Affiliate Marketing As An Investment Strategy
Something that you built up with content and the sweat of your brow isn't a monetary investment. That's value creation.…
Carving a career in affiliate marketing is seen by many as the first fingertip on the entrepreneurial ladder. It’s high risk work with a suitably high reward. Perhaps it should be no surprise that at a time when stock markets are riddled with fear, and savings accounts are bordering on useless, our industry is the subject of much interest from anybody with money to burn.
I’ve grown to see affiliate marketing not so much as a long term business, but as a source of easy capital for the company I want to build. It funds my bigger picture. Yet every so often I get to speak to individuals who see the industry from an outsider’s perspective. They don’t view affiliate marketing as the cold blooded arbitrage it usually is. They see it as an investment opportunity.
To them, affiliate marketing is the goose that lays the golden egg. It carries the legendary hook of ‘doubling your money‘, even if those words are rammed home by experts with as much integrity as a broken record. Many smart affiliates are harvesting small fortunes from our industry, that much is true. When you hear such a constant barrage of rags to riches tales, there has to be some truth to the idea that affiliate marketing is one of the quickest methods of doubling, trebling and quadrupling your money.
One glance at the typical UK savings account and you will find that annual returns greater than 4% are a rarity, especially if you require direct access to your money. By the time inflation is taken in to account, your newfound spending power raises some tough questions. “Should I continue buying Iceland-range cheesy wotsits by the multipack? Or can I afford to upgrade to Kettles?”
Decisions, decisions.
Affiliate marketing, to anybody sick of calculating the scant difference between 3% and 4% returns, is full of bold promises. It teases with countless fables of got rich quick stories, those that defy everything taught in Business Studies class.
I’ve never hidden my preference for running campaigns that achieve at least a 75% ROI. It’s a remnant of the shoestring budget I started with. To most business minds, immediate 75% returns are the sort of bullshit fantasies peddled by first-time entrepreneurs with their figures in a twist (forgetting to pay themselves, for example). But they do exist.
So does the golden carrot of potentially skyrocketing profits make affiliate marketing a suitable investment strategy? Or is it, to steal a particularly tasty lyric, a siren singing you to shipwreck?
If you found £100,000 to invest and had never touched an affiliate campaign, could you realistically expect to double your money? Does money buy you a better shot at success?
Well, ROI is deceptive, particularly in a field like affiliate marketing. The juiciest profit margins are a distant third in our importance stakes, trailing both scalability and sustainability.
Let’s say you have £100,000 to invest. You despise the typical savings accounts. You’re looking for a much greater return than the 4% which the proletarians live and die by.
Many people assume that as long as there are affiliates comfortably rocking 75% ROIs, it should be a walk in the park to beat the typical savings rates. If 75% is possible, 4% should be achievable while wearing a blindfold with your balls in the jacuzzi. Right? No, wrong. You’re assuming:
A. You will launch campaigns that actually make a profit.
B. You will invest the entire £100,000.
B cannot happen without A, unless your stupidity knows no bounds. And A cannot happen unless you’re naturally acclimatised to the industry.
On paper it looks pretty easy for an affiliate marketer to pummel that £100,000; to reap massive profits that are beyond the scope of banks, or even the stock market. But the percentages are skewed.
4% return on £100,000 leaves you with £104,000 at the end of the year. That’s a profit of £4,000. On par with a typical savings account
But what if you only get enough campaigns profitable to spend £10,000? In that case, you’d need to hit a 40% ROI to match the savings account rates.
Of course, there’s no reason why you can’t use a savings account and work on affiliate campaigns. Except that in most cases, you would erase your gains. As an investment source of infinite growth, the system is flawed. You’re throwing money at arbitrage, which is hardly a value investment.
The purpose of a savings account is to make all your money work for you. The mechanics of an affiliate business are completely different. Many would argue that having £10,000 to invest is just as good as having £100,000. Plenty of networks will pay you weekly so the cashflow is irrelevant. We aim to invest externally, not internally.
Every wise investor should make a habit out of reading the market before he shoves his dick in it. And what happens when you read between the lines of our industry? You hear, over and over again, that affiliate marketers are rushing to invest their money away from affiliate marketing. What does that tell you?
Even though we can sniff the delights of a 75% ROI, or taste the doubling of our money in an afternoon’s work, we know that like any market experiencing rapid growth – the bubble will inevitably burst.
Unlike the stock market, which specialises in exaggerated panic-stricken meltdowns, affiliate bubbles are burst every day.
It could be a Facebook account getting banned, the collapse of a top offer, or the bankruptcy of a once-great network. Our business plans collectively resemble a trip through the Chessington Bubbleworks; fragile and a little bit whimsical, to say the bloody least.
