Most competitors have no idea what their customer is worth. If their marketing budget is a percentage of their sales, during a recession they might cut their ad budget…

If you continue advertising and marketing at your current level, you’ll get their customers.

1. Compute your average sale and your profit per that sale.

2. Compute how much additional profit a customer is worth to you by determining how many times they come back and buy. Be conservative.

3. Figure out precisely what a customer costs by dividing your marketing budget by the number of customers it produces. If you spend $1,000 on marketing and you get 1000 customers, they’re costing you $1 a piece. Prospects are the same. Maybe out of that $1,000 you get 10,000 prospects for $.10

4. Compute how many sales you get for so many prospects. The percentage of prospects that actually become customers. This will be your “Closing. Ratio.” If you get 10,000 prospects and you have 1,000 customers, that’s a 10% Closing Ratio.

5. The Marginal Net Worth of a customer is computed by subtracting the cost to produce that customer from the profit you expect to earn from them over their lifetime. Ultimately, you’ll want to spend less and less getting the customers, in other words, your acquisition cost, but this method is a way to generate customers short term.

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A lot of large and small online businesses have an affiliate program, and are continually working with their affiliates helping them to succeed. Think of your affiliates as salespeople you hired to go around selling your product or service. Too often I see a lack of emphasis on the affiliate program. I am convinced that there has never been a better way to make money. If you are able to set up a good profitable affiliate program, it is so easy for everyone involved to benefit. All you do is help the affiliate, and all the affiliates do in essence, is link to you. It’s so simple and easy for everyone involved but it works extremely well with a minimal investment of time, energy and money. If you hired 50 of these salespeople, would you train them and provide them with tools? Yes. Would you stay in contact with them? Yes. Would you keep your sales force happy and motivated? Yes. A secret of the majority of wealthy people is that they spend time and money on the things that matter. Determine what matters to your business and then spend a proportionate amount of your time on that task.

I have determined that our affiliate programs, when given a modest investment of time and energy matters most to our business. You may find the same thing if you incorporate my suggestions into your own affiliate management strategy. Why wait until now? Now is the time, after testing your copy, perfecting your sales process and gaining accurate statistics to launch your affiliate program.

Trying to launch your affiliate program before this point may not be wise. You don’t want to have affiliates sign up with you too early and then be disappointed by conversions and drop your program. Be sure to have your site converting at least 1.25% of visitors to customers before you consider actively promoting your affiliate program. Don’t be afraid to market your affiliate program just as you would your product.

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