Is Affiliate Marketing a Scam or a Real Business?

A reader asks:

Do you believe Affiliate Marketing is a reasonable and economical starting point for someone trying to learn adwords and is it possible to be able to promptly track the results of  ROI and conversion rates?  Everything I read in Adwords is tied to having control over my own website which obviously I wouldn’t have as an affiliate.

Here are my thoughts:

This question is like asking me if I think it’s possible for a 5’10" 43-year-old guy to train enough to dunk a basketball if he currently has a vertical leap that wouldn’t clear a soda can. (Not thinking of anyone in particular, mind you.)

Yes, I absolutely believe that success is possible in both cases. But I’ve proven myself quite unwilling (so far) of doing the work that would get me to either goal.

I know some folks who make a good living at affiliate marketing. They know their markets, they test constantly, they track every traffic source for ROI conversion down to the keyword level, and they constantly scout out high-converting merchants. They manage their bids with alertness that would put your cat to shame. And they become brilliant at several forms of traffic generation – not just AdWords, not just article marketing, not just SEO.

Here’s the thing about affiliate marketing: because it seems so easy, it’s incredibly competitive. There’s the lure of easy money with no work and no customers and no website.

Not only that, the pure affiliate business model has structural downsides: you do all the front end heavy lifting of lead acquisition without any of the back end of long-term customer relationship. Also, affiliate programs change, Google changes, companies go out of business – so make sure if you want to be serious that you create a multi-legged stool, for traffic generation (not just AdWords) and affiliate merchants (not just one or two).

That said, affiliate marketing is great for supporting your entry into a marketplace in two significant ways:

1. Learning about markets without investing a lot of time or energy
2. Monetizing your creation of an opt-in list to subsidize your lead gen costs

In other words, use affiliate marketing to answer your question about whether the market you intend to enter is a potential profit source online, by measuring conversion and comparing the success rates of different approaches. And if you’re paying 50 cents a click to get prospects onto your email list while you figure out what to sell them, you can insert affiliate offers into the followup email sequence (using Aweber or another autoresponder service) to recoup your lead gen costs.

When I look at a business opportunity, I ask myself four questions:

1. Is it profitable?

Not having an MBA, I define profitable in terms I can understand: Do I make more than I spend?

That’s an oversimplification, of course. The real question is, will it bring in enough revenue to cover my costs and pay me well for my time. And, having drooled through Economics 101 in college, I do have a vague recollection of something known as Opportunity Cost – the awareness that every endeavor I say "Maybe" to automatically makes me say "No" to a bunch of others at that time.

2. Is it defensible?

Is it a castle on a hill with a moat around it, as Ken McCarthy metaphorized in a conversation the other day? Or can anyone with an AdWords account and access to steal all your keywords and ad copy in 10 minutes?

3. Is it sustainable?

Is it a momentary fad, caused by a loophole in Google’s algorithm (like blog and ping), that will soon be shut down? Is it based on temporary market conditions (like the current mortgage crisis)? Or will my current investment in learning and mastering the business pay off for years to come?

4. Is it attainable by me?

Everything works for somebody. But if someone is pitching the dream life based on the dream business, I make sure I educate myself on the skills, experience, connections and personality traits needed for success in that business. There are lots of great business models that would fit me like a toddler’s glove. Pro basketball player comes to mind. So does crooked politician. So does affiliate marketer.

Me, I’m a teacher and coach and writer and strategist. When I try to be an engineer, I get woozy. Paperwork and administration floors me. I realize that my business can’t run on ideas alone, so I surround myself with employees and colleagues who compensate for my weaknesses. But the main focus of my business is delivering products and services that come from my strengths. Activities I enjoy and do well.

Partly, I’m preaching to myself here – because, honestly, I still spend way too much time doing things I’m not that good at and don’t enjoy particularly. Two bits of inspiration lodged in my brain this week.

1. Ken McCarthy inadvertantly gave me my new business mantra when he wrote in an email, "Unnecessary work is ceasing now."

2. Eckhart Tolle’s A New Earth contained a line that completely reenergized me to hone my business to just those activities that serve my soul: "There is more meaning in joy than you will ever need." In other words, when I do what I love doing for its own sake, I don’t need to worry about whether I’m living up to my potential or changing the world or making my parents proud. The joyful consciousness that I generate when I fully embody my work is all the meaning my soul needs, and all the healing the world needs.

To finish the thought with which this post began: affiliate marketing…

Some of the smartest affiliate marketers I know will be presenting with me at the System Seminar in Chicago at the end of May 2008. If you’re serious, that seminar might be worth a look. You can preview the entire program here – check out James Martell and Colin McDougall especially.

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  1. #1 • Colin "Google" McDougall said on September 23 2008:

    Yo Howie….

    Just saw an alert on my name come in on this….

    Dude… Been trying to get hold of you….

    email me at mcdoogenator at gmail dot com

    Just getting back to work after taking a 4 month hiatus cuz…. Well, I really like NOT working….

    Launching new offer….

    Please send me any bonus offers you want in for next week’s official kick off

    Colin “Google” McDougall