June 5th, 2008 by Louise - Posted in How To Make Money
I often check my emails from blog readers, and find several asking: “How much money can I make from affiliate marketing?”
This is an impossible question to answer.
Poor affiliate websites make nothing.
A few affiliate sites make millions of dollars. For example, the UK website MoneySupermarket.com (www.moneysupermarket.com) made over $320m in affiliate income in 2007 and the site is valued at $1.3bn.
But giving such a broad answer is meaningless!
So what I have decided to do is talk through how you can make $100 a day.
Based on this guide you can work out how much you can make from your website.
Making $100 Affiliate Income
There is a simple way to work out the profit you can make from affiliate marketing:
Let’s go through this step by step:
STEP 1 – Commission Paid Per Sale
Every affiliate program tells you how much commission you will make from any sale. The commission can be a fixed amount e.g. $10 per sale, or a percentage amount, e.g. 10% of the total sales value. In the later case, the ‘Commission Paid Per Sale’ is the value of the sale times the commission percentage. For example if the product you are promoting costs $150 and the commission is 10%, you make $15 per sale.
STEP 2 – Cost per Sale
The ‘Cost per Sale’ refers to the amount of money you spend to drive people to the web page that has the affiliate link on it.
The most common marketing technique is ‘Pay-Per-Click’ advertising using Google Adwords (www.google.com/adwords).
With Pay-Per-Click (PPC) marketing you pay a small amount every time someone clicks on your Adword’s ad to come to your site. So for example if you pay $0.20 every time someone clicks on an ad and during the month 350 people click to come to your site, your costs would be 350 clicks x $0.20 = $70. If during this month you made 10 sales through your affiliate links, your cost per sale would be $7 ($70/10)
STEP 3 – Number of Sales
The Number of Sales is the number of products sold to people who have clicked on the affiliate link on your site.
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So those are the three elements that determine how much profit you will make.
An Example
Imagine you own a niche website about bird watching.
On one of the pages you write a review on binoculars and recommend one particular model. You find a merchant who sells this model and has an affiliate program.
The binoculars are $200 a pair and the commission paid is 10%. That means for every pair of binoculars that are sold via the affiliate link on your site, you make $20.
You then have to work out how much it costs to get people to visit the binocular page on your website.
You decide to drive potential clients to the page using Google Adwords Pay-Per-Click. From previous experience you expect to pay $0.15 every time someone clicks on the ad to come to your site. You also know that roughly one out of every 50 people clicking on an ad goes on to click on the affiliate link and make a purchase.
So using these figures how many binoculars would you need to sell to make $100 profit?
The answer is eight.
We know our commission is $20 per sale ($200 x 10%).
We know that the cost of advertising per sale is $0.15 x 50 people clicking the ad. That is $7.50 per sale.
Therefore our profit per sale is $20 – $7.50 = $12.50.
So to make $100 we would need to sell $100/$12.50, which is 8 pairs of binoculars.
If we put this in our formula it looks like this:
If we look at industry statistics we can get an idea of what you will need to do to make $100 every day of the year.
According to:
I’ll also assume:
the average commission is 10% of the sale
the average Adwords cost per click is $0.20
50% of site traffic is free and 50% comes from Google Adwords
Based on these figures we can estimate that:
You need 60 people coming to your web page to get one sale
If 50% of visitors come via Google Adwords PPC at $0.20 per click, you will be spending $6 per sale on advertising
If the average sales value is $140 and the average commission is 10%, you will make $14 per sale
If you subtract the advertising cost from your commission value you will make a profit of $8 per sale ($14 – $8)
If you want to make $100 a day you simply divide $100 by the average profit. This is $100/$8 which equals 12.5 sales per day
So there you have the magic numbers to achieve $100 a day.
You will need to sell 12.5 products at an average value of $140 and a commission rate of 10% to hit $100, or $36,500 a year.
Conclusion
These examples are simply intended to give you some guidelines.
They introduce you to the process of working how much money you can make from affiliate marketing.
Start thinking in terms of:
Average value of each sale
What the commission is
How many people you need visiting your site for each sale (conversion rate)
How much it costs to get each visitor to the site
How many sales much you make to hit your target income
I always believe in breaking every project down into bite-size chunks.
If you do this you will be able to tweak each bit of the process to continually increase the amount of money you make.
Good luck and enjoy!