March 17th, 2010
A few years ago, I authored a guide to incentive marketing titled Mastering Incentive Websites. In it, I shared my observations of the industry and detailed the steps I took to create Topaz Financial, a network of Incentive Websites that ultimately drove more than 100,000 advertiser actions. Topaz Financial was also chronicled in the spring 2006 Issue of Colby Magazine. As we head into a new decade, I want to share two pieces of advice that I hope those who currently are in or aspire to be in incentive marketing, may find useful.
Free Trials are The New Leads
Several years ago there was no shortage of advertisers eager to partner with incentive marketers on a pay-per-lead basis. As I sit here writing this in 2010, it’s readily apparent that the pay-per-lead has gone the way of the dodo. The few pay-per lead programs that remain grant payouts well below what’s required to actively promote them. Pay-per-lead offers have always been the incentive marketer’s Holy Grail since they enable conversion rates that are many times those of pay-per-sale affiliate programs. Furthermore, pay-per-lead programs offer more consistency than pay-per-sale programs since the payouts are fixed rather than a percentage of a final sale. Fixed payouts are always more attractive to users and convert at a significantly higher rate.
It should come as no surprise that in the Incentive marketing space, what matters at the end of the day is conversion rate. Each element of an Incentive Website, from the visitor funnel to the individual offers must be tuned to drive the highest conversion rate and ultimately the highest revenue per visitor. In 2005 we experienced conversion rates as high as 20% on certain pay-per-lead offers.
As true pay-per-lead opportunities (think lead generation) have evaporated, a related model remains a viable source of conversions: free trials. Most obviously, free trials involve no immediate cash outlay from users, lifting conversion rates. Secondly, the purchase funnel is far shorter and more direct than nearly all pay-per sale funnels. Free trials are an offer type where the merchant’s goals are directly aligned with yours. The difficulty with pay-per-sale affiliate programs is that the purchase funnel is long and can be downright confusing to the user. Many pay-per-sale affiliate links will direct users to a landing page that is either irrelevant or too high in the purchase funnel. This is often an intentional merchant tactic since not all sales or actions may be required to generate affiliate payouts. You should always read the fine print in the terms of every pay-per-sale affiliate agreement. Free trials are a key strategy to keep your incentive marketing competitive this decade, and as models of digital media distribution continue to evolve, the opportunities will only grow.
Don’t Go In-House
If the volume of actions you drive becomes significant, it’s more than likely that the merchant will seek to bring your relationship in-house. Removing the affiliate network from the equation results in deep and immediate cost savings for your merchant partner – since affiliate networks charge merchants as much as 30% of each completed action, merchants will happily bump up your payout as an incentive to lure you in-house. Keyen Farrell’s advice is simple: Don’t do it. While the prospect of higher payouts may seem alluring, in-house relationships can be fraught with trouble even among the most reputable merchant sets.
Affiliate networks provide a valuable service to you by acting as a powerful intermediary. If you’ve gone in-house and a merchant decides to bilk you, there’s no recourse. The merchant is only risking your relationship. In fact, if you have a blowout month in which you are owed a large commission check, an unscrupulous merchant may simply decide that the risk of losing your referrals is worth stiffing you on the check. In an affiliate network, this merchant’s actions would jeopardize their relationship with that network’s entire affiliate base. Good networks will de-activate deadbeat merchants and fight for you if you’ve been wronged. Some merchants will reverse or cancel more transactions than they should, and the network is a valuable arbiter of such disputes. You’ll likely find that your network is eager to lend their ear when you have issues. They recognize that the integrity of the network rests on a quality publisher and merchant base. You can’t have a quality network without both. And don’t forget, the network gets paid when you do! So when the phone rings from your top payer’s affiliate manager, say yes to the free schwag, but say no to going in-house!
Tags: incentive marketing, Keyen Farrell
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March 9th, 2010
It still surprises me how many incentive marketing & cash back websites maintain minimum payout thresholds. In a space where trust is paramount, payout thresholds destroy credibility. If users must accrue $10 or $20 in rewards before seeing those earnings, many will invariably hit the eject button. Site owners mostly use payment thresholds as a means of withholding payouts from low-earners under the guise of covering transaction costs. The transaction cost argument no longer holds water given the efficiencies of bulk e-payments. PayPal mass payments cost a mere 2%. If you choose to go the snail mail route and cut paper checks, your costs will be astronomically higher. I, Keyen Farrell say, “Don’t do it!” Unless you are operating at enormous scale (think Ebates, NetFlip circa 2002), or have unusually lucrative offers, the price of cutting checks is simply too high. Keeping your transactions purely electronic will save you time and avoid needless headaches for you and your users. You can even designate a single bank account into which commission revenue flows and from which incentive payouts are drawn.
If you follow the Zero-Threshold Rule, your visitors will be inclined to complete more, not less offers on your site. You may find that users complete one or two offers to test it out. Yet once you hold up your part of the bargain, they will almost always return. The Zero-Threshold Rule builds trust with your users and should not be ignored as a selling point. You can further leverage the rule by working it into your site’s messaging. It’s astounding how many incentive websites have not only minimum payout thresholds, but bundle offers together, forcing users to complete several offers at one time. Bundling offers is the antithesis of the Zero-Threshold Rule and not only destroys your user base but compromises the quality of transactions. Sustained incentive marketing rests upon happy users and happy merchants. The last thing you want is low-quality, chargeback-prone transactions caused by bundled offers. If your site contains a varied selection of offers, and users are given the flexibility to complete which offers and how many, everyone comes out on top.
