affiliate marketing blog  

It’s been a hectic year for affiliates fighting the inept concept that somehow they define “nexus” as defined by sales tax laws in numerous states. Nevada, Virginia, Vermont, New Hampshire, New York, California and a host of others where there have been some wins, and some losses.

Well, add Missouri to the list. You see, the bureaucrats in Jefferson City (Capital of Missouri) have already decreed that if you ship products to residents of Missouri, you need to collect sales taxes. That the mere fact of shipping it creates nexus. And they’re not above harrassing Affiliate Marketers to try to find out just who those Missouri customers are and who is selling to them either. (So brilliantly pointed out by Matt Enders of mgecom this past August… Missouri Considering Affiliate Nexus Tax Laws ).

And now it looks like Missouri is going to try to completely overhaul both the State Income Tax and Sales Tax.  And the end result is actually pretty attractive..  No more State Income Tax, only a Sales Tax, with a “cap” so it won’t get completely out of hand.  Sounds reasonable.  But as always, the devil is in the details.  And this has alot of details.  There is an overview from Business Week HERE .

What do you think the state employees who are providing financial background for these proposed changes are saying to the Legislature?  “Oh, we don’t need to track Internet sales“…  Or do you think they’re saying “We’re having a tough time enforcing our current Sales Tax, we need to have stronger language so we can really go after Internet Sales Taxes“???   If you think the latter, you are most likely correct.  And I havn’t found any news stories talking about Internet based Sales Taxes yet because the initial drafts are all that exist right now.  And it’s big…  very, very big.  And yes, I’m wading through it all now.

And don’t think that Affiliate Marketers arn’t already affected either…  There are merchants that refuse to do business with Missouri Affiliates now (i.e. Oriental Trading…  Their Affiliate pages states No Missouri Affiliates Allowed right HERE IN THIS LINK ).

So it’s time to get with the program and contact all the Missouri Affiliate Marketers you can and let them know to get with the PMA and educate their Missouri Legislators in how to do this right in the first place and not create affiliate taxes in Missouri.

AffSpot’s own Brad Podraza with Marketlite Affiliates gave a terrific webinar this past weekend on Affiliate Marketing for E-Commerce

And here it is for our AffSpotters!

I gave a webinar on this very subject last Sunday evening.  Basically I covered three points (each with their own subset of points).

• Your Customers are Everywhere – Go where they are and bring them back to your site/store/blogs
• Use automation to put routine updates in the locations you need in the formats best suited (via RSS)
• Be Like Dr Pepper – Log in at 10, 2, and 4 spending 5-15mins tops to personally engage (or 12 / 4 / 7, whatever)

I saw on Google Buzz this week where the very same subject came up.  How to be more efficient but still actively engage.  My thoughts were duplicated in that thread and have been received quite well.  Then I saw an article today on TechCrunch about why Google released Buzz so quickly and this single point got my attention:

The other reason Google needed to establish its own social stream pronto is that links passed through social sharing are beginning to rival search as a primary driver of traffic for many sites.   (article is HERE)

A point I really didn’t bring out in my webinar session (kicking myself now) is just how powerful a traffic driver it really is.  Social Engagement can bring big traffic.  Targeted traffic.  Traffic from people that have consented to follow your posts, have become familiar with you and your personal side.  And have CHOSEN to do business with you.

Here is the full recorded Webinar for you…

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I could expound poetic about how Affiliate Marketing combines the power of the Luge, with the grace of Figure Skating, and the speed and risk of the Super G. But I won’t, because it would be wrong. These sports don’t translate very well into Affiliate Marketing..

But one does… Curling

Multiple players sliding granite stones on ice…  With the “sweepers” applying effort to help the stone curl into the perfect spot in “the house”.  The center of “the house” is called the button, by the way.  Hence the phrase “right on the button”.

Affiliate Marketers (all Performance Marketers actually) are the Curling Sweepers of the Internet world.  Applying skill, tactics, and intelligence while sliding around on an icy plane in order to  help a merchant reach a goal.  And to be rewarded for their efforts in measure to their success in hitting it “Right on the Button”.

