap into the long-term profits. The company then has complete access to the customers and referred customers. They would have been increasing your profits. It is also more detrimental when you consider the time and effort you spent only to gain a customer. And have future potential sales limited or eliminated through this process.
Why shouldn’t you be a part of that money-making process?
Do you understand now why some companies are willing to pay 100% commission to get a new customer?
Your one-time paid commission for the first sale is diminutive. Compare it to the total net profit the company will make from the same customer.
3. You incur high advertisement cost to get one customer
Another aspect of affiliate marketing to watch out for is advertisement expenses. Often times as a marketer you may spend a great deal of time and money procuring a new customer.
This is compounded by the fact that you have now spent advertising expenses. Once your initial payout is completed, you must start this process over again. This locks you into an endless cycle of advertisement expenses and time investment.
If you aren’t careful, it could slowly begin to contribute to the loss of your own profits. You are at risk of losing your business in the long run.
4. You don’t build a list of customers
Super affiliate marketers capture the contact details (usually the email address) of their customers. By doing so, they are able to promote other products to their list. They are able to generate more revenues in the future from the same customers.
You need to build a base of clientele and potential leads. If possible, you can even catalog their interests for potential future offers. This allows you to understand what your customers are interested in. You can later on send targeted offers based upon their interest.
You can promote other products to your list using non-invasive emails. Other forms of advertisement could be used. And if you have a good list, you can lower your advertisement expenses.
5. You don’t operate a top tier system
It means that you sell only low ticket items.
In fact, many affiliate marketers don’t operate a top tier system. A top tier system allows you to promote a mix of low ticket items and high ticket items. The low ticket items would be used as front-end products. The back-end products would be the high ticket items.
A top tier system is what you need to turn your annual sales into monthly sales without extra effort.
For example, to generate $1,000 of total revenues, you can sell 100 items priced at $10 each or 1 item at $1,000. The truth of the matter is that it is not 100 times more difficult to sell a $1,000 item than it is to sell 100 times a $10 item.
Most successful internet businesses operate a top tier business model. The latter is the key to their business success.
6. You haven’t heard about the licensing model
There is more than one online business model. It is the greatest aspects of affiliate marketing. But it is also the lesser known aspects of affiliate marketing.
The licensing model is akin to a franchising model.
A profitable licensing model combines the basic affiliate model with a top tier system. It allows you to promote two types of items to the same customer. Low ticket items in the front-end and high ticket items in the back-end.
In effect, a licensing model is much more attractive since you can make more profit.
With the licensing model, you can license the products of a company. This gives you two major benefits. First, you “own” the customer. The second major benefit is that your profits are much higher due to the high ticket sales on the back-end.
Another appealing advantage is that you’re not on your own. As a licensee, you get the training and the help on the marketing.
Final comments and recommendation
I strongly recommend you deal with a company that offers a licensing model. This is a very important point to consider if you have little to no experience in affiliate marketing.
I can’t convey how important it is to get started the right way.
There is a system I use which is very helpful. I actively promote it.
It’s called My Top Tier Business (MTTB).
I use MTTB. I’m also an affiliate with MOBE. Thus, I will earn a commission if you decide to apply and join the training program. As an affiliate marketer, I earn a commission for referring new customers. This is the essence of affiliate marketing.