Why Smaller Payout Offers Are Often Better (26)
One thing that a lot of people obsess over, particularly when they're starting affiliate marketing, is the size of an offer's payout.
"Just think, if I can just get a few conversions on this $50 payout offer every day..."
But in actual fact, the size of an offer's payout makes very little difference to how profitable it can be. And there are other reasons why you might not want to run a higher-payout offer.
Larger Payouts Mean You Need A Larger Budget
Let's assume that you're starting to run a new offer with a $40 payout.
You set up ads, landing pages, split-test the offer across a few different networks.
How much of a budget will you need for first-round testing on this campaign?
Let's assume that during the first round of testing it behaves about averagely well for a campaign, running at about -50% ROI (Return on Investment). In other words, during testing you'll need to spend $80 to get a single conversion, on average.
Well, you'll need a statistically significant number of conversions for both your landing pages and your offer split tests. That's 5 conversions minimum (unless something very unusual happens), meaning that you'll need to spend $400 to get that much data. More likely, you'll need about 15 conversions to get close to statistical significance for both offers and landers - so that's a cool $1200 spend needed.
Banners will usually need to get to about 2x payout spend before you can cut them even with no conversions - so you'll also need at least $80 per banner. And bearing in mind you might easily run through 30 or 40 banners...
And then you've got split-testing. If you're running 4 split-test campaigns, you're likely to end up with a couple of losers and a couple of promising campaigns - on average, you can probably multiply your needed spend by 2.5.
So, to properly test a $40 payout offer, you'll need around $3000, of which you're likely to see between 50% and 70% back once your payments come in for the conversions you generated. So you'll need a total budget of over $1,000, just to test a single campaign.
Smaller Payouts Suit Smaller Budgets
Now let's look at the budget for a $1 payout offer - a gaming offer, say, or a non-English dating offer.
Again, we're split-testing offers across networks, multiple landers, and a whole pile of ads. And we'll assume that it initially behaves the same: -50% ROI intially until optimisation.
To get the same statistically significant number of conversions for landers / offers, you'll need 15 conversions - so that's $30 at a -50% ROI. To test your 30 banners, you'll need, again, $30. Split-testing brings the grand total up to $75. And counting the money you'll get back, this means you need to spend a bit over $35 to properly test your angle.
In other words, by choosing a $1 payout offer rather than a $40 offer, you can reliably test at least 30 times as many angles!
But doesn't this mean I'll make less money?
No, definitely not. Remember, all that matters is the Return On Investment and the maximum amount you can spend on the campaign. And how hard it is to get a campaign to positive ROI isn't really related to the payout at all: higher-payout offers aren't automatically easier to optimise. (In fact, high-payout offers may have a high payout because they're for a difficult demographic to convert, or because they require a purchase or credit card number.)
So if you can optimise your $1 payout campaign to profitability, all you need to do is increase your spend. If you've managed to get a 50% positive ROI, and you can spend $1,000 a day at that ROI, you'll make $500 a day, whether your offer payout is $100 or $0.10. Some of my most profitable campaigns have been on sub-$2 offers.
So should I always run lower-payout offers?
No, definitely not. Higher-payout offers have advantages too - they might open up a wider demographic, they may have much lower burnout (particularly for Cash Per Sale offers), they may open up new verticals you couldn't access before. And they might just be really good offers that convert well!
But if you've got a low budget, low-payout offers are a great place to start, wheras high-payout offers are likely to waste your money and not achieve statistical significance. Start small and work up!
I hope this article was helpful! If you've got any questions, comments or suggestions, please do drop 'em in below!
A very nice reassurance to those of us just starting out with a smaller budget!
Thanks.
Originally Posted by caurmen
According to your tutorial http://stmforum.com/forum/showthread...ats-Calculator you check the ads every 10,000 impressions and cut them if they don't reach the min. viable conversion rate.
So if you have a cpm of 0.3 for example it means for 10,000 impressions it is $3.
So how is that now 2x the payout? Where did I get lost?
@kameleon: Sorry, I skipped a step there 
You do indeed check them at every 10,000 impressions - however, the way that the ROI math works out, you'll find that you can't usually cut a banner before you've spent about 2x the payout, just because the maximum possible conversion rate won't be solid enough to do any cutting before then.
You should still check every 10k impressions, though!
