This might be helpful to those starting out in AM. A lot of times affiliates who start promoting an offer and are profitable think that their ROI is 100% because they spend $50 and made $100 that day/week/etc.
But because of payment terms such as Net 15, Net 30, etc., the actual return on investment/risk is not necessarily 100%. This is because there is always a risk that you don't get paid for whatever reason, and you already incurred advertising costs.
Therefore to see your true ROI or I guess break-even point, I've put together a sample scenario below..
Example Scenario -
You start promoting a new offer and you're profitable:
Daily Revenue = $120
Daily Cost = $100
Daily ROI = (120-100)/100 = 20%
Payment terms are net 15, so you're investing/risking $100 x 45 days = $4500
Once you receive your first month's payment, $120 x 30 days = $3600
$3600 - $4500 (initial capital spent) = -$900
..you still have $900 at risk
..but you profited $600 for your 1st month
Based on this info, you need to know how many months of profit you need to earn before you're advertising expense is risk-free .. meaning that even if you get banned on the 44th day of the payment cycle (for w/e reason) and will not be paid, you don't lose your own money but you lose the profits earned from previous months.
Advertising expense incurred = $4500 (45 days)
Monthly profits = $600
$4500/$600 = 7.5 months
After 7.5 months of profits in your pocket, any potential loss of revenue and expenses incurred is not from your own pocket but from profits you have earned from this offer.
So it's a good idea to look at profitability from this point of view and not just your daily profits because it can all be wiped out if you incur cost before you're paid.
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If you think I have made a mistake somewhere above, please feel free to comment and add your input/suggestions
But because of payment terms such as Net 15, Net 30, etc., the actual return on investment/risk is not necessarily 100%. This is because there is always a risk that you don't get paid for whatever reason, and you already incurred advertising costs.
Therefore to see your true ROI or I guess break-even point, I've put together a sample scenario below..
Example Scenario -
You start promoting a new offer and you're profitable:
Daily Revenue = $120
Daily Cost = $100
Daily ROI = (120-100)/100 = 20%
Payment terms are net 15, so you're investing/risking $100 x 45 days = $4500
Once you receive your first month's payment, $120 x 30 days = $3600
$3600 - $4500 (initial capital spent) = -$900
..you still have $900 at risk
..but you profited $600 for your 1st month
Based on this info, you need to know how many months of profit you need to earn before you're advertising expense is risk-free .. meaning that even if you get banned on the 44th day of the payment cycle (for w/e reason) and will not be paid, you don't lose your own money but you lose the profits earned from previous months.
Advertising expense incurred = $4500 (45 days)
Monthly profits = $600
$4500/$600 = 7.5 months
After 7.5 months of profits in your pocket, any potential loss of revenue and expenses incurred is not from your own pocket but from profits you have earned from this offer.
So it's a good idea to look at profitability from this point of view and not just your daily profits because it can all be wiped out if you incur cost before you're paid.
**************
If you think I have made a mistake somewhere above, please feel free to comment and add your input/suggestions
