"The business with money" - part 3
Since there are always requests for a continuation and I now have some time, I would like to expand your knowledge in this area.
But once back to the beginning.
What were these articles about?
In the first part I explained how coaches and co. catch you in a funnel and then relieve you of something important: No, not calories, but your hard earned money.
What they teach in the process? Mostly very little.
What they get out of it? Sometimes quite a lot of money.
You can read about it right here:
https://app.getquin.com/activity/OuSHaioIFE
In the second part, I talked a little bit out of the sewing box about what's going on with so-called "FOMO marketing is all about.
A very popular marketing strategy that is also often used by coaches, but also by influencers.
(Sure, regional trade also uses something like that, but we're on a financial platform and I'd rather refer to brokers, finfluencers and the like).
Here to read:
https://app.getquin.com/activity/zVRaSWCqJB
Today it should be about the topic "Affiliate Marketing".
So recommending services or products and in return you get a commission or a fixed compensation.
In the following I will explain the thing a bit, how it works technically, but also how different models work and why they are used.
Partly I'll use English terms, because this kind of marketing is very English-heavy and I often simply can't think of the German terms or they are just not "nice".
Affiliate marketing is not a new invention.
Depending on the age group reading the thing: Ask your parents or grandparents how it is with the cost regional newspaper.
For decades, the households in the town have always advertised each other so that one household only has to pay for 9 months instead of 12 months or one has received a new coffee pot in turn.
In the final analysis, this is affiliate marketing!
Using word-of-mouth to get existing customers to recruit new customers.
Entire snowball systems and multi-level marketing schemes are built on this.
Even the very well-known "Customers Recruit Customers" campaign at Trade Republic, where the inviting person can get the shares of a stock with a value of up to 250€, is affiliate marketing in a broader sense!
So much for getting started, but how does it work.
(I'm not going into too much of the technology behind it here, as I don't completely understand it myself, if I'm honest.)
In most cases the inviting person has a unique link and registrations, purchases etc from that link can be accurately recorded in the system.
Depending on the scope of the system, there are also checks in the process to prevent misuse of these things.
On the web, cookies are also often used to store relevant information for period X (usually 30 or 60 days).
So if you click on a link on the web today, but don't buy until 29 days from now, the affiliate marketer can still get paid!
Conversely, it is also the case that corresponding systems will not work without cookies or by using content blockers.
So if you invite a person somewhere and you don't receive any remuneration, it could be because the referred person uses an adblocker and thus could not be detected.
In such cases, you have to rely on the goodwill of the provider as to whether you will still receive the corresponding rewards. (Small thing by the way: My personal experience is that many companies are happy about the new customers, but then show no goodwill and say "Well, it's your own fault. We have already excluded such cases via our T&Cs.")
So much for the "how", but actually the "why?" is much more important!
Why do companies do this?
Here I refer primarily to brokers and not to traders, so as not to lose sight of the topic of finance and the stock market.
The "why?" is clear at first glance:
Growth and new customer acquisition
But why not grow organically or via advertising in search engine results or on Facebook, Instagram, Youtube or Tiktok?
There are 2 decisive arguments: Time and money
Let's start with the point of time:
Companies want to grow steadily and too slow growth makes for red figures.
Organic growth, i.e. simply waiting for new customers to be found due to a good reputation, is possible, but ensures relatively little growth.
So you rely on existing customers or external advertising partners (influencers), who are close to the target group, to put the product in the spotlight.
This allows you to reach a large group of potential customers within a short time. Even if they do not yet know that the product (broker) exists!
So we realized that with external advertising partners you can now reach the desired target group extremely well and efficiently. In contrast to regular advertisements, you can reach many more people and thus potential customers in a shorter time.
So we understood the point about "time".
Now it's time for the second important point: "Costs".
While there tend to be "lotteries" for existing customers in the affiliate space, i.e. like in the Trade Republic example, such things don't work for external advertising partners.
Here, you rely on scalable compensation models based on various metrics.
Variant 1:
Pay per click
Here, the advertising partners are paid a flat rate for each click on the affiliate link.
Since this naturally incurs costs without bringing in real customers, it tends to be used in the area of "brand awareness", i.e. in the area of marketing where you simply want to make companies and their products better known without focusing directly on sales (conversions).
However, since brokers are more concerned with proper customer acquisition, Variant 1 falls away.
Variant 2:
Pay per conversion
No, it is not about religions.
