I was always curious about when it comes to launching an affiliate program, how does one come up with an acquisition rate that you are willing to give up/pay in order to sign-up 1 client.

Where do you start your calculation? The subject will be of special interest to startup companies and those in early stages of business that want to expand by running their own affiliate program.

It would seem that when top industry brands pay $125-150 per client (that's shared hosting), it becomes extremely difficult to compete for publishers, as they will always go for those paying more money. Would it be wrong for a new company to take big brands as example and follow their lead by paying this much?

I am interested in the very start of this process - from the drawing board that is. What are the general rules? What is the advisable minimum startup budget to have? What factors do you start looking it? If its easier, let's build a real case company with basic financials and X number of clients paying Y dollars/mo for service.

The affiliate marketing sure has changed in the past eight years. Yes, it is hard for small startups to compete with the big boys and from personal experience, I would not try to compete with their payouts.

To be honest, there is going to become a point in time, when the big companies are going to have to stop paying suc higher numbers because lets face it $5.00/month hosting paid for two years doesn't event get you to pay the affiliates. You need a customer to prepay 3 years.

The three year prepay brings in $180.00. Then you take $120.00 to the affiliate and then your left with $60.00 to pay for servers, space, tech people, etc. It's not long term practical.

If you were a startup with a fund for $10,000.00 worth of affiliate payout marketing, you could grow very quickly. You would have to go in the understanding that, you might not gain this money back and plan to lose it all.

Depending on what type of product, I like to see clients range anywhere between a $60.00 cost to acquire share hosting, $90.00 for Resellers/VPSes, and then in the $200.00 - 300.00 range for dedicated servers.

With a $10,000.00 affiliate budget you should be able to acquire 100 - 150 shared clients.

Thanks, but the question is - how do you come up with a $60-90 /client rate? What's the general formula?

For us, we don't compete AT ALL with the other giant hosting companies. They're on a different level than we are. They have HUGE budgets (Hostgator pays out $300,000 per MONTH in affiliate fees) - that's not a level that we're even close to paying out.

We generally go with 10-20% payouts recurring monthly. We had tried doing the $10.00 payout, or the $25 payout but we found that if we offered the percentage payout our affiliates were happier as they knew the people they referred would be staying with us.

Once you have a solid foundation in web hosting, people recommend others without any thought of compensation. The 10% kickback is such a small price to pay, but it's SOMETHING (and that's exactly what we tell our customers too). We're not going to make anyone rich by referring our services, but you will make people happy with a reliable host

Coming up with the figures, you have to break down what it costs for each client to obtain. Clients usually run between $2-4 in marketing fees for each client (if you have a specific niche).

Much like in other threads here, the key is not to align yourself with the larger hosts, but to stand out. Why go with a small host rather than a big host - usually it's service and personability.

Most people will offer a larger comission for a larger customer (dedicated etc) and that's contingent on the fact that the customer will stay. Lets say you sell a server for $200/month. If you pay out $100 for a dedicated server referral, and your profit line is $40/month on a dedicated server, then you have to lock that customer for 2.5 months before making a dime. Now, if you're paying 10% comission ($20.00), you're making money right away, however your profit is now only $20/month for the life of the account. Which one makes more sense?

Places paying $50 for a $5/month account are usually shooting themselves in the foot, but when you have that big of a bankroll, and you're just looking to generate clients and resell other stuff to them, it works out.

Artashes,

There is not a magical formula for it. It is about what you as a company feel comfortable with when it comes to your budget. This is like the whole question what should you charge for hosting, well it depends. Sure you have to gage what your offering with the rest of the industry but it truly depends on your financial backing, budget, etc.

It looks to me like a company wanting to build a shared hosting client (startup) could be at risk for such a large upfront payout, so you'd definately have to realize that cost is just the expense to get the Monthly Recurring Revenue and launch your business.

It would be interesting to know what that $10,000 would bring in on a direct advertising (cpm) banner advertising approach in a target market site.