Yesterday I made the case for why you need an affiliate program, which boiled down to:
You need an affiliate program if you want to leverage the help of other people to bring you new customers instead of doing it all yourself.
For sake of today’s affiliate program lesson, I am going to assume that you have an information-based product or service which would be sold as either a 1-time fee, or a subscription. E-commerce store/sites should definitely use affiliate programs, but that’s an area I will not be focusing on for now.
So let me compare the two general types of affiliate programs you can use to promote your products and services. I’ll call them “hosted” or “self-hosted”.
Now, a hosted affiliate program means that some third party service is going to maintain your affiliate program for you. It’s hosted on their website and basically when people send you traffic, they’re really sending traffic through that other third party site.
A self-hosted affiliate program is usually some form of affiliate management script that you would install on your own website and you have complete control over what goes on with that affiliate management script. This gives you a lot more control, but also a lot more responsibility.
My personal preference is to use a self-hosted program (namely, Butterfly Marketing).
However, there are pros and cons of each one in regards to costs, visibility, and control. Today, we’ll deal with the costs.
The Costs Of Hosted vs. Self-Hosted Affiliate Programs
A hosted service usually is cheap upfront, because the way they make their money is by charging a percentage of every sale.
So, for example, if you are working with ClickBank – which is a hosted program – they charge almost eight percent of the sale price for every sale that’s made. So, if you sell a product for $97.00 a little over seven dollars is going to be taken off the top and go to ClickBank. Plus, it will cost you about $50 to list your product up front.
Another hosted service is PayDotCom, which charges one, two or three dollars depending on the price level of your product. They do not charge you for your first product, but you will need to pay $29 for a lifetime membership that enables you to sell multiple products.
Other services like 1shoppingcart charge a monthly fee (like $99), while sites like 2checkout, charge $49 once and 5.5% per transaction.
These fees are in addition to whatever payment processor your using (like Paypal) if not included in the hosted program.
On the other side of the coin are the self-hosted affiliate programs.
An affiliate management script, a self-hosted method, is going to be a larger upfront cost. They typically run anywhere from $300.00 up to $1500.00 or even $3000.00, depending on which script that you would purchase.
The nice thing is, over the long term, a self-hosted script never gets charged for again. Some of them might have upgrade costs of the software, but as far as a per transaction fee you don’t see any additional fees coming out of your sales other than from your merchant account. Your merchant account would something like PayPal or Authorize.Net or some other service that basically integrates between your website and a bank, so that money can be collected.
With a self-hosted script, once you have it installed you don’t have to pay extra fees.
In the long run, the self-hosted scripts are going to be less expensive, but the hosted versions are going to be cheaper in the front side. So, depending on where your budget is you’re going to make a decision based on that.
Beyond simple costs, there are other pros and cons of hosted vs. self-hosted scripts. You’ll learn about those soon.
Let’s Do The Math
Assuming you sell a $47 ebook, here’s what the various fees would look like if you sold 500 copies over 6 months time.
|Affiliate Program||Ebook||One Time Cost||Fee||Total Fee||Revenue||Profit+|
|2Checkout||47||$49.00||5.5% + $0.45||$1,518||$23,500||$21,983|
|Butterfly Marketing||47||$1,497.00*||2.5% + $0.30||$2,235||$23,500||$21,266|
|Launch Formula Marketing||47||$997.00*||2.5% + $0.30||$1,735||$23,500||$21,766|
*DM me on Twitter to learn how to get Butterfly or LFM at huge discounts-@bobtheteacher
A couple of notes: Clickbank charges $18 for each credit card chargeback – when you’re customers don’t just ask for a refund but go through their credit card company to do so. This also assumes that Butterfly and Launch Formula Marketing users are using Paypal to process payments, and not Clickbank. Also the examples above reflect information available on the websites at the time of writing this post. + Profit is before paying out to affiliates, which will be based on the percentage you choose, and not on the type of affiliate program you are running. Butterfly Marketing includes a home-study course in addition to the software.
You’ll notice that at the 500 mark, they are all pretty much identical. However, as you get up to 1000 sales and higher, the two self-hosted scripts (BFM and LFM) become increasingly profitable.
So based on cost alone, the only thing that should stop you from having your own hosted script is either up-front budget concerns, or you do not want to have complete control over your affiliate program.
Still have a question about affiliate programs for your products and services? Post with a comment below! And stay tuned for more information on how you can create your own affiliate program.
p.s. Personally, I use Butterfly Marketing to run my affiliate programs on over 20 different websites. If you’d like to learn more about this particular software, and learn how you can get Butterfly Marketing for free, go to DiscoverButterflyMarketing.com.