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Expectancy and Your Chance of Success in IM (28)

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Expectancy....

its a concept that is often used in the stock trading world to develop systems that drive positive ROI.

So WTF does this have to do with IM you stupid unicorn?

well IM is rather similar to stock trading...as alot of what we do is manage risk....(pretty much what stock trading is)

ok so lets talk some basic math to help you get a better understanding of how this applies to us....

Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)

math is Phun right?

so better yet let me get you an example....

As an example let’s say that a aff has a process/system that produces winning camps 20% of the time. That affs average winning camp nets 300%(of the test spend) while losing camps lose 50%. So if his average camp test was $500 his expectancy would be:

(0.2 * $1500) – (0.8 * $250) = $100

as you can see that system over all has a positive expectancy of $100....

now a couple of key points here.....all though we are like trading its still not the same....as our camps are a little dif than a traders in the fact that they require capital to continue generating ROI.....but we can get a much larger overall ROI this way...we just don't spend $500 to make 1500....so its not a true representation of exactly how it works....

BUT what I hope you can take from this is how....when building a testing system....you learn to mange your risk.....because as you can see from the example above I only need to win 20% of the time and I can loose $250 on my average test....and still win....as long as my average win is $1500

so look back and evaluate your system and look at your averages...or try build your system on some of these basic core values so that in the end your end up winning....even though you are loosing 80% of the time....

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Can you give any pointers on building a testing system? Mine is more haphazard than I'd like it to be. There are times when I'll get trigger happy and kill something too quick and there are times when I'll try to tweak something to death before I realize I should have dropped it and quit wasting my time.

I guess a good place to start would be tracking the outcome of my campaigns in terms of profitability and figuring out what my probability of producing a winner are...I just realized I dont have a central record of each campaign in an easy to read format. Perhaps an excel sheet that has the name, launch date, test budget, outcome (?). some of this shit gets tricky because you can spend money on something and then go "Oh, damn, I wonder how THIS will work with it..." and then change it up...should I consider those new campaigns altogether?

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I've been thinking the same thing Polar.

I work for a stock broking company and have noticed that AM is a lot like trading in that successful traders only pick profitable stocks about 10-20%, but they set stop losses so that they know when to get out a position. This is no different than us saying we will test a certain creative until it's cost us 2 x the payout (or something like that).

Successful traders and successful affiliate have 2 things in common: 1) they know when to kill an unprofitable position / campaign; 2) they know how to scale a profitable position / campaign.

Oh yeah, and they do their research too!

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Monte Carlo simulation FTW. http://howtomeasureanything.com/

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I was waiting for you to step in.....I should have named this thread..."inversion bait"

that book looks awesome btw...thanks for that gem....

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@PolarBacon - You really don't know how bad your post baited me. I read the book a few years ago and loved it. When I went to the link above, I saw there was a v2 of the book, so I ended up downloading a bunch of updated files and going through them. I did some reading on the Bayesian Inversion method. I ran some examples. Ah . . . the joy.

In all seriousness, though, because affiliates will have many more losers than winners, the concept of workflow is super critical. You have to get through the losing campaigns as quickly and efficiently as possible to get to the winners.

If anyone is interested, I'm happy to do a webinar on the topic of the steps in developing a workflow. I've actually provided hundreds of hours of training on the topic when I was a corporate 1%-er. (Now I'm just an IM 1%-er.)

Here's one piece of that people might find interesting. It's called Task Analysis, and it is a simple yet extremely powerful method to break down complex work into manageable tasks. I did this webinar for Ken McCarthy's System Beginner's class. The pace is slow, and I talk a lot about concepts, but don't let that fool you into thinking it's not powerful stuff.

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yes. interested

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very interested...how can we make this happen?

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I would dig a webinar on workflow development. That would be awesome if you could put that together.

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I also would love a webinar on this

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+1 for such a webinar...I'm too scattered and disorganized, ashamed to admit I don't have a real workflow.

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+1 on that webinar. sounds awesome.

edit: I just skimmed through that vimeo you posted - thanks for the share! can't wait to watch the whole thing

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+1 for webinar

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+84 this is one of my weak point holding me back. Would love to hear more about it.

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Okay mods . . . what do we need to do to get this set up? (see my new year's resolution)

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Yes please for webinar ... the sooner the better

Cheers

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do eeet .

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The unicorns brain must weigh at least 27 lbs!

A webinar on this would be interesting yes.

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did someone say 'quantitative math applied to internet marketing ?!'

Ill pay for Vegas flight for anyone that can come up with a formula that applies black-scholes risk analysis and volatility analysis in derivatives as applied to affiliate marketing that WORKS !
[love them numbers...love them MORE when theory MAKES MONEY!]

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I keep trying to message green and stack about it but some how the message keeps getting deleted and all I see are these little rat droppings everywhere...

I think you have our favorite rat concerned ....

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I think the best way to go about it is to categorize things abit...

so that you setup your "positions" based upon the traffic source.....and find the camp model that best suits that traffic source/vertical....

so for instance build out a model for games on fb....then one for dating.....etc.....

same for POF.....

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I'd rant if I weren't so tired at the moment.

Short answer - As affiliate marketers, we're not concerned about the future price (risk) of an asset. We're looking for profitable pockets in a high-dimensional variable space. Essentially, it's pseudo-steady-state optimization, rather than prediction. We know the return on our money as soon as we put it down. It's just a matter of finding the right place to put it down.

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+1 for webinar!

Bonus is that if we can get the actual workflow down,
it becomes that much easier to outsource.

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This is an excellent thread. Now If I could only coax the unicorn with a sugar lump to learn that 'a lot' IS TWO WORDS not 'alot', then he would be perfect. The enchanted forest would, once more, be a place of wonder ......

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Oh, and +1 for webinar. I agree with epicskillz workflow scenario.

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This forum is a nightmare for those of us schooled in the proper use of the English language.

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I do it alot out of pure rebellion......

cuz its alot of phun...

to watch the little red lines form under under my words as I bastardize the English language....as I type....

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@polarbacon : how you derive this 20% number ? can you give me an example ? Aslo, what does a negative expectancy means ? sorry if I sound like a noob

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