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  1. #1
    Join Date
    Apr 2009
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    Affiliate program: How do they afford the big payouts?

    Hi All,

    I'm looking at starting an affiliate program of sorts, and some of my looking around I see these companies offering out huge payouts, and more than they even make off the client for their first year.

    Can anyone shed any light into how this is working for them? How they make any money off of the new client?

    One person I contacted about this said he is getting paid out $65 dollars a signup. If I'm assuming the average sign up is 30 - 50 a year, how are these companies making money off of the new clients?

    Thanks for any insight,

  2. #2
    Join Date
    Oct 2003
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    Pyramid scheme. Works until the signups stop. As long as the signups keep rolling in, one pays for the other.

  3. #3
    Join Date
    Jul 2004
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    You have to consider the value of a customer:

    $60 payout on a $5/month host. If 80% of them stay on for a year or longer (they make money), if 50% of them refer a friend, or upsell/purchase another product, they make enough to subsidize the 20% who do not stay on for a year.

  4. #4
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    Once a customer has found a good host, they are going to want to renew their hosting their month after month. It will all add up in the end
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  5. #5
    Quote Originally Posted by AveUgotaWkdSide View Post
    Once a customer has found a good host, they are going to want to renew their hosting their month after month. It will all add up in the end
    I don't understand how a bad hosts, like justhost, can afford such big payouts then.

  6. #6
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    It's easier to retain a client than to get a client.
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  7. #7
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    Quote Originally Posted by charlier View Post
    Hi All,

    I'm looking at starting an affiliate program of sorts, and some of my looking around I see these companies offering out huge payouts, and more than they even make off the client for their first year.
    More than a year's worth of fees sounds pretty crazy to me too. I could see 6 months worth of fees, but it seems like a significant number of clients might drop a service in the first year for whatever reason.
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  8. #8
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    Quote Originally Posted by e-Sensibility View Post
    More than a year's worth of fees sounds pretty crazy to me too. I could see 6 months worth of fees, but it seems like a significant number of clients might drop a service in the first year for whatever reason.
    Exactly what I was thinking. You have to pay your bills and building a client base is great, but if your just taking a 1 - 2 year loss just to get them, that seems just counter productive. Their are more costs than just the finders fee, you still have staff, servers, data centers to pay for, so your loss is even greater if you add it up as a whole.

  9. #9
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    Keep in mind that the best method of advertising is word of mouth. If you pay somebody 100% of the first year's invoice to refer somebody else, chances are high that the new client will refer more than 1 person in the future and then those people have a decent chance or referring more people while only a small fraction might actually have an affiliate account.
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  10. #10
    Most people will be staying with their hosting company as long as they are satisfied with the service and support. Most affiliate programme make one-time payment/signups. For long run the company will still earn.
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  11. #11
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    There's a lot of good points here about the return on investment. I have one client who referred 7 new signups to me last month alone, so I understand word of mouth is king. And I agree it probably DOES work, but that's a rough market for smaller web hosts to compete in.

    Does anyone have any numbers they can share about their affiliate programs? E.g. - How many a month signups you are getting w/ how many active affiliates? ( I totally understand if you can't / wont ).

  12. #12
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    Another concept that isn't being discussed is a limited affiliate program. We only plan on offering our current affiliate program for a short time before we disallow new registrations to it.
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  13. #13
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    Apr 2009
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    Quote Originally Posted by JWeb2 View Post
    Another concept that isn't being discussed is a limited affiliate program. We only plan on offering our current affiliate program for a short time before we disallow new registrations to it.
    How would having less affiliates help your business grow? I would think more the better no?

  14. #14
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    Yes, but instead of relying on it for continued growth why not use it for initial growth and then invest the amount you would have spent in affiliate commissions on other marketing?
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  15. #15
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    Actually I never thought of it that way. That's a great point. And then once you get a bigger base, you can hopefully utilize the mighty word of mouth resource.

  16. #16
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    Exactly. Not to mention once you get bigger, the more affiliates you will attract and with it come the unwanted affiliates who will start spamming for referrals and next thing you know you've got a similar reputation as 000wh.
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  17. #17
    Join Date
    Dec 2004
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    << snipped >>

    Anyway, back to the topic at hand. Has anyone tried varying their affiliate program for online vs. offline referrals specifically regarding larger payouts?

    I think for the larger hosts the cost to acquire a customer is far more then what they pay for a referral, so it's steal for them.
    Last edited by Alex; 11-21-2009 at 05:03 PM. Reason: Reply to Deleted Post
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  18. #18
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    I don't understand how a bad hosts, like justhost, can afford such big payouts then.
    Who says they really can? Maybe their goal is to grow fast, sell the business, and let others find the solution to the company's failing business model.

    Youtube was offering free video hosting (essentially), never made a profit, and got bought for a huge sum. I don't see why something similar couldn't be done in the paid hosting business. The only trick is to find that buyer with cash burning a hole in his pocket.

  19. #19
    It all comes down to calculating your ARPU - average revenue per user . As long as the ARPU > the affiliate fee, it makes sense to pay it out.

    The tricky part is that if your client base isn't very big your ARPU can fluctuate wildly with just a few accounts. That's when you have to make sure your business model is sound and your cash flow can cover everything as you scale.

  20. #20
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    For those that are not aware...

    Web hosting companies (not all) that are commonly linked as affiliates on "top web hosting" sites and are part of top affiliate programs can spend in excess of $100,000+ per month alone on affiliate payouts.

    Most of these are larger companies that also have a huge bank account and financing available to help fund their large payouts and growth spurts when and as required.

  21. #21
    check youtube (top 10 webhosting scams exposed)

  22. #22
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    Quote Originally Posted by dannymacc View Post
    check youtube (top 10 webhosting scams exposed)
    Of course most of the "Top 10 Lists" are operated solely for monetary purposes and only list those companies that pay out high commissions and covert the most leads into sales.

    Shady, yes. However, this does not mean that the companies on these lists are SCAM companies.

  23. #23
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    Quote Originally Posted by e-Sensibility View Post
    More than a year's worth of fees sounds pretty crazy to me too. I could see 6 months worth of fees, but it seems like a significant number of clients might drop a service in the first year for whatever reason.
    Well it seems like a pretty good investment if a hosting company has been profitable and has the reserves to grow business. Imagine you "invest" in 100 new clients at $60 each for $6k a in 12 months. Now let's imagine they are on a $15 per month plan and 80% of them renew the next year. 80 clients x $15 = $1,200 per month, or a $14,400 annual increase in sales. Now also imagine that they are getting business as well through cheaper and more profitable methods than re-sellers too .....

  24. #24
    Hmmm so what I gather from these posts then, an affiliates program is only really viable for a larger company? Would it be at all worth it to look into it for a relatively small hosting company - or are the risks of the ARPU fluctuating far too great?

  25. #25
    Join Date
    Nov 2009
    Location
    London, UK
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    I have affiliates waiting to sell for me (people I already know well).

    I am planning to offer them a percentage per month that the person stays.

    That way we both get a good deal! They will be more interested in finding me people who will stay, rather than a quick buck from someone who only wants to stay a few months! Also it is a good motivator for them, cos if they find someone who stays for 5 years, they get an income for 5 years from that one sign up.

    The way I see it, as long as my maths add up, and I can afford to lose that percentage each month, then it doesn't matter how small I am. I will never end up out of pocket...

    However, I will also be doing my own selling & marketing, where I won't have to pay out an affiliate commission! Don't have all your eggs in one basket.

    Mike

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