Plan Your Internet Success – Part 20: Arbitrage and Commission Based Marketing

20. Arbitrage and Commission Based Marketing

Arbitrage Based Marketing

You may have heard of the term “arbitrage” from the financial market and it applies in the same manner to the Internet. However, a short explanation is in order, in case you are not familiar with this word. “Arbitrage” can be summed up in a very short sentence: “it is the “art” of buying low and selling high.”

You probably can think of many ways to arbitrage. For example click arbitrage is one of the best examples and entails buying clicks for “x” dollar, and re-selling those clicks at “x+y” dollars, hence making a profit for each click sold.

Sounds simple enough, doesn’t it? Pseudo Internet marketing gurus have made a killing (and I mean it) convincing people that this was is easy as one, two, three. In reality, arbitrage is an “art” that very few people have been able to master, let alone become rich at it. This does not mean that you cannot be successful at doing this, but to be successful you must be focused on this game 24/7 and constantly hunt for the best deals and know how to negotiate your way into profitability.

The reasons for this are very simple. Click traffic has become very expensive and, as mentioned in preceding sections, unless you have a great margin, it has become very difficult to make a profit (hence, the advantage of niche markets).

More often than not, companies and people in the arbitrage space are buying traffic on a CPM or CPC basis and re-selling it on a CPA basis, a game that can be as lucrative as it can be risky. Imagine paying Google AdWords, for example, $1 per click and re-selling this traffic at a $10 CPA… One must have a minimum of 10 percent conversion just to pay for Google, let alone for any overheads, employees, etc.

The same is true (with just a little more flexibility as far as pricing) when you buy CPM or CPC from e-mailers, survey sites, list management companies, etc.

So what to do?

The tendency for many Web entrepreneurs is to look for cheap traffic, and if you were to conduct a search for “cheap traffic,” you would probably come across many offers. You’d see something like a $10 offer for 10,000 visitors guaranteed, or digging a little deeper, you may find a sale offer for 1,000,000 email addresses for anywhere from $25 to $300 (probably both prices for the same list too).

These offers are very often what I term “garbage offers.”. For example, e-mail lists that are offered for sale were harvested through “not so legal” means, and sold thousands of times. By the time they come to you, most e-mail addresses are probably dead, since these e-mails were bombarded with so many scam offers. And even assuming that you had your hand on a legitimate list, what could you do? The infrastructure to send 1,000,000 emails is complex and requires servers, specialized software, all of it running in the hundreds, if not thousands of dollars.

The other option that you will see is to buy 10,000 visitors “guaranteed.” At best, this is completely untargeted traffic that comes from dead domains that have been re-directed to you. In the best case scenario, you may buy the worst possible remnant traffic that no one else wants to buy.

This is all grim, and, as I mentioned, the kind of stuff that gurus do not want you to know about when they try to convince you to buy their e-books or services. However, you MUST be prepared and in order to do that, you MUST know what you are dealing with and be realistic about offers that sound too good to be true.

Like so many others, I’ve made all the mistakes that I probably could make trying to find cheap traffic and you should learn from this experience. But most of all, apply this simple logic: if it sounds too good to be true, it probably is! And please, do not make the mistake of thinking that you know better or that Guru John Doe knows the secret of Internet traffic… 99.99 percent of the time this is simply not true.

With this in mind, there are ways to make some money in arbitrage, but it requires work/research, common sense, and focus.

As demonstrated in the example of a $1 click that could be re-sold on a CPA basis for $10 that is not realistic, could this work if you could resell these clicks for a $20 or $30 dollar CPA? Probably, but getting a $20-$30 dollar CPA is not easy. And even assuming that we could find one of those, the conversions would probably be low, since in all likeliness it involves a credit card conversion.

Okay then, would it be plausible to assume that we could buy clicks at $0.45 and resell this traffic on a CPA basis for $15? Sounds more plausible? It is. Just check out the math.

I’m going to use as an example an actual test for a free survey that I am running on various search engines with Google as my reference. After a short test, my average cost for clicks is averaging $0.50 per click (CPC). So far, this has been a typical Google campaign with a conversion of around 10.3 percent on the average (the best conversions I have so far are 20 percent, while the worst stand at .05 percent – I even have one that run at a dismal 0.0% on one of the top 50 ad networks… so much for that!)

