Bridging the Gap Between Affiliate Programs and CPM

Affiliate programs as we once knew them are dying. So why read this column?

Because like dying dot-coms, the dying affiliate programs are being replaced by effective performance-based sales channels, the kind that have existed offline for many years.

In my previous article, I promised to show a means of bridging the gap between cost-per-action (CPA) programs and cost per thousand (CPM). And what real super affiliates need to know today is the effective CPM of their programs — how much your affiliate program can earn in my space.

If you own an affiliate program, it is critical for your success to consider the changing dynamics of the affiliate game.

Effective CPM: The Art of Negotiation

The best way to present the changing face of affiliate programs is with an example of how to negotiate an affiliate deal with a prominent partner. Although this example is fictitious, the principles behind it are not. Here’s the common way to evaluate effective CPM:

 

  • Take an affiliate program with a $40 bounty per acquired customer; the affiliate program is targeting a major site to promote its campaign. 
  • This prospective affiliate site sells CPM-based advertising, let’s say at $20-40 CPM. (OK, so it’s on the high end and in reality will sell CPM at $5-10 easily… if you haggle. More on this later.) We approach the site with this affiliate program offer of $40 bounty. 
  • The site thinks about it and wants to generate CPM; we are willing to pay a hybrid mix of CPM plus the $40 bounty, but we need to know what results will be generated. 
  • Most companies would quit right here. The affiliate/publisher complains about the CPA deal. We complain about the CPM price. 
  • But as a good affiliate program, we know our effective CPM is a function of our click-through rate — and, most important, the number of conversions. If we present this affiliate program with the realistic, possible CPM it can generate for the site, we have a reason to talk.

 

Assuming a lowest common denominator example, we start looking at this affiliate partner as a media buy and as an affiliate. These kinds of hybrid deals are very powerful. And they are even more powerful if we know our numbers.

Now consider this:

  • Let’s say the affiliate program generates a 1 percent click-through on a banner (remember to use more than banners, but we’ll use this as an example). We are offering them an interstitial to advertise, so we’ll use the 1 percent as a low-end example. (Frankly, interstitials can easily generate 5 percent and more click-through, but we’ll err on the conservative side if we are buying CPM. In negotiating affiliate deals, what numbers you share are up to you, but keep expectations reasonable and err on the side of the low end of your numbers.) 
  • We convert 1 percent of visitors to sale. We evaluate the possible sales numbers using a 1 percent click-through and 1 percent conversion basis — based on testing through the affiliate program. Now we know the numbers. 
  • We determine that with 7 million impressions of an interstitial, with this formula we will generate an effective CPM of $4 at our conservative numbers, as follows:
    • 7 million impressions x 1 percent click-through = 70,000 visitors
    • 70,000 visitors x 1 percent conversion = 700 customers
    • 700 customers x $40 bounty per customer = $28,000
    • Effective CPM: $4 ($28,000 payment for 7 million impressions, $4,000 per million)

     

  • If we tweak the numbers a bit and increase click-through to 5 percent, we get the following:
    • 7 million impressions x 5 percent click-through = 350,000 visitors
    • 350,000 visitors x 1 percent conversion = 3,500 customers
    • 3,500 customers x $40 bounty per customer = $140,000
    • Effective CPM: $20 ($140,000 payment for 7 million impressions, $20,000 per million)

Since this is an interstitial campaign, we know from experience that we can generate higher click-through. Of course, there are variances in traffic, conversions, and quality of traffic, but the basic principle applies.

All the affiliate cares about is effective CPM. When I can offer a tested process that has generated between $4 and $20 effective CPM, I can work on buying my own ads at sites with low CPM pricing. I can help affiliates make more money by simply improving click-through — or, even better, improving my conversion process.

When you start talking with numbers — with effective CPM — to affiliates, you begin to win the new affiliate game. The old days of screaming “Post my ad for free, and I’ll pay you when they act,” with no proof that “they” have acted, are gone.

Today, you must know your effective CPM for your affiliate program as well as for your own media buying.

Let me leave you with one last thought. In this scenario, our affiliate is selling ad space for $10-20 CPM. If I can buy it at $10 CPM and generate effective CPM of $20 (through experience!), then I should opt to buy this CPM space, get the prices down as low as I can, and unleash my program. Instead of making this site an affiliate, I may find it more cost-effective to buy CPM, since I know my own effective CPM.

When you know the results, you can buy media wisely. Smart affiliate programs are becoming media buyers, armed with experience and effective CPM.

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