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“By failing to prepare, you are preparing to fail.”
― Benjamin Franklin
Up till this point in my online business journey, I realized I have been treating it like a hobby and not a business.
I have been learning different strategies and business models from other successful entrepreneurs and yet I have never really tried to figure out “the one model” that I would stick to and follow through.
After experimenting with different affiliate programs (Clickbank.com, CJ.com, Shareasale.com etc), I have decided to put most of my efforts to just one this year – Amazon affiliate program (a.k.a Amazon Associates).
The main reason is really simple. It converts the most and generates the most revenue.
Also it’s a new year (Happy New Year 2016!) so why not?
What’s the business plan as an Amazon affiliate?
In any businesses, formulating a business planning is a very important step to take. The first thing I need is to see how much investment is needed to generate the outcome that I am looking for.
The primary cost is obviously content creation. Since we will be utilizing SEO to grow traffic and convert them to purchase on Amazon.com.
So I decided to create a spreadsheet where I can input certain numbers and it would spit out the key metrics that I am looking for.
I have attached an online version later in this post so please feel free to play around with your own numbers.
Question 1) What’s the expected revenue
I want to know how much money I can expect to make IF everything goes accordingly.
The first thing to decide is how many articles to create and their potential traffic.
- Number of Articles: 180 = 15 x 12 months
Based on the writers I have worked with, creating 15 articles in one month is feasible. Cost wise, even if each article costs $20, 20×15=$300 which is an affordable number.
- Average Monthly Search Volume (AMSV): at least 50
Finding low competition keywords with AMSV 50 is indeed feasible, especially with the Keyword difficulty prediction model we have developed, this task should not take too much time.
- Monthly website traffic: 180 x 50 = 9000
It’s calculated based on the two numbers mentioned above. Assuming we will also find some high AMSV keywords, as long as across all target keywords the AMSV is higher than 50, 150 articles should be able to bring in 9000 monthly visits.
- Average Product Price: $50
Amazon affiliate commision changes according to the number of items sold each month. Which means if we target on products that have higher pricing, even selling less volumes we will still reach to our goal. $50 is an affordable price point and finding such products will not be a difficult task.
- CTR to Amazon, conversion rate at Amazon
These numbers are based on couple of my websites, so they are actual numbers. For more details please watch the video below.
- Expected revenue: $538
This is a pretty exciting number considering the keywords we are targeting have low AMSV. I also created a calculation based on the real data (my existing website), please watch the video to get details on that.
- Time to recoup article cost
Assuming it would take 3 months to rank, and assuming all the articles are published in one go (which obviously is not the case but we are making a good enough business calculation rather than academically correct calculation), we can recoup the article costs in 8 months.
Question 2) What is the overall return and break even point?
In addition to article costs, there are other business costs as well (hosting, software, SEO activities etc).
So the prediction should also assume to payback those costs.
To make the calculation easier, we assume all the article cost should be paid back first.
Video: How to calculate CTR, conversion, cost and revenue?
In this video I will show you how to use the spreadsheet.
Spreadsheet for estimating Amazon affiliate income
Is becoming an Amazon affiliate a good business?
Based on the calculation, by producing 180 articles at $15 each with keywords targeting AMSV of at least 50. Even with monthly operation cost of $400, it will not only break even but become cash flow positive by 20th month (1 year and 8 months).
In terms of Return of Investment (ROI), it’s about 8% after 2 years (watch the video for how this is calculated).
I actually forgot to mention in the video but we will also have a website that can potentially be sold to someone else. According to this site, it could potentially be sold for 2-3 times of annual revenue which is about $500 x 12 months x 2 = $12,000.
So the actual ROI would be about (numbers are rounded) $12,600 / 7,500 = 168% return! That is just amazing.
The calculation presented here involves A LOT of assumption, which means this phenomenal return is based on the assumption that when everything goes well.
Just like any business, there are so many things that can go wrong with being an Amazon affiliate such as; Google changes its algorithm; Writers do not perform according to expectation; Amazon changes its policy etc
So what’s next?
After this analysis, I feel more confident in the decision that I have decided to take. Now it’s time to follow the strategy I have formulated to rank on Google without substantial backlink building.