Assumptions in your business

Amazon recently announced that for its affiliate marketers, it is cutting commissions drastically, in some cases, I’ve heard by a factor of 10.

If you’re not familiar with affiliate marketing, it’s creating web pages and articles that sell products for other companies, and it’s become a business that employs people for thousands, or even millions of people. Amazon isn’t the only company that has an affiliate program, it’s become a big trend for anyone with products that can be marketed to may different audiences.

However, as I’ve heard tales of the horror that has recently unfolded from a couple people I know in this industry, they have had their incomes cut by a multiple, in most cases 2-4 times!

Can you imagine if your income that you had spent years building up, was suddenly cut that way. It’s gut wrenching!

It’s also worth looking out for in the future. There are a number of assumptions in this business model, namely:

  • Google will keep traffic the steady
  • The affiliate program will keep the commissions the same

In both assumption, those two together are out of control of these businesses. As a result, a drastic swing in income is possible due to no fault of the owner, however many never thought this a possibility. Not seeing it is part of the owners fault.

A strong business has 3 parts, marketing, sales, and service/product. A business that acts as the marketing for another company is at their whim. It may be a way to build income with low capital, but at the same time it doesn’t have power to withstand changes out of their control.

What would happen if the income earned initially was used to develop their own unique product, then used the skill learned from affiliate marketing to sell that product?

They would be much more isolated. They choose their own margins after all. That removes one of the assumptions.

Once that’s going well, they could work to drive traffic from other sources beyond just Google. Radio, magazines, other websites, etc. Then they remove a second assumption.

It’s not possible to startup and always have the capital to remove all the assumptions, but it’s critical to see them, to know that it’s important to keep working at them and chipping away at the risk they pose to the business.