For most of the offers that I promote I typically have between 5%-7% refund rate.
5%-7% is actually pretty good. A lot of affiliates get hit with 10%+ refunds, depending on the offers they’re promoting.
Even if you have just a 5% refund rate here’s why you need to be careful…
Let’s say you have a campaign that’s pumping out a 100% ROI, then a 5% refund rate will cut out 10% of your net profits.
Now most affiliates typically work on 50% margins, if that’s the case with you, then a 5% refund rate will reduce your net profit by 15%.
If you increase that refund rate to 7% on the 50% ROI campaign then the drop in profits jumps to 21%, if you increase the refund rate to 10% the profit drop is 30 freaking percent!?!
This is a big wake up call for those of you who are running offers on slim margins. For example, one of the offers I’m running took a big dip over the summer with 38% margins (still making great money because the search volume is very high). However, the refund rate was about 8%.
That 8% refund rate dropped profits by a ridiculous 29%!
Btw, here’s the formula for calculating the percent drop of your profits as a function of ROI (before accounting for refunds) and your refund rate.
% Drop in Profits due to Refunds = (1+ROI)*(Refund Rate)/ROI
where ROI is your ROI before you take refunds into account.
So are YOU tracking the impact of your refund rate?
refund rates
I don’t promote anything that has refunds.
Come to think of it, I did promote clickbank offers. 3 out of 10 sales were refunded. I stopped promoting CPA offers and have switch to CPL offers. With CPL offer you have to worry about lead quality.
I promote clickbank offers. 457 sales and 9 refunds so far. So it’s around 2%.
Gagan,
With lead payouts you do have to worry about the lead pay out. Well depending on what niche your in we have one niche we’re doing that does around 200-300 dollars a day in profit (finally). It took me over 6 months to get this one going, but they are very strict on the leads. They have no increased our pay out becuase our lead quality is great, but they have some affiliates they will not give increased pay outs too.
Lead quality is very important that would be like my company going to tell an affiliate to promote our services, but they turn around and channel leads in through places like craigslist, digitalpoint, and banner ads–all of these channels drive a TON of leads, but guess what?
The quality of them is very low. So in other words 1. they don’t convert or 2. they have no value what so ever.
I mean they did increase our payout.
Amit,
you must be a clickbank junkie
Here’s a another thing you have to worry about CPL offers – dieing out or being pulled out at 24 hrs notice. Happened to me today. 2 week old campaign on this new offer I was slowly optimizing to make profit was shut down for indefinite time. My conversion rates were awesome and I was slowly optimizing it. I wasn’t even finished entering 70% of the keywords I had compiled. I replaced it with a similar offer (different merchant) from another network. It just doesn’t convert as well and the payout is less. Guess what I’m losing money now. Sucks!
Niche-affiliate-marketing.com
Gagan
I gave up on CB for this very reason.
Plus they have a 60 day money back which doesn’t help their affiliates.
60 days!
We live in an instant world and CB offers 60 days.
If someone doesn’t know in 7 days if they like a product then they should stay inside and off the roads!
Good post for those who use clickbank.
@Kevin – “If someone doesn’t know in 7 days if they like a product then they should stay inside and off the roads!”
I’m willing to bet if they change the money back to 7 days, the refund rate will be much much higher. CB is obviously not stupid and they have valid reasons to do so. 60 days money back will increase sales conversions and because it’s so long, most people will just forget about it, so this actually lowers the refunds as opposed to what many people believe.
@Amit – Slightly off topic, I noticed that there are a lot of posts on forums lately about how Google are banning accounts, I mean we can only do so much to play with their rules but sometimes we might accidentally did something that Google dislike and they might kick us out of their program without even knowing it. What’s your thought about this issue? Do you have this fear of waking up one morning just to find that your accounts were banned?