Billy Beane, General Manager of the Oakland Athletics and protagonist of Michael Lewis’s Moneyball, had a problem: how to win in the Major Leagues with a budget smaller than that of nearly every other team. Beane believed that winning teams could be built with young affordable players and inexpensive castoff veterans—and he was right. The A’s consistently finish atop their league along side big market, BIG budget behemoths such as the New York Yankees, with a fraction of the resources.
Many small to medium size publishers and upstart advertisers may feel like the A’s of the affiliate marketing space. Publisher’s that do not produce the volume to reach top tier pricing and Advertisers without the cash reserves to risk high volume, lower margin distribution deals may feel as though first place is out of their league. The A’s, however, should be inspiration and testimony enough to sway you to the contrary.
Following analysis of massive amounts of carefully interpreted statistical data, Billy Beane concluded that wins could be had by more affordable methods such as hitters with high on-base percentage and pitchers who get lots of ground outs. He was not enchanted by the allure of glamorous homerun hitters nor pitchers who could throw 100 mph. In much the same way, publishers should not be wowed by simply a high payout and Advertisers should not be charmed by a publisher who can drive high volume and inflate revenue.
Publishers: do not be captivated by an offer simply based on its CPA or because “everyone” else is promoting it. Test offers, scrutinize its conversion rate, and closely monitor its performance overtime. Think of your Effective CPM (eCPM) as Billy Beane thinks of on-base percentage. One slugger is not more effective than a team of players who consistently get on-base and collectively score. Before long, you will have a stable of offers in your rotation that produce an overall higher return than a larger publisher with higher payouts, but lackadaisical performance measures.
Advertisers: watch your gross margin. Focus on those publishers and distribution channels that deliver a healthy margin. A publisher that can drive up your revenue is sexy, but depending on margin, directly impacts risk and return. Lofty gross margins provide a cushion for earnings, more control over earnings, and a competitive advantage. The greater the spread between gross margins and net margins, the greater the control a company has over profits and cash flow. Carefully monitor the relationship between the costs to get gross margins and the costs subtracted to net margins because this relationship allows for net margin expansion.
The Oakland A’s and Billy Beane challenged the conventional wisdom that highly athletic hitters and young pitchers with rocket arms were the ticket to success. Uncover the metrics that really drive your business and do not be blinded by subjective perception.
Don’t try to tackle a giant by brut force, unless you’re as good looking as YFDirect’s General Manager Scott Rewick.
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