Residual Commissions...

Heres a simple question: who makes more money?

The guy who fixes your cable when it breaks, or the company which collects your cable bill?

Heres another question: whose income is more stable? The service representative who helps you buy a cell phone, or the company which provides the ongoing service for the cell phone?

These are the questions to ponder, as we delve into the issue of whether you want to choose an affiliate program that pays one-time commissions, or an affiliate program that pays residual commissions .

When you are going to market anything, on-line, or in the real world, you have two basic options for types of money you can earn. The first type of commission is earned through a one-time product or service, which the customer buys, and uses and never re-purchases (or doesnt re-purchase on a regular basis). Examples of this might be a refrigerator, a lawnmower, a CD Player, etc.

The second type of commission is earned a multiple use product or service, which gets used, and/or repurchased on a regular basis. Examples of this might be Internet service, batteries, cable television, cellular phone service, etc.

When it comes to affiliate marketing, it is important to be aware of the differences between these types of commission structures.

Why is this important to you? Because it determines how much money you will make, both in the short-term and in the long-term.

An affiliate program that pays once will pay you a one-time commission. This might be an ebook, but generally is any real-world product or service, ranging from apple-flavored bubble gum to zebra-striped camouflage clothing, and any other one-time use types of products or services.

An affiliate program that pays residually will pay you an ongoing commission, for as long as the customer (you bring to someone elses product) keeps paying on the product or service. Examples of this might include: a site license to use a specific type of software which gets renewed monthly or annually, web design or hosting which is paid for monthly or annually, and other multiple-use type products or services.

So which is better: one-time commissions or residual commissions?

There are two answers to this question: Answer 1: Both types of commissions are important. Answer 2: The type you choose should be the best for you and your needs.

Generally speaking, residual commissions can earn you more money in the long run, and one-time commissions are more stable.

Lets say that you have a web site about gardening. Youve had it up for about eight months, and youve managed to get some decent regular traffic. Congratulations! So you have about 1000 visitors/month coming to your gardening site. You can generally assume that at least 1% of those visitors will make a purchase (hopefully your conversion is much higher, but for purposes of this article, lets say 1%.) So 1% of your visitors buy something. That means that on any given day, ten people buy something because of their visit to your site. Lets say that five of them buy the awesome seeds you recommend them to buy, and five of them buy a subscription to Home Gardening and Your Lifestyle, the magazine that you think every amateur gardener should read.

You dont actually sell seeds or the magazine directly. You simply pre-sell people that both the magazine and the seeds are good things to have, and you direct them into someone elses site to make a purchase. (Eventually, you should have your OWN products that you sell, but well save that for a later discussion.)

Five people buy seeds at $50 (Hey, I said that they were awesome)! A great commission on a one-time product (like the seeds) would be 40%. So lets say that for every purchase of seeds, you earn $20. So from 5 seed purchases, you make $100.

Five people buy subscriptions at $20/month. A decent commission on a residual product (like the magazine subscription) is 10%, so lets say that for every magazine subscription, you earn $2/month. Five subscriptions brings you $10/month.

Initially, you might look at this comparison and decide that it would be better to sell one-time commission products. But lets look at the deeper story.

If those five people stay subscribed for just 1 year (12 months), you have now made $120. This is more than you made from the one-time commission, and you didnt have to do additional work or get additional traffic to continue earning that income. However, you have made this income over the course of a year, and you banked on the fact that the people who subscribed would stay subscribed. If they had all cancelled at 6 months, you would only have made $50 by referring them to the (residual commission) magazine subscription instead of the $100 you would have earned referring them to the (one-time commission) seeds.

This is why, at least in the short-term, one-time commission products are generally more stable. You get paid once, you have your money, and you go out to get the next buying customer.

This is also why, in the long-term, residual commission products generally earn you more income. Once you have a large enough customer base, your monthly income becomes predictable, because you begin to learn what percentage of people cancel their subscription on a monthly basis, and you work to find ways to replace the cancellations with new members.

It is important to note that, in an information-based society, (which most of the Western hemisphere is currently in), either source of revenue can change, as soon as new information comes about. This information can be something simple, like Tap water is bad, and bottled water tastes better. That little piece of information created a billion dollar industry in 3 years. (If you want proof, just ask yourself if anyone you know would have bought bottled water 15 years ago.)

So it is important to always have your ear to the ground, and be aware of what your competition is doing, and what your industry is doing, so that you can continue to have a great site with great information and useful products.

At this point, it is important to go back to the question which started this article. Should I pick an affiliate program which pays me well today, or should I pick an affiliate program which will pay me today, tomorrow, and the day after, and the month after, etc.?

My opinion is that it is important to have a mix of both. Have some high-quality, high-paying, one-time products that will help you pay your bills today, and work to promote high-quality, high-paying, ongoing commission products that will help you to buy your long-term financial freedom.

You can do it! Remember, you dont have to get it right. You just have to get it going!