But that’s only part of the equation, what alot of Affiliate Marketers forget is that this is a team sport, and Defense is required as well.  Just as a good Curling squad puts out “guard rocks” is precise locations at precise times we need to guard against undue interference with our shots as well.  Like Affiliate Nexus Laws.  Which takes all Affiliate Marketers, Networks, AMs, and OPMs as well as Merchants to come together as a team and play a little defense.

It’s important to know the field, where the rocks are placed in relation to the house.  Which stones are in play and which ones don’t matter.  And they work WITH their Merchants, Networks, and Program Managers to make things happen for the benefit of all.  Now, more than ever, the Affiliate Marketer that can maneuver on a slippery icy plane, apply strategy, effort, and skill to their task they will always hit it “Right on the Button”.

Opportunity knocks in the strangest ways sometimes.  Being a big believer in Luck = Preperation + Opportunity I have retained several domain names over the years.  Mostly of places I’ve lived, activities I enjoy, etc.  And I maintain them mostly through automation and a brief posting every few weeks or so.

Then, over this past weekend..  the Opportunity component came into play for one of them.  You see, I live outside of a small town.  The town is just big enough to support a couple small lite manufacturers, a couple gas stations, a couple resturants, a grocery store and a few churches.  The town is quiet and the schools are good.  But then over the weekend Opportunity Knocked.

There has been some talk over the past few months that “something big” was coming to town.  But nobody knew what it was.  Only that it meant jobs.  And in this economy, that brings alot of interest.  Over the weekend the official city website had a press release…  A gathering at a larger auction house in town to announce a new industry moving in.  Along with the opportunity for up to 3500 new jobs!  This is big news.  And a big opportunity.

And what did I do?  You guessed it…  a couple domains where I’ve built local focused sites that garner some traffic are now on the front burner.  And I’m choosing the Affiliate Programs I promote very carefully.  I’ve joined the affiliate programs for every local franchise business.  Auto Parts, Movie Rental, etc.  Dropped in a couple other programs that are represented “brick and mortar” in the neighboring towns, etc.  Over the years these sites have grown very authoritative for the City name (it’s a good thing the local paper has no concept of SEO).  So when the news hits…  My sites are prepped and ready to take advantage of the traffic boost.

Oh, but it’s not only that…  I’ve sold advertisements to several local businesses (who will be linking to the site as well), and added even more solid original content, information, and a news channel.  And the traffic is already building…  Can you imagine what it will be when the news hits, and my little site is #1 in Google / Bing / Yahoo for a sleepy little podunk towns name?

Affiliate Gold is what that is..  And it’s an example of thinking longer range, building sites slowly over time, and striking while the iron is hot.

It started to look like a bit of a victory…  But it’s not over in Colorado yet…  It seems that what remains in the Colorado Affiliate Tax Law that’s in the middle of being passed is a “backdoor” of sorts.  A very ugly backdoor that isn’t all that different from what Missouri has attempted in the past.

In a blogpost last year Matt Enders described a scheme where Missouri was expecting an out of state entity with no particular ties to Missouri to give up their customer lists and information for the purpose of Sales Tax collection of Internet Sales.  The full article by Matt Enders is HERE.

And now comes Colorado State Senator Greg Brophy who is less than fond of the backdoor Colorado is now attempting.  You see, State Sen Brophy describes an administrative move in Colorado that would cause Merchants to send an email annually to everyone from Colorado that purchased from the Merchant in the previous year.  That the email would contain a list of all purchases made.  And here’s the real kicker..  That the customer is expected to pay Colorado directly for “Sales and Use Tax” on those items.

But Wait…  It Gets Better

Colorado would also require that the Merchant send a complete detailed list of all purchases made to residents of Colorado TO THE STATE OF COLORADO!  That’s right…  You live in Colorado?  A little piece of your privacy just went down the toilet if this bill passes.  Remember that sexy gift for your anniversary?  Yup, someone in the government is gonna know that you bought that battery powered marital aid.  And from what I can see so far, there is no verbage declaring this information to be confidential!

I can here it now…  You come home and your 14yr old “Little Johnny” says “Dad, Mom…  I was surfing the Colorado State Websites for my Social Studies Class and they have this list that shows a bunch of stuff you bought last year…  What’s a “French Tickler”????”.

Now, what are you gonna do about this Affiliates???

