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 dontmanage them properly, your profit is at risk. Let consider them:
- Refund Rate: Refunds can kill your marketing efforts! What are worth the sales you see in your account ifcustomers 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. Asite 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!
- Product Quality: Quality is king! Quality makes superiorconversion rates! Quality enables higher prices and bettercommissions! Quality keeps refunds as low as possible! In a word: Quality should be your compass. Dont associate your business with low quality products or services. Onthe top of your list, promote only the very best. It will also keep your profit on top.
The money you earn and lose is significantly determinedby 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 thisquestion and for optimizing your profit: The refund rate of your top affiliate program!
A high refund rate express clearly that lots of customersare not satisfied with what they get and that affiliates lose money on their sales. On the contrary, a low refund ratesindicates a high level of satisfaction among customers and safe earning for affiliates.
Refunds cant be totally avoided. There will always be customers that are not satisfied even for the mostqualitative 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. Its 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:
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 closelyyour merchant performance to ensure it doesnt 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 pictureabout 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 usexactly what we need to calculate the average refund rate of a program.
The $Earned/Sale is the average net amount earned peraffiliate per referred sale. This number is mainly impacted by refunds and it reveals the real commission earned byaffiliates. With this number, you can have an inner look at the real performance of affiliates programs.
The average refund rate of an affiliate program is:
(Commission - $Earned)/Commission = Average Refund Rate
What is the refund rate of popular affiliate programs at Clickbank?
As an example, we have looked at three affiliate programs selling paid surveys databases. We have found theirrefund rates very high! You will be surprised at discovering how much money affiliates can lose when promoting these programs:
Example: For 100 referred sales you should earn $4,084. In fact you will get only $2,643 because 35 customers out of 100 have requested their money back!
Remark: My Consumer Survey has a poorly designed site and a high price for buyers. We estimate its conversion rate to be significantly lower than other paid surveysprograms. Despite its high commission, affiliates will lose the most money with this program.
We learn three lessons about these paid surveys affiliate programs: