Thoughts on offering an affiliate program

Are you considering offering an affiliate program to get customers? Here are some thoughts on making it effective:


1. Most affiliate bonuses are too small to be meaningful. Make it an amount that grabs my attention, or relate it to the cost of the service (i.e. affiliate bonus of 25% of the final contract)

2. Determining the bonus amount:

a. What is your total cost to acquire a customer (include networking, advertising, marketing, websites, everything, then divide by the number of customers signed up)

b.The affiliate bonus should then equivalent to your customer acquisition cost.
(i.e. do not run an affiliate program to decrease customer acquisition costs... at least not at first)

3. An affiliate program should primarily have as goal to save your *time* to get customers (not necessarily cutting customer acquisition costs). Getting quality referrals is also a benefit, if the system is well set-up.

4. For service providers (coaches, consultants, etc) make the offer you are promoting through affiliates very clear. Make all promotional material, etc easy. Provide the words and the scripts for me as your affiliate to approach my contacts.

5. Have a good tracking and accounting system in place so that the bonuses go to the right person.

6. Offering your services as bonus is not necessarily a good motivator. See my article on pro-bono offers here: http://is.gd/iPdA that has applicable arguments against offering your products and services for no money or as exchange.

7. Think long and hard before offering an affiliate program. It does not work well to start or revive a customer base, but it is okay as an add-on to existing marketing efforts. Your best connectors are usually not motivated by money (and may even be turned off or even insulted when you offer it to them). Sometimes love is a bigger motivator than money!

What are your thoughts?

Basic money math for self-employed shoppers

Pop quiz: When you put $100 on your credit card because you don't have the money to pay cash now, how much income do you need to earn to pay this back?

a) $100
b) $1000
c) more than $1000

The answer is (b), and possibly (c). Why?

First, you put the amount on your credit card, because you don't have the cash. So the cash to pay it back has to come from future earned income.

Next, assuming your other basic expenses (food, rent, car, insurance, etc) stay the same and can't be cut back, so the amount to be reimbursed needs to come from the difference between your income and your expenses for the month (assuming there is a positive difference at the end of the month). So let's say you have a 10% surplus at the end of the next month. This is optimistic, but let's postulate this.

So the income needed to pay off the $100 in credit card debt then comes from the following:

income needed = the debt (divided by) surplus income percentage
$100 / 10% = $1000 is the income needed to pay off the principal
Plus the 12% credit card interest rate (if you're lucky)

The big mistake that most people make is that when they put something on credit, they assume that they can pay it back from future gross income. But when there is nothing left from that next paycheck, the amount rolls over to the next month, the next and the next, and eventually grows (because other charges add to the card) and becomes too big to pay back.

Salaried employees are stuck because the only way they can generate a surplus on their income is by cutting back expenses, because their income is fixed. Because people are not conscious of the true high price of debt, which is the ability to pay it back, they have been digging themselves deeper and deeper into a hole which is impossible for them to climb out of.

As solos we have an ability that wage-earners lack, that of being able to adjust our income upward to quickly absorb debt and pay it off. Which means first we need to have surplus income, and second, the ability to increase it by getting more clients more efficiently.

Failure to understand the simple math of debt is why the economy is tanking. And this is the mistake I made with my first business. I started putting business expenses on my cards, expecting to pay the balance with the income generated by new clients. But I didn't realize that the reason I was putting expenses on cards is that I did not have surplus income, so there was no way I could ever pay back the principal. And I eventually had to play the bankruptcy card to get out of a six-figure debt. Luckily I learnt my lesson and am much smarter about debt now because I know the million-dollar question: how does this expense increase my income so it pays for itself?

This means that every time you whip out that Visa or Mastercard, ask yourself: "How many more clients do I need to get, above and beyond what I currently have, to pay off this debt?"

As a business person I want to minimize my liabilities (money goes out) and maximize my assets (money comes in). For every expense, I want to make sure that it doesn't just pay off the principal, but it also generates its own income, a "return on investment" (ROI).

ROI = (income generated by the investment) / (cost of the investment)

And I aim for at least a 100% ROI for every expense: that it not only pays for itself but also generates an additional amount equivalent to its cost. So for that $100 debt, what I really need is to be able to generate $2000 additional income. That expense better help me to generate that increase in income!

So please, please, please shop smart this holiday season. Don't dig yourself so deep in debt buying that you compromise the stability and prosperity of your business in the New Year. Don't burden yourself with liabilities, instead, start accumulating assets.

The more you focus on ROI each time you spend, the smarter you will shop and the more profitable you will be.

P.S.: The book that taught me so much and that in my opinion is REQUIRED READING for everyone is "Rich Dad, Poor Dad" by Robert Kiyosaki (www.richdad.com) .

Living footloose and car-free

I was amazed to find out recently that relatively compact Québec City, where I live, has the third-highest rate of car use in Canada (Statistics Canada report here).

I guess that's why people look at me funny when I mention that I don't own a car, and haven't now for over two years. It helps that I live within three to ten minutes walking distance of major local and express bus routes, that the train station and intercity bus station is less than three kms from my home, and that I have the largest shopping complex in Canada (east of Montreal) an fifteen minute walk away. Plus my lifeline, Staples Business Depot, is just up the street.

What this car-free life gives me is a huge freedom as well as direct savings. Did you know that in Canada, owning a small car like a Toyota Echo costs $200/month in depreciation alone, just parked in front of the house, no licence, no insurance, no fuel? Add insurance, maintenance and financing, and you're looking at a fixed cost of $20.00 a day or more, just to own the car. Then add the variable operating costs (fuel), and Total Cost of Ownership (TCO) becomes $0.50 to $0.90/km (depending on car model). (see the CAA Driving Costs report in PDF here, and an overview article here)

Think about it, just jumping into the minivan to get that litre of milk can cost 50 cents to 1 dollar per km...

When I really need a car, I have access to by-the-hour car rental, or carsharing, through Communauto. I pay a nominal per hour ($1.55/hr on weekdays, $2.05/hr on weekends) or per day ($18.60 weekdays, $24.60 on weekends) and per kilometer charge (29 cents/km for the first 100 kms, 19 cents after). Everything is included, gas, insurance, maintenance, etc. There are over a hundred cars in Quebec City, all easily available by bus, I also manage my reservations by Internet.

Tracking my car expenses over the last year, I averaged about $250/month on car expenses, at about 40 cents a kilometer. Compare that with the simple depreciation expense of $200+ mentioned above! Plus none of the hassles of maintenance, etc (which I hate). Factor in all of my other modes of transport (bus pass, intercity buses, trains, etc), and I've averaged about $400/month on all transportation.

Not only could I sleep during all that transport time (I tend to nod off quickly, even in a crowded city bus), but the best part, financially speaking, is that given that almost all of my car use has a business purpose, almost 100% of my car expenses are before-tax deductible!

You may say that you can deduct car expenses anyways, but looking at the fine print of the tax return, the government has progressively put so many limits and makes the paperwork so complicated that this benefit is quickly eroded.

Do you have a choice to let go of your car? I know that I fought with the idea myself before going cold turkey. It was the prospect of a large repair bill for a 13 year old car and no money to put down on a new car, that finally pushed me into this situation. At first I felt "poor", but now I am feel much richer because that's real money that I kept in my pockets.

Robert Kiyosaki in "Rich Dad, Poor Dad" defines an asset as something that puts money in your pocket, and a liability as something that takes money from your pocket. So is your car really an "asset"? I now understand what he is saying. I can get all the transportation that I want, with few of the hassles, for a lot less money out of my pocket.

I now get around with smart mix of walking, bus, carsharing, train, and simply choosing not to go (it's amazing how many car trips can be avoided by not owning a car!). My personal and business activities take me everywhere around the province, and I don't feel limited in my mobility in any way.

I really believe that in the next 30 years, car ownership will go out of style, just as in the past 30 years smoking became no longer acceptable. Plus I get to be trendy-green!

Take a look at the latest from Sheryl Crow, called "Gasoline", (off her new album, Detours) imagining what a gas shortage ten years from now could be like:

A shortage of money is the symptom of a bigger problem

A newsletter that I highly recommend is Roy H. Williams' Monday Morning Memo, an "insightful and provocative series of well-crafted thoughts about the life of business and the business of life."

In today's issue, he links to posting on his blog with the eye-raising title "Money and Jews"

Why is it that while this cultural group comprises only 1.7% of the U.S. population, they account for more 24% of the "mega-donors" (people who give more than $10 million dollars in a single year to social and cultural projects)?

On the other hand, why do Jewish people have a reputation for being stingy or tight-fisted with money?

Roy Williams describes it this way:

Jews hesitate to hand over cash because they’re taught from a young age that a shortage of money is merely the symptom of a bigger problem. “To give money and walk away is the easy way out. If you really care, you will do what is necessary to make sure this person never again has a shortage.”

Looking back, I saw this in my first business, a technology consulting practice. When starting up my venture, I was trained (through the "Start Your Own Business" course I took), that the main problem with starting a business is finding the capital.

I sweated through writing a business plan which I then presented to my banker, and was surprised at how easy it was to actually receive the money. I promptly proceeded to "burn through" this found money without generating any cash flow, because I did not know how to really be in business. It was only later I realized that they did not lend me over $75K based on my business plan, but rather on the basis of my excellent credit... (those days are now long gone!) The bank basically "gave me money and walked away". I eventually had to repay the loan, which was a very painful process.

In a previous post I ranted about the ineffectiveness of subsidies and government grants. Almost every solopreneur or entrepreneur I meet has a cash flow issue. They are looking to solve it by having someone give money to them, and in Québec that someone is more often than not the government. They want someone to give them the money, no strings attached. But even with "easy money", this access to cash does not make a business project more successful. (How many businesses that receive subsidies become profitable?)

What I learned is that it's not how much you get, but rather how much you can generate and keep... to reinvest and generate more. Money is generated when I make offers that provide people with genuine results, and when I take responsibility for moving my project forward. This means mastering the art and science of relationship selling - influencing the actions of another person so that they themselves willingly take action on what I suggest to them, towards a win-win result.

So to cure a money shortage, I have to go out and sell something that makes a meaningful difference to my customers. Mastering this skill ensures that I will never again be short of money.

Finding money is not the problem. The real question is... what will you do to never have money troubles in the future?

Why people believe weird things about money

Michael Shermer in today's LATimes.com asks:

"Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same."

The answer surprises me, while it really shouldn't...
Do you play to win, or to not lose?

• Read the full article here.

Link to Michael Shermer in Wikipedia
Link to Michael Shermer's Web site