Normally I’m oblivious to advertising.  I’m at the computer working away.  But a commercial came on the TV (which I keep on for noise) and it so insulted the customer it gave me pause.  The “feel good” line from a financial planning company was:

“When the Customer Perceives they’re in control they do amazing things…”

What?  The perception of being in control of your own finances is all it takes?  Not that really someone else is in control?  Just what are these people telling their potential customers?  Well, I am in control of my own finances so this company won’t be hearing from me.  But the tagline quote got me thinking about all the Affiliate Tax debates happenning in State Legislatures around the country.

The flaw is that State Legislatures Perceive They are in Control of their Citizenry.

Which is myopic to the point of ridiculousness.  The factor left out of all of these debates is that transactions are happening across state lines.  Sometimes even international lines.  And just because your own state may decide that a sales tax nexus exists for them doesn’t mean it’s so. That is to say that things happen outside of a States borders that is actually controlled by another state.  For Example:

If a Customer clicks a banner ad is from Colorado, and the banner ad is from a network in New York, with the merchant doing business in Rhode Island, and the product ships from South Carolina…  What’s gonna happen?  You guessed right.  All four states are claiming “Nexus” for sales tax.  So either every state collects their full tax, or it’s going to split between the four.

Do you think the various state legislators have thought about this?  Do you think their financial projections are taking this into account?  What happens to Colorado’s (for example) revenue projections if it’s reduced by 75%?  That’s right, the cost to collect those perceived losses in sales taxes becomes higher than the revenue generated.  Thus it’s a net loss for the state.

Add in the loss of state income tax revenue to affiliates, networks, OPMs, etc. and you have a big fat loser on your hands. But the Colorado State Senators who are about to decide whether they’re going to go down this road to failure don’t realize just how bad this is.  Why?  Because they perceive that they are in control of things they’re not in control of!  Which is how the Affiliate Tax Drive in this country will be stopped.

Once the various state legislatures are shown (by the Affiliate Marketing Community) that they arn’t making decisions in a constrained environment the drive to levy affiliate taxes will stop.

Granted, the application of statistical analysis used in baseball (specifically, Sabermetrics, invented by Bill James) seems to be a little “out there”.  And it is, kind’ve.  But using the data available lets us do more than simply report the measurement of observations of our campaigns.  You can take these observations and apply the numbers in ways that help you properly judge past efforts, and see what you need to work on to improve future performance.

For example…  Runs Created.  Bill James came up with a system that could grade a player’s offensive ability regardless of if he is a speedster who walks and steals a lot, a high-average singles hitter, or a low-average slugger.   the essential computation of Runs Created is:

RC=(H+W-CS)X(TB+.7SB)/AB+W+CS

Runs Created equals hits plus walks minus times caught stealing multiplied by total bases added to seven-tenths of bases stolen divided by the sum of at bats plus walks plus times caught stealing.  Sounds a little goofy (especially having Caught Stealing on both sides of the equasion).  But it woks.  The deviation from real life is a scant 4% and generally within 3%.  There are a couple exceptions, but overall you can take this formula, apply it to an entire team over the past 30 years or so it’s very, very close.  Which is to say after 20 or so games into a season you can begin using this to predict how many total runs a team will score for the season and get pretty close.  Not Vegas Bet close, but close.

Now, how do we apply this to Affiliate Marketing?  Let’s look at the information we have available to us.  We have Traffic, ClickThru, Sales, Visits, Pages Viewed, etc.  Traditionally we have all been measuring ourselves with CTR, CPC, etc.  Which are extremely simplistic measures.  What if we apply a little bit of Sabermetric thinking and come up with our own measurement for Runs Created?  How about Sales Created?

Let’s lay out a possible scenario:

SC=(Clicks-Bounces)X(Page Views+Uniques)/(Visits+Clicks+Bounces)

This would reward Clicks and Uniques, penalize Bounces, and rate it all against the total number of Pages Viewed.  Run some of your stats over this and see what the ratio of the resulting number (SC) is compared with the total number of sales made…  I’m seeing some results that are making sense.  The first site I compared this too was spooky. I had cleared 74 sales on an offer.  This example came out with  a score of 72.50.   Thus “predicting” the number of sales within 2% of actual.