My advice to anybody looking to throw their money at affiliate marketing as a means of investment is simple: don’t do it. Use your capital to build assets that the rest of us are in this very business to fund.
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Fantastic writing as usual. You mentioned “a source of easy capital for the company I want to build”… What does that mean for you personally?
It is hard to argue with your logic, and yet, for most of us (at least those that have some IM skills and knowledge) this is possibly the best business in the world. The dichotomy…
I concur with Stuart.
Your article is indeed interesting and it reminds me of promises of easy money that could be made in the stock market.
That can indeed happen, but is not as easy and probably 98% will fail at it 😉
I also agree with this bit here:
“I’ve grown to see affiliate marketing not so much as a long term business, but as a source of easy capital for the company I want to build. It funds my bigger picture.”
That’s the same mindset that I have 🙂
Cheers!
“Every wise investor should make a habit out of reading the market before he shoves his dick in it.”
I once got mine bitten off. Im more careful where i stick it now… Great article!
@groneg – I guess company is the wrong term for it, actually. I want to leverage affiliate marketing until I can make a full-time income from my writing alone. I’d love to get published. That’s not to say that I’d ever leave Internet Marketing though. There’s just too much passive income to be made for me to justify turning my back on the industry!
Also, it seems, profits or potential profits or returns are getting squeezed by more people entering the field. Just look at Facebook for instance. If it looks easy then the void will be filled with new comers willing to pay a little bit more and they will settle for a little bit less profit, but with more risk for everyone.
A £100k BR would be absolute fucking cake to double in 12 months. Listen, I fail 80% of the time on new shit, but the other 20% easily makes up the difference. You don’t even have to be great to succeed with £100k, just a little patient and willing to learn.
1.) Find a few offers (stick to extremely competitive mainstays) – Oh, and if your main currency is the Rupee or Yuan, you may be out of luck, no CPA network wants you, but it’s for the best. Don’t hate. Take it up with the dipshits from your country that push garbage and dillute our offers…anyway, fuck you, but anyway.
2.) Buy & Develop (or pay to develop) Related Domains.
3.) Open an Adwords, BING and FB account
4.) FAIL A lot for a little, but keep trying. Mama didn’t raise no quitter, right?
5.) Go direct and scale when you hit. Borrow money if you have too, cause you’ve only got a few months at best before Yuan Rupee jacks your offer, ad & LP.
6.) Ok, ok. Helps to make friends with an AM or two to get the inside on top offers and push for raises and weekly payouts (NET 4).
7.) Keep learning and always keep testing. A lot of shady motherfuckers are out there to scrape your hard work. Don’t let it get to you. Shrug it off, repeat, you know the drill.
You don’t need huge money to start, there are so many discounts and cheap services for A/B testing, competitive analysis, email services (Mailchimp) and graphic design (PIXLR anyone?!) that you could do this on a £1k roll and rake bones all day.
The term ROI in this industry misleads people into thinking it’s an investment. But exactly like you said, the main problem is scale and sustainability. There is a scarcity of resources and the pie is getting bigger at a slower rate. The pie is just being cut up in different ways as time goes on. It’s a big pie still, that’s why there’s always opportunity.
The people who view this as an investment doesn’t understand that this is an intensive OPERATING business for a long time. It takes intelligence, patience, scrappiness, focus, and extreme hard work to sustain an income you will be happy with. It takes that to creative any kind of passive income. Whereas, an investment is supposed to be passive upfront.
We only use ROI to measure performance of the ads. But the income generated is just that, not a return, but an income. No assets involved here.
Great article Finch.
-Tom
I think the key is diversity and your own personal goals. Where do you want to be in 5 years time?
I think some guru once said that income should be spent 1/3 on your main business, 1/3 for personal stuff and 1/3 on investments. These investments don’t have to be new online ventures, but could be entirely different offline businesses.
Some hate the risk of affiliate marketing and so do client work. Others hate the hassle of dealing with clients and just want to ‘make moneys online’. And others see it as a route to a completely different career…
“We only use ROI to measure performance of the ads. But the income generated is just that, not a return, but an income. No assets involved here.”
I know a few domainers and high value website owners that would highly disagree with that statement. Through hard work, your affiliate angle turns into a long-term web property play. If it doesn’t, then you’re just shooting yourself in the foot for short-term gains.
Something that you built up with content and the sweat of your brow isn’t a monetary investment. That’s value creation. Something like that would never be considered an investment in the private equity world. Your talking about building up assets that produce an income from hard work. I’m talking about a true investment (e.g. LBO, real estate, etc.) of capital, which is what Finch is talking about affiliate marketing being compared to, and I’m saying that is just arbitrage, not investment. Your talking completely different things here.
-Tom