Someone once asked Warren Buffett what the secret to stock-picking was.  “Easy– just buy the undervalued stocks,” he said.  The same can be said of affiliate marketing, which also about buying low and selling high.  Abritrage is about being the middleman between the buyer and seller– maximizing that difference and finding ways to do it again and again.

Understanding that basic concept has been the key to my success so far, whether it be selling diamonds on ebay (what I did a few years ago) to running enterprise PPC campaigns for Fortune 500 clients to doing small business lead generation.  This post will go into the basics of understanding arbitrage, focusing mainly on a view from the inside on what it’s like managing a network.  I hope it is both simple to understand and also provides some value to you. If you apply this and are able to make some money because of it, you can say thanks by linking to my blog.

THREE VIEWS (Advertiser, Publisher, Network)
Most people in affiliate marketing only understand one half of the equation– as an advertiser or a publisher.  Thus, they pay money for ads or they have a website and want to get paid.  For example, there is AdWords (buying ads) and AdSense (showing ads to get paid)– two sides of the same coin.

  • The advertiser want to get as many leads/sales, given a performance target, typically CPA.  Assuming lead quality is the same, they’ll apply the same CPA to all traffic sources.
  • The publisher wants to maximize total earnings on his inventory. So if he’s rational (and in my first semester econ class, assuming rationality is a HUGE leap of faith), he’s looking at maximizing eCPM (we’ll talk about that in a second)— not clicks, CPC or CTR.
  • The network (defined as anyone who sits in the middle and takes a cut) is balancing between both advertisers and publishers— delivering enough ROI to keep advertisers, high enough eCPM to keep publishers, and having a decent margin left over.