Affiliate Programs: Some can lose you money!

You're losing a lot of money with your affiliate program and you didn't know it. Allow me to explain in more detail…

When you joined affiliate programs you’ve likely weighed the following factors:

- The commission rate
- The conversion rate

The profit formula looks like a breeze: Commission x Conversion Rate = Your Total Profit.

As a matter of fact, there are three big pitfalls and if you don't manage them the right way, your revenue is in peril.

Lets consider them:

- Price: A high price entails a higher affiliate commission for every sale but it may result also in a lower conversion rate. If the product is too high-priced, nobody will buy it. You shouldn't be enthused by the promise of a very high commission. You should bear in mind that the better price isn't the one that gives you the highest commission but the one that makes the highest profit. An optimized pricing that makes happy customers and happy customers is what you should seek.

- Refund Rate: Refunds can wipe out your marketing attempts! What are the sales worth in your account if the customers request their money back? Numerous sales mean nothing unless you keep the money!

This is the sole 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: Deliver very high quality services that meet customers' expectations or going above and beyond what they might anticipated! 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 guide. Do not 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 earnings on top.

How much profit are you losing today?

The money you earn and lose is significantly determined by the quality of the affiliate program you've selected as your top pick. The question should be: How do you quantify what is more qualitative and what is less? There's 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 the customers are not satisfied with what they get and that affiliates lose money on their sales. On the other hand, a low refund rate indicates a superior level of gratification among customers and safe earning for affiliates. If you get numerous refunds with your top affiliate program, you should understand that the quality of this program isn't adequate for keeping these customers satisfied and it doesn't do the necessary task for securing your profit. You're losing a lot of revenue!

What does a good, medium and poor refund rates mean?

Refunds can't be totally avoided. There will always be customers that are not satisfied even for the most high quality product or service. So, anticipating a zero refund rate on the long haul is not realistic. You should want a refund rate as low as possible in your industry. It's crucial to consider that there can be substantial variations from one industry to another but as a guideline you can use the following scale:

2% or less: Excellent
3% - 5%: Good
6% - 10%: Medium
11% - 15%: Poor
16% - 20%: Very Poor
21% or higher: Run away!

With a 5% or less refund rate you can be pleased. Your affiliate program is dependable and your profit is secured. With a 6%-10% refund rate, you should monitor your merchant performance closely to ensure it doesn't get any worst. It would be a good idea to scan the market for a better alternative if you are able to find one. With an 11%-20% (or higher) refund rate you should be very troubled with your profit. Whatever your industry is, you're losing a lot of profit and there's probably a better affiliate program to advertise out there.

What is the refund rate of your top affiliate program?

There are two ways to find the refund rate of an affiliate program:

1) View the stats furnished by your affiliate program

Use the following formula as follows: 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%. What this means is that you should have earned $23,500 for your sales but you will only receive $19,740 because of the total refunds. You've lost 16% of your profit or $3,760!

You should then ask yourself this question: Does all affiliates for this affiliate program get similar numbers or is it just you? If you use Clickbank to promote affiliate programs, you will be able to get the big picture about the whole community of affiliates that promote an affiliate program.

2) Utilizing Clickbank payout stats to calculate the average refund rate of an affiliate program in its marketplace, Clickbank puts out payout stats for affiliate programs. The $Earned/Sale factor gives us exactly what we need to calculate the average refund rate of an affiliate program.

The $Earned/Sale is the average net amount earned per affiliate per referred sale.

Refunds mainly affect this number and it reveals the real commission earned by affiliates. With this number, you are able to have an inner look at the real performance of affiliates programs.

To figure out the average refund rate of an affiliate program use the following formula:

(Commission - $Earned)/Commission = Average Refund Rate

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