So far, the cost for this test is $193.40 for 386 clicks and 304 conversions according to Google. In reality, these 386 clicks resulted in only 41 actions, which consisted of a submission of information containing at minimum the following:

Name (first and last)
Age
E-mail address
State of Residence (US and Canada only)
Level of Education
Type of Housing
Type of Vehicle
Place of Employment

In other words, the information described here has cost me $4.11 for each person who submitted it. This is obviously much higher than the $0.45 premise that I set up.

So far, this is quite straightforward and simple math and someone reading this could say “So what?” and walk away… But wait… Did you ask the real question and are you putting your creative hat on? This is when work and research will pay off and when common sense and straight thinking comes into play in order to figure out how to monetize these actions.

In this “live” example, to cover my cost of $4.11, as well as make some money to pay for my overhead and (I hope) make a profit, I need to make substantially more than the $4.11. By the way, my test went on to cover other networks and channels of marketing with various results and costs that went down to $3.50 per submission and probably could go down substantially lower, but I will keep $4.11 for this example.

Furthermore, I will have to account for a portion of this information not being valid (I assume 10 percent) and, more importantly, come to terms with the fact that, no matter what, a number of these people will never generate money or will opt out (I typically assume half). In other words, my cost is suddenly rising from a steep $4.11 per submission to an atrocious $9 per submission.

Based on this, to break even and make a profit, I will have to make at least $20 from each submission.

How can I do that? Well, let’s take it one step at the time and look at one of the most obvious options: affiliate networks and what is known as “commission-based marketing.”

Commission Based Marketing

Commission-based marketing is not comparable to arbitraging since it involves a payout (typically on a CPA basis) that an advertiser makes to what is called an affiliate. For example, if an advertiser is selling shoes at $50 and an affiliate sends a buyer who will spend this money the affiliate would then get a percentage of the sale. Simple as that…

In theory for an advertiser, affiliate marketing is one of the best way to market product since the advertiser pays only when an action (sale, lead, etc) is taken by a consumer. Hence the CPA (cost per action) model is by far the most cost efficient way to sell products and services, and acquire customers. However affiliate marketing is often poorly understood by advertisers and poorly represented by CPA networks. As a result, many companies that have affiliate marketing programs are bitterly disappointed by the results. The reason for this is that affiliate marketing is based on establishing relationships with affiliates, and that in order to do this successfully, companies must dedicate the “men–power” to succeed but often don’t.

Simply joining a CPA network, no matter how reputable it may be, does not insure the success of an affiliate marketing program unless this CPA network offers to actively recruit affiliates on behalf of the advertiser. And when this is offered it is often done at a price.
Notwithstanding the above, affiliate marketing is by far one of the most cost effective ways to acquire customers., However an advertiser must invest in its program by investing in its affiliates and the people who manage the program.
From a publisher/affiliate perspective, the beauty of affiliate-based marketing is that an affiliate does not have merchandise, inventory, shopping carts, or pretty much anything. The affiliate makes his money from the percentage (or fee) that is paid to him in the form of commission or finder’s fee.

In some instances, the pay is based on other form of actions, such as a lead, the submission of an email address or, in some cases, as little as the submission of a zip code (known as “zip submits”). Of course, each one has a different price tag, but curiously enough if you look around you will find zip submits that pay as much as $0.75, which may sound a bit crazy, but if you can monetize what comes with it, why not (remember it’s a numbers’ game.)?

Now, imagine for a moment that you were able to locate great offers that pay $20 per lead. I can tell that you’re already smiling because you know that profit is at hand.

And on this note, let’s move on to our next section and become an affiliate and try to locate these “juicy” offers that may yield the kind of results that we must have to be successful.

Just as a reminder that the complete manuscript is also available at www.planyourinternetsuccess.com

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3 comments so far

  1. Affiliate Programs on

    If you are struggling to make it by, and are looking for away out I recommend you at least looking into arbitrage trading. Affiliate Programs

    • Jean Touboul on

      Thanks for your comment… However before anyone “buys” into this (this person is talking about working with http://infosmith.org/) I definitely recommend that any-one interested check into the cost of this service for an affiliate (I assume that is who is charged?) since some costs can be high or chancy as in the offers via GoldenCan

      Good luck,

      JT

  2. Jean Touboul on

    I am a professional online marketer who decided to do this blog to provide people who need it a “road-map” to launching an online business. I hope that it will help you and if you are interested you can always download the complete manuscript for free at planyourinternetsuccess.com.


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