Now it is clear, maybe you should update the other post for the others to know... I was not really waiting for the 2x payout...
this might sound kinda stupid, but lets say you're having trouble finding a converting offer on your network thats a tier 2-3 non english speaking geo that pays below $1...could I ask my AM to take for example an offer thats paying $4, geo: mexico, epc: $0.63 and have him lower the payout? Or is it not as simple as just lowering the payout...are there other factors that play a part in this?
Thanks in advance!
@donnnado - it's not as simple as that, unfortunately! The reason we consider the payout is that it's reflective of other things, like how hard it will be to convert the offer. If you take a high-payout offer and just lower the payout, you basically just end up with a terrible offer!
ahh i see
well i want to run some mobile offers in the adult arena. Do you know of any networks that would have high converting offers with low payouts in tier 2 and 3 geos? I was thinking about joining f5 but I'd rather ask you now than waste your time later
Thanks for you time also
F5 and Advidi come to mind.
Awesome explanation Caurmen.
In the past when I attempted CPA (failed dismally), I only focused on the higher pay out offers. That being said though, I only focused on free traffic which is / was shitty so smaller payouts didnt seem viable.
This has cleared it up for me. Thank you
Thank you for this post. This increases my confidence a lot that my small testing budget will be able to teach me something.
Chris
Too bad for me. I should have read this thread earlier on because i spent around $400 the past days trying to get data for a $125 offer. Guess what? Not even a single conversion = no data at all. I got $200 left to spend on media buying i need to test out smaller offers now.
I'm trying to read this 5 times I'm completely lost lol
Originally Posted by i_am_positive
It took my AM to convince me to run a low payout offer ($0.20) to really drive home what caurmen is preaching.
In my short mobile AM life, that one offer got me enough conversions and data to actually put optimization into practice. While I wasn't able to get it to profitable (yet - still working on a couple of geos), so many lessons (theoretical up to that point) were put into practice.
Data is fun and when you have a bunch of it, the fun factor goes up exponentially.
You said that to properly test the offer and landing page we need to get 5-15 conversions - what if the landing page/offer won't convert at all? let's say it took 1k landing page views to get 10 conversions, while other landing page gave 3 conversions for the same amount of views. It might be just bad luck or some other factors, how long should we keep running it until we're sure that the LP is just bad?
And one more question, not really relevant to the topic but can we split test banners and landing page at the same time? I mean do banners affect conversion rate so the landing page test wouldn't be that accurate?
A stupid question, when you say test the offer in different networks. You mean different ads networks or the same offer fron different affiliate networks like for example peerfly and f5?
Thanks!!
Great article!
At the end of the day what matters is the eCPM and the total margin you are making per site and overall (i.e. revenues minus costs).
Sometimes its better to make 10% on a 50K$ placement, than to make 40% on a 5K$ placement. You've got to find the right trade off between volume and % margin.
Offers with a lower payout have to convert way better than offers with a high pay out. Usually offers with a low pay out are very easy converters (eg first page email submit) vs offers with a high pay out that require you to actually buy something (credit card submit + spend $$).
I wouldnt say that offers with a pay out are always better than offers with a low pay out, it all depends on the traffic source and the specific offer you are considering to run.
Awesome post! My thoughts on the matter were exactly as @cbrughmans explained so it leads me to this query: How does the payout of the offer influence on the cost of the traffic you are buying?
** Regardless the assumption, that a higher payout will most likely be harder to convert.
Thanks!
Originally Posted by adzonemg
And as for your question, the offer has a direct influence on the price you can afford to pay for the traffic as it's in direct relation with the EPC. And just like with the previous example, it's not the payout directly that has the influence, it's the amount of $ you can make with it, which directly depends on how easy the offer is to convert.
Beautyful Article! Thanks.
You're so right, don't waste your cash! Test low then when you see what's working, go for it and BUILD.
This has been the most simple but most informative explanation on payout selection. I have been in some course and watched countless videos on YouTube and everyone I watched said " Promote the highest payout offers, so you can recoup your ad spend quicker" Never did they mention what you have mentioned above which helps a lot, thanks
Originally Posted by ellisjames
I think low payout offers are good when you are starting out as you see lots of conversions and it also helps cut your losses fast. Eventually you need to look for higher payout offers with good conversion rates if you want to bid competitively in your chosen traffic source.
Originally Posted by wes888
Also worth mentioning is that if you're new to a traffic source and/or geo, using low payout offers to identify good and bad placements would be way cheaper than trying to do the same using higher-payout offers.
Amy
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