Here, the external advertising partner is only paid if a person actually signs up.
The big advantage is: As a company, you only pay for what you really get.
Another advantage: The advertising partners have to make an effort to present the product in such a way that a conversion really takes place.
As we have learned, variant 2 would now be better for the broker, but how is the remuneration now calculated.
The easiest way is the so-called calculation of the "cost per acquisition", i.e. the costs that arise when you want to get a new customer.
Since this cost calculation can be extremely comprehensive, I'll skip the fun for a moment and go into the crucial point.
We know that we can reach our potential new customers faster and in a more targeted manner with an external advertising partner, and we know what it costs to acquire new customers in other ways.
Often the remunerations for commercial affiliate deals are in the similar price segment as for other advertising methods.
Why not pay more now when you can reach more people in less time?
There is a simple answer: Why should you?
Moreover, healthy and scalable growth is also important for your own infrastructure.
How many customers can customer service actually handle?
What about the IT infrastructure?
Are the systems even designed for this?
Let's assume that the normal "cost per acquisition" is €15 per new customer.
A professional affiliate deal would be in the same cost range.
So a corresponding advertising partner would receive 15€ gross for a successful conversion.
Not infrequently, corresponding things are also combined:
There is 5€ when the customer registers, 5€ for verification and 5€ when the customer has invested the first 50€.
So the customer has generated 50€ in sales and has now cost us 15€ in the acquisition.
Megaright?
In the end, this thing sounds great, but isn't there a catch?
Yes, and not only one catch!
The bottom line is that there are 2 big risks when it comes to affiliate marketing:
1. You have to keep a pretty good eye on what the external advertisers are saying about the company or product. Our broker "SuperTrader123" is available for German citizens and allows investing on the German stock exchange XETRA.
Now one of our external advertising partners has come up with the idea that one has too little reach in Germany due to the (advertising partner) competition and extends the circle independently to Austria and Switzerland.
Now it is suddenly advertised that the broker "SuperTrader123" is active in Austria and Switzerland, allows trading on the usual local exchanges and has an attractive cost structure.
If there is now no good monitoring, these people register and generate from the above example for the advertising partner already 5€ per person only by the registration.
Further these customers will not come however, since the broker has only a permission in Germany.
As a company, you have now paid 5 € per customer, who can generate no sales with you and also frustrated also leaves a bad evaluation.
Not to mention the possible damage to your image.
2. We have a really big Influencer with our broker "SuperTrader123" for us can win and have agreed on a remuneration.
But it was not taken into account that this advertising partner now brings us 20,000 new customers a month. So we pay alone 100.000€ every month only for new customers. The same amount again after people have gone through KYC. Oh, now of those 20,000 new customers, only 2,000 are really willing to invest money.
So now we have recruited 20,000 new customers for 210,000€.
The 2,000 investing customers buy something once for 50€ on the stock market and that's it.
2,000 people buy something for 50€ each and pay 1€ to us for the transaction.
So we made 2000€ turnover (not profit) and spent 210.000€ for the customers.
And the last paragraph:
Self-employment in affiliate marketing?
The opportunities are there and you don't need any special training for it either.
I myself once worked with someone who was one of the first advertisers to publish affiliate marketing on adult entertainment platforms.
(Various colorful flashing gifs for herbal based growth or sexual enhancers).
In the first year, the one or other million turnover was already there, with almost no operating costs.
Still, it's a business where you tend to be a seller rather than an advertiser.
You need appropriate reach on social media or with a blog via the usual search engines. Further, you need to be able to sell "junk" because the worse the product, the higher the pay often is.
(Rumor has it that even some providers initially pay out a higher affiliate commission for the product than they earn with it. I can make the connection to my first post. This "Free + Shipping" book in the funnel of coaches is often distributed by affiliates who receive a flat rate of X euros for each new customer. The book costs €4.90 for "handling and shipping"? Then you can be sure that 1€ goes to the reseller and 5-10€ to the affiliate. Because after that the customer is in the funnel and can be milked so that the costs for the initial product do not matter).
Nevertheless, you can realistically earn good money with it, even if to my knowledge over 95% earn almost nothing with it in the end and do not even reach the payout thresholds.
In fact, if you think that companies allow payouts as low as 5€ a month, you are mistaken. More often the thresholds are 100€ or higher depending on the product. The remaining 5% are either influencers anyway and have content deals or the like or other income streams.
