Tag Archives: streams

Revenue Streams Online (2) – Affiliate Marketing

Affiliate marketing; boiled down to its essence is the process of trading eyeballs for sales on other people’s sites.  It’s not always sales – sometimes you get paid for an action (signing up to a newsletter, visiting a certain page, etc.) but it’s mostly about sales.   It’s also one of the more popular revenue streams available, so let’s do the Pros and Cons.

Pros

  • Low cost of entry. All you need is a website to start.  Once you generate the traffic, you can get the links for the various affiliate sites to develop your sales.
  • No inventory or customer service hassles
  • Can be an extremely passive form of income – once the website is up, the processing of sales/etc is left up to the affiliated company, not yours
  • Easy to enter / work with  multiple websites with multiple industries, allowing you to experiment with profitability
  • Can be mixed with other revenue streams like advertising very easily

Cons

  • Extremely competitive marketplace partly due to the low cost of entry
  • Can take a long time to develop sufficient traffic to generate decent revenue.  As you are sending traffic away, you get approximately 50% of all visitors at best to the affiliated site.  Those then convert at between 1-3%; so traffic must be significant.
  • You are dependent on 3rd party sites, for both payments as well as the processing of the orders and overall conversion rates / usability of other sites
  • As majority traffic is often generated directly from search engines / referrals (especially for smaller sized sites); you are most liable to Google algorithm changes

 

Revenue Streams Online (1) – E-Commerce

Let’s talk about the various ways you can generate revenue online when you have a website.  I’m just going to do a comparison between eCommerce vs Affiliate Marketing vs Advertising vs Subscription revenue streams and we’ll start with eCommerce.

eCommerce Sales

For those of you who don’t know, it’s where you sell a product on your site and send it to them.  Generally, a physical product but it can be digital and you can drop-ship (have someone else carry the product for you).

Profit margin breakdown using ‘normal’ retail markup for holding stock on your own compared to drop-shipping is 50% to 20-30%.  That is, for every $1 you either get $0.50 or $0.20-30 back.

With digital products of course, if you own the copyright the markup is enormous since your cost of good sold is insignificant (marginal cost that is, not upfront).

Pros:

  • Easier to build a brand, especially if you have products or a product mix that is unique
  • Conversion rates can be significantly better as you are not sending traffic away first – that is you get 1-3% conversion from all your traffic, not just the one’s that travel to the affiliate marketer
  • More control – you can adjust your site to better convert your traffic and have a much better understanding of the needs of that traffic than an external site
  • Lifetime customer value – you are drawing the full lifetime value of each customer especially in a business of repeat purchases.  Unlike affiliate sites where you generally only receive the revenue for a fixed amount of time.

Cons:

  • Inventory can be extremely expensive (requiring tens of thousands of dollars)
  • Building the website is often much more complicated than an affiliate site
  • Developing the brand can be a much longer process
  • A more complicated business model as more ‘moving parts’ from inventory, site updates, design, customer service and more.
  • Generally not a passive income stream as orders must be fulfilled, customer service completed, etc.
  • Ongoing customer service issues compared to affiliate sites (e.g. questions, returns, exchanges, etc.)