3 Must-Know Principles to Become A Super Advertiser
My “Aha!” moment as an advertiser was learning that EPC is key, not only to understand my side as an advertiser, but the affiliate side, as well. This EPC formula is what affiliates use to find out how much money they will make for every click they send to an advertiser (or the product-owner).
EPC = CPA x CR
(Earnings Per Click) = (Cost Per Acquisition) x (Conversion Rate)
For example, let’s say we are selling a product and for every sale we will pay $10 to an affiliate. An affiliate accepts these terms and sends over 100 clicks, 3 of which lead to the purchasing of our product or service. Since 3 of the 100 clicks converted, we know CR is 3% and the $10 per acquisition is the CPA.
EPC = CPA x CR
EPC = $10 x 3%
EPC = $0.30
So the advertiser would have paid $0.30 for every click sent over. It is important to understand that affiliates will generally look to make a 50% margin, which means in this example the affiliate would be limited to paying for traffic worth $0.15 a click.
It also imperative to understand, as an advertiser, that affiliates are on a quest to find the highest EPC possible. If an advertiser is offering a $0.30 EPC, like in the example above, and another advertiser is offering a $0.50 EPC for the same sort of product, why wouldn’t the affiliate send all of their clicks to the second one?
Many advertisers rely heavily on affiliates for large amount of traffic to their site. This amount has a direct correlation to our ability to have the best EPC within their industry or niche. In fact, your entire emphasis if you want to become a successful advertiser should be these two main things:
- Getting the highest CPA possible.
- Getting the highest CR possible.
Think of your CPA as your backend – it’s how much it costs to run your business. And think of your CR as your front end – this is the customer’s experience on your website to want to purchase.
The reason why I am treating both CPA and CR as equal is because when it comes to EPC, they are. It does not matter whether you increase the CPA by 50% or the CR by 50%, either way; they both affect your EPC equally.
For example, let’s say our company has a CPA of $20 and a CR of 2%. Our EPC at this point is $0.40. But what if we wanted an EPC 50% higher than $0.40, which is $0.60? We could either increase our $20 CPA by 50% to $30 or we could increase our 2% CR by 50% to 3%. Those adjustments would affect EPC equally, and to an affiliate they are exactly the same. Below the formulas represent this important concept:
(EPC x 150%) = (CPA x 150%) x CR
(EPC x 150%) = CPA x (CR x 150%)
Now that we understand that CPA and CR have equal effects, what can we learn from this? The first thing I want you to think about is margins. If we have a CPA of $20 and are making $38, then our margin or what we get to keep is $18. If, however, we increase that CPA to $30, then we are not left with much. You could however have the exact same effect by just increasing your CR from 2% to 3%.
Many advertisers make the mistake of not putting enough emphasis on their conversion rate because they just focus on their CPA. But you need to focus your time on the one you can increase most in the same amount of time.
There are really two main things you can do to increase your CPA.
- Increasing your profit for every order
- Increasing your margins that you are putting on the market
How can you increase your profit? Well one way is just to increase your price. However in doing this, you might lower your CR. The easier thing to do is lower your costs. You can do this by buying things wholesale, working directly with manufacturers and/or building relationships with partners.
There is also not just product cost, but overhead and overall costs, as well. The guys with the leanest businesses, who have reduced start-up and ongoing costs, will eventually become the winner. They have higher margins and therefore can offer a higher CPA.
Another way to increase profits is through up-selling or cross-selling other products. When your customers are buying two or more products, rather than just one, it helps to increase you’re ATV (Average Transaction Value).
How can you increase your margins? You may have heard a lot of offline business people putting 10% of their revenue into marketing. I’m not saying you can’t do that, but some of the biggest advertisers, direct response or affiliate marketers, are using 20% – 40 % or more of their revenue for marketing.
The Internet can be sometimes a pretty expensive medium to acquire customers. However, the bright side is that you can get a ton of more users through the Internet. Not just from your neighbourhood or general area, but nationally or even worldwide.
But because there is so much exponentially growing traffic, the Internet is a very competitive medium. That means that the ones who are putting out higher margins into acquiring customers are the same ones taking the bigger market share of their online niche.
For example, let’s say your ATV is $30 and you were using 10% of your revenue to attract new customers. This would give you a CPA of $3. Let us also say that you have a CR of 10%, giving you an EPC of $0.30. If you increased your marketing margins to 30%, the result would be an EPC of $0.90. This is a significant jump and will result in you being able to take a much more significant market share. You can’t be too stingy and not put enough of your budget into marketing. A lot of advertisers don’t realize this and are therefore unsuccessful in their campaigns.
Every aspect of your website, from your landing page to your checkout, can help increase that extra 0.1%. This is just as important as increasing your margins or lowering your costs when it comes to increasing your EPC. To illustrate this, research some of your biggest competitors and find some out the best practices that are working for them.
You want to try and level the playing field when you’re first entering a market. I regularly research what my competitors are strong in. If they have an immaculate site, then they will have a high CR. If they don’t, then they likely have a high CPA. In order for you to compete, you have to match them or have similar numbers or outright beat them.
There are hundreds of various traffic sources out there and not all advertisers know all of these sources. Keep in mind that you have to constantly be optimizing your site to increase your CR, because your competition will. You need to study your competitors’ trends or upcoming competition, and see if they are changing. Continue testing to stay on top of your market. Strive to have the highest CR and CPA and ultimately the highest EPC. In the affiliate and Internet space, EPC is king. The one with the highest EPC will have the most traffic and generate the most revenue.
3 Key Factors
I have shown you that having the highest EPC will provide you with a large share of your market. What I want you to ask yourself is how big your market really is. You may have a high EPC but if your market is too niche or specialized and without any volume, you may not get the traffic to generate revenues you want.
Being niche is important, but the biggest money is in tackling the bigger markets with verticals like diet, weight loss, teeth whitening, and business opportunities (i.e. how to make money programs). The fact is that most Americans want to lose weight, have healthier skin and whiter teeth. You want to be somewhere in between to start.
When you cover a broader market it gets you higher volume. If you are too niche or specialized you might not have enough traffic. Keep that in mind as you are analyzing which type of market you want to get into.
If you are going into a market without a direct source from a manufacturer or distributor that your competition may have, then it will be difficult to compete on a CPA basis. Whether you are selling a product or have some type of online service, you must establish necessary contacts. I have a rolodex of importers and exporters, direct manufacturers and business connections that I’ve built over the years. Such connections can come from all over the world and they can help you reduce your costs. Finding cheap ways to start your businesses, phone lines, mailbox, virtual offices, and so forth are all important factors, as well.
When doing competitive analysis, make sure to look at your competitor’s conversion rate. If they have a phenomenal brand and attractive site, then you must ask yourself, can I compete or get a similar conversion rate? You might be able to, but you will need a great designer and programmers to build your brand.
The two best ways to increase your site’s conversion are focusing on these two things: 1) increasing motivation (you should read Robert Cialdini’s Influence to learn the 6 Principles of Persuasion) and 2) removing friction (your site’s usability and addressing all your customers’ major concerns).
I did a 2-hour presentation at Gauher Chaudhry’s (creator of PPC Formula and PPV Formula) underground seminarin Toronto last November, 2010. I am making the seminar available only for a limited time for Direct Response readers. Be sure to check it out here!
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