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Affiliate Marketing Tips #5: Understanding Traffic Generation and Opportunity Cost

This is a continuing series of “Affiliate Marketing Tips” posts to share marketing and promotion strategies for affiliate marketers. If you’re new to the series, you might like to check out the first in the series “The Industry and Getting Accepted

Assuming you’re researched a niche, selected an affiliate offer and chosen to either direct link or create a landing page, your next step is to decide on your traffic generation method.

traffic

While some might see this as a toss-up between paid methods vs free methods, I suggest looking at the real costs of “free” traffic.

It doesn’t cost you a dime to write and publish an article/press release/blog post, create a googlepage/hubpage/squidoo lens, use a social bookmark service like delicious/stumbleupon/digg. Well, that is unless, you count your time cost.

You need to figure out your opportunity cost and the “real” cost of engaging in free traffic generation.

If your expected monthly income is $10,000 a month, and you’re spending 250 hours per month working towards that goal, then your hourly rate is $40 ( $10,000 divided by 250 hours).

So if you’re spending 2-3 hours per day hanging out in a forum or reading tweets on Twitter and retweeting “interesting” tweets, you’re “spending” $80-120 per day (or more if you work fewer hours or have a higher income target).

Over a month, you’re spending at least $2,400 ( $80 x 30 days) of potential income working the free traffic route.

If you do an audit, you’ll find that you’re achieving parity if your $2,400 of effort generates $2,400 in affiliate commissions. But then again, it’s not better that working a regular 9-to-5 job (sans the health care benefits, 401K savings plans, annual paid vacation, etc).

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In order to maximize the effort you’re putting into your business, you need to increase the income you’re getting from the time, investment and resources you’re putting into your business.

Doing this may mean using paid forms of promotion to test out your niche – whether you’re using one of the major PPC advertising engines like AdWords, Yahoo Search Marketing, or the recently rebranded Microsoft Bing search engine, or one of the alternative platforms like Facebook Ads, MySpace MyAds, AdBrite, AdSonar, Media Traffic, Traffic Vance, etc.

Matching the demographic/profile of users that the paid platform reaches out to, to the form of marketing you eventually plan to do will give you a good starting point to test the potential traffic and the conversion ratios within the space.

While we’ve moved beyond the days of doing $5-10 traffic tests, a more realistic budget might be $100-200 to get at least a 100 clicks (on a PPC advertising network) or possibly a couple of thousand impressions (on a pay-per-view network) and looking at your conversion ratios.

The major stumbling block that holds some new marketers back is the expectation that they’ll be able to find a winning traffic source with their first trial campaign. Unless you’re in the minority of affiliates who finds a winning, high conversion traffic source with their first trial, you’ll likely have zero or a few sales, although your traffic costs will greatly outweigh your affiliate commissions.

Being able to isolate the factors which cause the campaign to be unprofitable can make the difference between dropping that traffic source, or choosing to optimize the campaign further.

If you’re losing money because:

  • You had a large number of losing adgroups in your PPC campaign
  • One offer in an A/B offer split test failed to convert
  • Traffic generated during one time/day during your campaign (eg: during the work day, or after hours, or over the weekend) had poor conversions
  • Specific states/cities had poor conversions

You’ve an opportunity to remove the losers and possibly turn the campaign into a winner.

If on the other hand, you’re not able to isolate the losing factor in your campaign, you might like to test a different traffic source.

A paid campaign can go live within a matter of minutes and give you valuable feedback on whether you should proceed or look at alternatives.

5 comments on Affiliate Marketing Tips #5: Understanding Traffic Generation and Opportunity Cost

  1. Ad Hustler
    July 27, 2009 at 7:15 pm (4083 days ago)

    I love that you mention the “real costs of free traffic.” A lot of newbs eyes bug out when you tell them how much you spend per day on traffic but the bottom line is that if it’s making you money, who cares. Try sitting around waiting for a 10k day on whitehat SEO. You’ll be waiting a LONGGGGGGGG time.

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