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Diversifying Your Portfolio: What Does It Have to Do With Affiliate Marketing?
One popular piece of advice you may hear when investing is to "diversify your portfolio".
How can you put this advice to use in affiliate marketing? Simply put, your affiliate program is your investment and there are some basic things you can do to make sure your investment is a solid one. Smart money uses diversification as a strategy when managing advertiser relationships. View these relationships similar to the way stockholders view their portfolios. You balance the risk between your affiliations in the same way you would high- and low-risk stocks. Only with this balance can you achieve long term success. Here's how:
Build a Solid Foundation
Publishers often fail to ask themselves the basic yet critical questions. One such question is: Who are my advertisers? It sounds simple, but the answers may surprise you. There are some publishers who focus on one advertiser relationship and hope that it will grow their business for them. Perhaps it's the lure of a trend or a super hot product. And just like a high-risk stock, it may pay off in the short run. However, when the trends change or the hot new product is old news, those publishers are forced to abandon their efforts. This kind of "all your eggs in one basket" strategy will seldom bring success in the long term.
On the flip side there are publishers who have tried to join with every advertiser in our network only to succumb to disorganization and missed opportunity. There's a difference between diversification and disorganization. Trying to be too many things to too many advertisers lacks focus and an inbox overflowing with messages will only result in missed opportunities.
Minimize Your Risk
The concept of diversification in finance is to minimize your exposure to risk by selecting different types of investments when creating an investment portfolio. So if a certain type of investment was to decline sharply, then the rest of your portfolio should not be affected. The same thing applies when deciding which advertisers should be joined to your program. Of course, you can't change your business model overnight. If you only focus on a particular advertiser vertical, diversification for you could mean expanding your affiliations so you are joined with a mix of advertisers: some who are completely dedicated to that vertical and others who may have a minimal portion of their business dedicated to that vertical. For example, if your Web site only focuses on refrigerators, you might consider an advertiser mix like this: advertisers that manufacture refrigerators, advertisers that manufacture refrigerator parts, advertisers that sell nothing but refrigerators or appliances, advertisers that have a small department dedicated to selling refrigerators, and advertisers that sell a handful of refrigerators.
Diversification for those publishers who do not concentrate on a single advertiser vertical – but rather dabble in several – would require a review of their advertiser mix. These publishers should make sure that they are not concentrating their efforts on a particular advertiser or even a few, even though their mix may be larger or more diversified to start. For example, just because you have relationships with several advertisers, across several verticals, it doesn't mean you aren't still at risk. How can you know for sure? Do the math.
Do The Math
Of course it sounds like a no brainer, but when was the last time you honestly reviewed your affiliations with a focus on concentration risk? Below are tips on auditing your affiliate program. Here's how to start:
- Run a report of last month's activity.
- Take a look at the numbers and identify your top revenue generators. If just a handful of advertisers make up over half of your revenue, it's time to diversify. A good rule of thumb is this: If 20% or more of your revenue is coming from a single advertiser, it's time to create new affiliations.
The key to diversifying is creating a portfolio of advertisers that is strong enough that it could still be profitable if one of them were to disappear. Concentration risk happens when one relationship is responsible for so much of the revenue that the program would fail without it.
Additional Best Practices
- Make sure you have a balanced partnership strategy. The ideal situation would be a mix of several key partnerships along with several strong supporting partnerships.
- Check to see if there are some missed partnerships with smaller advertisers that may offer similar products or services to those of your key players.
- Don't assume you already know everything about your advertiser or their affiliate program. Make it a point to have a real relationship with your advertisers and the Commission Junction account team associated with your program. Most advertisers are able to give you further insight into ways to optimize the relationship, including top-converting offers and products.
- Diversifying does not mean you need to partner with randomly chosen advertisers or stretch yourself into numerous advertiser verticals that do not make sense to your business. You are aiming for strategic diversification.
- Don't assume you know who the best-suited advertiser is for your partnerships. Things change, so make sure to review again any program changes or any new advertisers who may be in categories similar to those of your top affiliations.
- Do your research! Pay attention to how your advertiser chooses to structure commissions. There may be some variation in the commission they offer on certain items (e.g., a higher percentage towards smaller priced items and lower percentage towards larger ticket items). Compare these payouts to other advertisers who may specialize in those specific products and offer a higher payout.
- Know your market segment. Are your advertisers trying to reach the same audience that you are? Make relationships that make sense.
There will always be a hot new product and there will always be trends to get excited about. But only a diversified advertiser portfolio built on strong relationships will provide you a solid foundation for long-term success.
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