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Affiliate Marketing Arbitrage: Your Early Experiment

Written by Brandon on December 28, 2007 – 4:05 pm -

Recently, I’ve decided to experiment with affiliate marketing arbitrage. This is a whole new arena of generating revenue online for me, so I really have no idea how successful I will be, but I thought I’d point out this technique to readers who might not be familiar with affiliate marketing arbitrage and maybe have $100 bucks to experiment with. So, what is affiliate marketing arbitrage? In its simplest form, affiliate marketing arbitrage involves two simple steps:

First, joining an affiliate marketing program such as Commission Junction and applying to companies to market their products. In return, every product you sell gives you a commission.
Second, joining an advertising program like Google Adwords, and creating ads that point to the products that you are marketing. Then make really good ad copy and choose really strategic keywords to point people to your product.

The typical affiliate marketing process

The way that this arbitrage system works is that you make more money on the affiliate commission than what you paid for the click-throughs on your ads. So, a dream example would be that you are selling some software with a 10% commission and the software cost $500, so your commission would be $50. That means if you are able to only spend $25 on all of the ads for this product then you have made a $25 profit. If you market this product well, you may be able to make dozens of sales each day which could lead to greater wealth.

But how easy is this system to implement, really? From my initial experiments, I’ve found that you are going to have to educate yourself as much as possible, be cautious, but don’t be afraid to have several hundred dollars to experiment with as “funny money”. That is, expect to lose a bunch of money testing systems.

I’m coming at this from a complete novice perspective, so please take my advice at your own risk. Now, on to my own personal arbitrage techniques that I hope will create huge profits for you. There are several factors you must think about in this technique:

First, what are the products that you are trying to sell? Choosing products is an art in itself. The first question should be, of course, does the company’s affiliate program even allow ad buying like this? If not, then don’t even attempt to game the system because this will hurt your reputation. Next, is the product something that people want or need? I tend to choose products that people really need like professional software or services rather than goods. The reason being if they need the product they are more likely to buy the product. Then, how much does the product cost and what is the percentage of commission? You should consider that any items that cost less than $500, say, might really not be worth your time unless you can sell a ton of these things. Then, look for commissions in the 10% range as an ideal. You may settle for 5%, though, on well selling products. My rule of thumb is you should always strive to make $50 on a commission if possible. Finally, does the product have a strong, recognizable, and trusted brand? If you know people have heard of the product then I think you are legitimizing your ad right from the start.
Second, what keywords do you bid on? Here’s my key to this: each ad should be based on a VERY specific keyword set based on the specific product and the word “buy”. For example, your selling Photoshop CS3 so your keywords would be: buy Photoshop | buy Photoshop CS3 | buy Photoshop Creative Suite 3 | buy professional photo editing software . These are all the keywords I would use. Notice that I left out just “Photoshop”. This would be way too broad of a keyword to get accurate clickthroughs. You should try using the word buy for a number of reasons. Buy is an action so when typed into the Google search bar by a searcher means they are ready to buy Photoshop, not looking for Photoshop tutorials or anything else. They only need to find someone selling it. Also, when you put “buy” in your keyword phrase the cost of bidding on the keyword will be dramatically less.
Third, you should turn off all ads for content in Adwords. In other words, you only want your ads shown when people are actively searching the phrase “buy Photoshop” which, I think, insures that the searcher is actively seeking to buy Photoshop. This will dramatically decrease the number of ad impressions that you will get each day. You may get as little as a dozen impressions, but a great deal of these few impressions will be clicked on and give the user exactly the information they were looking for.
Fourth, you should write simple ad copy. My main concern is that the title might simply restate the exact term that the person just Googled. So, The title might read “Buy Adobe Photoshop”. Reiterating exactly what the user was looking for is often the key to instance success. Adwords also allows you to write several ads and Google chooses the one that performs the best for you. I highly suggest using this function.
Fifth, you should pay to be high in the search rankings. Somewhere in the first three ads is perfect but number two is the sweet spot for me. I try to get ad slot # 2 whenever I can just as my personal preference. The thought here is it may take a dollar per click to get this rank but one out of twenty five times someone will buy Photoshop because the ad is so perfectly targeted towards buyers. Another useful tip is you can choose the times to show ads on Google. I generally think that serious software buyers (if that’s the product you’re marketing) are doing their buying early in the day on a weekday, at lunchtime, or at the end of the day on a weekday. I turn off all other times so my ad won’t show at night or on weekends.
The final point is that this arbitrage technique will drive very few highly focused people to your site. That means that the profit margin may be high but the overall number of times you will get a commission will be low. This is why you will want to ramp up once you’ve perfected your sales formula. Once you’ve got this technique down and you’re slowly racking up profits add dozens more if not hundreds more products to your experiment. I highly suggest doing this incrementally over a long period of time with close daily scrutiny of your losses and gains. The key to doing tons of products is diversification of what sells will stabilize your income. The downside is you may be paying out to Google thousands of dollars between checks from the affiliate marketing people.

In these tips points, I’ve quickly shown you how to create your own affiliate marketing arbitrage system. Then I went over six techniques I use to get the gears rolling on the arbitrage system. I’ll put links to great resources below, but if you have the time and money, then I urge you to experiment as well. And, as always, your comments are very welcome and encouraged.