July 22nd, 2015/Business Thoughts/By /

Business Thoughts: The Finances of Running an Affiliate Business

Making Money is Easy, Keeping It is the Hard Part

A key component of your affiliate marketing business is resource management, and the most important resource is your cash.

We can all agree that understanding your finances is important, but affiliates are horrible when it comes to good financial practices.

Let me ask you a quick question: how much did you make last year in Quarter 2?

I’m not talking about your profits in Voluum, I’m talking about your net profit after all your expenses (employees, services used, overhead, quarterly taxes, etc.)

If you don’t have access to these numbers, then you’re not paying as much attention to your business finances as you should.

I’ve seen the following scenario cause the downfall of countless affiliates over the years.

An affiliate finally has their first profitable campaign and they focus on scaling it hard.

Everything’s moving fast and it feels like the money’s never going to stop. They celebrate with buying a nice car and going on a few vacations. Their lifestyle starts inflating as a result, so does their expenses.

Inevitably campaigns die. Later on they finally crunch their numbers and go pale when they see the tax bill.

Holy shit 40%?!?

Their campaigns are dry. They have a large tax bill they didn’t account for. And now they have a lifestyle they can’t afford.

The problem is the affiliates didn’t monitor their numbers that well.

They kinda eyeballs things by what they see in their tracker and base their financial decisions on that. Next is they underestimate how much money they’ve paid in expenses. The trackers, servers, software, offices, and employees eat more into their pocket.

You can’t make good decisions using bad data. 

I wanna talk about some of the finances of running an affiliate business. Being successful in this industry isn’t just about a hot offer or angle – you have to run this like a BUSINESS.

Most affiliates tend to be young, and have never operated a business before. And lets keep it real, watching your numbers just isn’t that excited.

It’s like trying to lose weight and not tracking your progress. You’re operating in the dark.

Knowing your numbers is essential if you want to be successful in this industry. Knowing your numbers means you can make better decisions.

Knowing Your Numbers

The first recommendation I give to beginners is to properly setup a company (either an LLC or an S-Corp if you’re in America).

This just makes life a lot easier in the future. Keep your personal and your business expenses separate from the beginning.

There are online services that can do this such as LegalZoom, but I recommend going to local accountant or lawyer instead. I prefer working with a professional in person for this kind of stuff.

Here’s a simple money team:

  • Accountant / bookkeeper
  • Lawyer
  • Wealth advisor / tax advisor

The more Jewish your money team is the better. Don’t be cheap when it comes to hiring quality people!

Next is you want to setup a system for going over your numbers.

It could be as simple as meeting your accountant in person every quarter, checking for wires every Friday, and checking your credit card charges everyday.

The idea is you want to know everything that’s going on financially with your company.

Recommended Software

Here are some software I recommend for doing your books online.

Payroll: Zenpayroll
Accounting: Xero or Quickbooks Online

Reducing Costs / Overhead

You want to keep your business as lean as possible. Every dollar has a job and you shouldn’t let any go to waste.

One of the biggest wastes of money is in unused services that are recurring. (That rebill karma…)

We all have servers that we’re not using anymore and haven’t cancelled. If it costs $59.99 a month, then that adds up to $719.88.

Go through your credit card statements and cancel any services you’re not using. Spending 25 minutes doing this could save you thousands of dollars this year.  

When I started building my team in 2009, I wanted a fancy office. I wanted to impress clients in case they were in Atlanta, and I wanted a nice office to attract top talent.

I opened a beautiful office in Buckhead (A nice area in Atlanta) and signed a one year contract for $4,000 a month. You know how many clients came to my office? zero. You know how many employees cared about my nice office? zero.

Once the lease was over I moved my team to a large apartment instead. I paid $1,500 a month for a BIGGER space.

I saved $30,000 the next year with this move. We’re affiliate marketers, we don’t need fancy offices.

Other Advice

  • I get a LOT of wires. You can save money if you ask some of the companies if they have ACH Deposit available. You can also shop around for a bank that has reduced wire fees.
  • I pay almost everything through a credit card and that lets me fly around the world first class for free. Check out Starwood SPG and Amex Gold Card (Yes GOLD card, they have the option to let you get 3x bonus points if you choose advertising as your category)
  • Don’t take all your money out of your company to fund your lifestyle. Keep money in there because shit happens. You can get sued, or a big campaign hits that doesn’t accept credit cards.

Legal Tax Minimization

Hire a great accountant and start understanding what you can and can’t write off.

Make sure you pay your taxes quarterly so there aren’t any surprises when April comes around.

If you want any other advice concerning this topic, then talk to a professional.

Collecting Money

Things can get a little hectic once your campaigns start blowing up. You’re getting wires left and right and it’s not easy to tell where the money’s coming from.

Most people become COMPLACENT and hope the money ends up right.

BIG MISTAKE!

You have to watch your money like a hawk. There have been NUMEROUS times over the years where the network or advertiser forgets to send me a wire. I’m talking about $30,000+ wires that wouldn’t have come in if I didn’t notice.

I don’t think they did it maliciously. Remember that accountants can make errors too.

I have an excel chart that has every network and advertiser I work with. I write down what day of the week I should expect a wire in. Every Friday I spend 5 minutes making sure every payment comes through.

If a wire doesn’t come through then be careful. If it’s a partner that I have a great relationship with, then I’ll keep the traffic going. If it’s a new network / advertiser and and I’m hearing bad rumors, I pause traffic immediately.

This could be the difference between losing $10,000 and $40,000.

Affiliate Marketing Business Finances ARE Important!

Do you want to get an edge over your competition?

Know your numbers.

Hire smart people. Watch your finances every single day. Look for opportunities to save money everywhere you can.

Be patient when it comes to spending money. Don’t feel like you’re entitled to anything. Your goal should be to use that money, to make more money.

Study. I’ve read different books on accounting and finances so I can understand the numbers more. I plan on taking some online classes as well.