Tags: incentive marketing, Keyen Farrell, zero-threshold rule
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March 8th, 2010
One of the toughest questions facing an incentive website or any e-commerce website for that matter, is the question of price. In the case of the former, price refers to the size of the cash reward (rebate) offered to users. The goal is to size the rebate such that it maximizes net income. If the goal is to maximize ROI, this sweet spot is critical. And if the goal isn’t to maximize ROI, there are probably greater things to worry about. :) Most incentive marketers will size their cash rebates based on trial and error, but there’s a far more precise way to determine the optimal rebate. The following is a walk through of how to solve for the optimal incentive rebate. Using some high school algebra and calculus. I applied this technique to determine optimal rebates for the network of incentive websites I created in 2003. This technique allowed Topaz Financial to drive more than 100,000 completed advertiser actions at margins that would not have otherwise been possible. If the math looks daunting, there are many tutorials for solving these equations. A search for ’solving systems of equations’ and ‘differential equations’ should turn up helpful resources.
To illustrate how it works, let’s create a hypothetical situation. We’ll assume that your incentive website offers a cash rebate for each completed action, in this case, the purchase of a pair of shoes. Further, let’s assume the merchant pays you a $25 commission for each completed sale. We want to determine the size of the cash rebate that maximizes total profit. Your first inclination might be to offer visitors a large share of your commission to entice a greater number of users to complete the purchase (action). Yet paying out a large share of the commission could cause the reduction in net income that outweighs the increase in volume of actions. On the one hand you want to offer a rebate that entices a large number of visitors to complete the offer. On the other hand you want to offer a rebate small enough to keep your net commission high. Likewise, there is a positive relationship between the size of the rebate and volume of actions completed. To make the math simpler we will assume that this positive relationship is linear. In other words, we will assume that a given change in the rebate will always induce the same increase in purchases. Admittedly at extremely high or low rebates this assumption may not hold, but for our purposes it is a fair assumption.
To start, we need to collect a few data points. You’ll need to experiment to see how users react to a few different rebates. The benefit of the linear assumption is that we only test 2 prices in order to calculate the slope of our line.
Assuming the offer is currently running, you already have one set of coordinates. Let’s assume that when an offer has a rebate of $5 there are 15 completed actions. To find the second set of coordinates you’ll want to set a new rebate and measure the number of completed actions. Let’s say that when we increase the rebate to $10, there are 40 completed actions. To put it in math terms:
Let us denote pairs of shoes sold as Y and rebate as X.
The equation of Y in terms of X is a linear function of the form Y = A + B X, where A and B are constants.
This equation passes through (5,15) and (10,40)
Thus,
15 = A + 5 B Equation 1
40 = A + 10 B Equation 2
Subtracting Equation 1 from Equation 2,
40 = A + 10 B Equation 2
15 = A + 5 B Equation 1
25 = 0 + 5 B
Or B= 5 =25/5
Substituting the value of B in Equation 1,
15 = A + 25
or A = -10 =15-25
Thus, the equation is of the form
Y = 5 X – 10
where X is the reward and Y is the number of shoes sold
We have to maximize profits Z= (Commission-Rebate) x Number of shoes sold= (25-X) Y
but Y= 5X -10
Therefore,
Z=(25-X) (5X -10) = 125 X -250 – 5 X^2 + 10 X = O r Z= -5 X^2 + 135 X -250
Our task is to maximize profits or maximize Z= -5 X^2 + 135 X -250
To find the maximum value of Z we differentiate Z with respect to X and equate it to zero:
dZ / dX = – 10X +135=0
or X = 135/10= 13.5
Thus to maximize profits, the rebate should be 13.5
Profit = Z= – 5 X^2 +135 X -250 = 661.25
Since a rebate of 13.5 would mean selling a fraction of pairs, we can offer a rebate of 13 or 14 which would give an identical profit of $660 (see table).The most challenging part of the process is holding the traffic sources and number of clicks to the offer constant while you are testing. If there are huge swings in the number of users exposed to the offer, or if the composition of traffic changes drastically, your results will be less trustworthy.
Tags: incentive marketers, incentive marketing, incentive website, Keyen Farrell
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Keyen Farrell |
September 15th, 2009
Keyen Farrell is a Google employee who has gained experience across several Google businesses since being hired in September 2007. For the first year and three months he worked in Google’s Web Publishing business. While working in this position he worked directly with web publishers like Us Weekly, Martha Stewart Living, Consumer Reports, Rolling Stone, and Ancestry.com. Since January of 2009 he has continued his work as an Account Strategist, specifically focusing on the Media and Entertainment division, where he works with Television Network advertisers. He is responsible for overseeing a paid search portfolio that is ranked third amongst the Media and Entertainment advertisers by spend. In fact, Keyen Farrell is the lead Account Strategist on the East Coast that is assigned to ABC, NBC, and CBS. The AdWords Editor, New Hire Training, and Google Grants programs have also benefited from his direct involvement.
Before being hired to work for Google, Keyen Farrell founded a company called Topaz Financial. The business was comprised of a large network of e-commerce websites that gave cash rewards and rebates to shoppers that frequented the sites. In 2007 he graduated summa cum laude from Colby College in Maine. He received a Bachelor’s degree in Economics with a concentration in Finance Markets.
Keyen is also an avid sailor and since 2001 has served as sailing coach for the Special Olympics of Connecticut. As coach of the Pilot’s Point Pirates, he teaches intellectually challenged athletes the joy competitive sailing. Each September he participates in the Northeast Sailing Championships hosted by the US Navy at the War College in Newport, Rhode Island.
More Resources:
Keyen Farrell :: Home Page
Keyen Farrell :: Article on Betaflow
Keyen Farrell :: Listed on Review-inc.com
Keyen Farrell :: Information on Incprofile.com
Keyen Farrell :: Article on 800review.com
Keyen Farrell :: Article on 4WorkLife
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