I have bad news for you: You are probably losing money and you didn't pay attention to it! Let me explain...
When you joined affiliate programs you probably considered the following factors:
â€˘ - The commission
â€˘ - The conversion rate
The profit formula looks like a child play Commission x Conversion Rate Your Profit
In fact there are three big pitfalls here and if you don't manage them properly, your profit is at risk. Let consider them:
â€˘ Price: A high price means a higher affiliate commission for every sale but it may result also in a lower conversion rate If the product is too expensive, nobody will buy. You shouldnt be blinded by the promise of a very high commission. You should keep in mind that the best price is not the one that gives you the highest commission but the one that makes the highest profit. An optimized pricing that makes satisfied customers and satisfied affiliates is what you should look for.
â€˘ Refund Rate: Refunds can kill your marketing efforts What are worth the sales you see in your account if customers request their money back? A lot of sales mean nothing unless you keep the money!
This is the whole responsibility of the merchant to keep refunds as low as possible. A site that sells well is good. A site that also keeps refunds very low is much better! There is only one way to keep refunds very low: To deliver very high quality services meeting customers' expectations or going beyond what they could expect!
â€˘ - Product Quality: Quality is king! Quality makes superior conversion rates Quality enables higher prices and better commissions Quality keeps refunds as low as possible! In a word: Quality should be your compass. Don't associate your business with low quality products or services. On the top of your list, promote only the very best. It will also keep your profit on top.
How much money are you losing today?
The money you earn and lose is significantly determined by the quality of the affiliate program you have selected as your top pick.
The question is: How do you measure what is more qualitative and what is less?
There is an objective criterion to use for answering this question and for optimizing your profit: The refund rate of your top affiliate program!
A high refund rate express clearly that lots of customers are not satisfied with what they get and that affiliates lose money on their sales. On the contrary, a low refund rates indicates a high level of satisfaction among customers and safe earning for affiliates.
If you get many refunds with your top affiliate program, you should understand that the quality of this program isn't sufficient for keeping these customers satisfied and it doesn't do the necessary job for securing your profitâ€¦ You are losing money!
What are good, medium and poor refund rates?
Refunds can't be totally avoided. There will always be customers that are not satisfied even for the most qualitative product or service. So, expecting a zero refund rate on the long run is not realistic. You should wish a refund rate as low as possible in your industry. It's important to consider that there can be significant variations from one industry to another but as a rule of thumb you can use the following scale:
â€˘ 2% or less: Excellent
â€˘ 3% - 5%: Good
â€˘ 6% - 10%: Medium
â€˘ 11% - 15%: Poor
â€˘ 16% - 20%: Very Poor
â€˘ 21% or higher: Run away
With a 5% or less refund rate you can be happy. Your affiliate program is reliable and your profit is secured. With a 6%-10% refund rate, you should monitor closely your merchant performance to ensure it doesn't get worst. It would be advised to scan the market for a better alternative if you can find one. With an 11%-20% (or higher) refund rate you should be very concerned with your profit. Whatever your industry is, you are bleeding and there is probably a better affiliate program to promote.
What is the refund rate of your top affiliate program?
There are two ways to find the refund rate of an affiliate program:
1) Look at the stats supplied by your affiliate program
Do your math as following: Refunds / Sales = Refund Rate
Let say you make 1000 sales per month, you get a $23.50 commission per sale and about 160 customers request their money back every month. Your refund rate is 160 / 1000 = 16%. In that case it means that you should have earned $23,500 for your sales but you will get only $19,740 because of the refunds. You lost here 16% of your profit or $3,760!
You can ask yourself: Is it only I or all affiliates for this program get similar numbers? If you use Clickbank to promote affiliate programs, you can get the big picture about the whole community of affiliates that promote an affiliate program.
2) Using Clickbank payout stats to calculate the average refund rate of an affiliate program
In its marketplace, Clickbank publishes payout stats for affiliate programs. The $Earned/Sale factor gives us exactly what
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