I compared it with a few other sites, called a couple friends and got some example numbers.  So far, it’s doing a reasonable job of computing how many sales based on the numbers and statistics alone.  The interesting thing is that one of the examples was high traffic with high bounce rates, another had low traffic with very low bounce rates…  And the numbers held up.  I don’t believe this is the final form of this.  Let’s not kid ourselves, this is counter-intuitive and I spent less than a week on this.  But a logical conclusion to this little experiment is that we arn’t recording and analyzing the data we’re already gathering in effective ways.

We Affiliate Marketers need to start really looking at the data, the history, and figuring out better ways to measure what is really happening with our offers, etc.  Judging ourselves by the observations made (logs), and discovering ways to make ourselves better.

Over the past several months I’ve been attempting to go deeper than simple A-B testing with sites…  I’ve been applying Sabermetrics to Affiliate Marketing.  For the non-baseball fan, Sabermetrics is the invention of Bill James.  His utilization of standard reference observations of the game and logical analysis of real results has turned what everyone thought about baseball on it’s head.

For example, different stadiums have profound effects on an individual ballplayers production.  Stealing bases is unproductive.  Much of what we credit to pitching is actually defense.  His approach is to listen to what the game itself is telling us objectively.  Which is exactly the kind of analysis we need to be doing as Affiliate Marketers.

Here are some questions that the application of Sabermetrics can answer for us.  With identical websites does the use of one CMS over another affect SERPS?  Is there a difference in profitability in using your own dedicated server over shared hosting?  Does the selection of a particular offer show greater click-thru by using one network over another network that has the identical offer?  What elements (i.e. cart, banner, newsletter list, pop-up on abandonment, etc) are the most to least effective?

We all think we know the answers to these questions.  But do we really know?  How much is being left to random chance without a true understanding of what is really happening by measuring and analysing the results of more than a simple A-B test?  I think that we’re leaving alot of money on the table here.  I think we don’t really know what we’re doing..  We just think we know.  And I think I’ve discovered the way to find out for sure…  Sabermetrics.

By studying Bill James work with baseball statistics, and creating test scenarios, a baseline of information about affiliate marketing can be established.  In my own initial testing I took one of the eyeglasses sites created for an experiment last fall and started a series of tests.  Although not a large enough sample to be truly scientific there are some trends that I feel need further study.

Just as in baseball, the stadium affects individual player performance, the type of hosting affects an affiliate marketers site performance.  The more restrictive a host, the less money is produced from a site.  With the best production being on a dedicated server.  In other words, if the hosting (and the hosting tools) enable an affiliate marketer to make changes quickly, perform maintenance easily, has enough resources allocated that processor or database limits are never reached…  The site will perform better financially.

For every site you have, for every offer you run, you have a wealth of statistical data that you should be analysing.  From server logs, to your click report at Shareasale, banner displays from OpenX, commissions received, Google Analytics, and on and on and on.  And you should be boning up on Bill James and Sabermetrics so you can use all the details at your disposal and distill the basic truths available to you instead of relying on intuition or whatever some guru says.

But just remember my favorite quote from Bill James, “Information is not to be held accountable for every misleading claim that somebody can derive from it”,

New York started this whole mess…  Declaring a “Sales Tax Nexus” to include wherever an affiliate marketer was based out of.  Then Virginia, Mississippi, New Mexico, the Carolinas, etc.  all trying to pass laws declaring the same tired refrain.

Of course, there’s the ever shining example of Missouri which takes the position that no new law is necessary and that everybody owes no matter what.  It’s all becoming so serious, and so silly at the same time.

The most ridiculous example would be that a customer in Maine buys product from Amazon (in Washington State) which ships the product from Kansas, and the click thru was from an affiliate marketer in Missouri who hosts their website in Virginia.  Meaning that Sales Tax would be charged from Kansas, Missouri, and Virginia (and maybe Maine).  Oh, each city and county in those states most likely would want their share too.

Which can only mean one of two things.  Either State Legislatures know the ramifications of all of this and they just don’t care about anything but gaining a few cents in taxes (even though it will cost four to five times the tax amount in order to collect it).  Or, they’re not paying attention to the real world ramifications such moves will truly make.

In either case, I’m considering a proposal of my own…  U-Haul.  Sam Kinneson famously stated in his comedy routine that we should not give foreign aid to countries without food.  We should give U-Hauls.  “See this..  This is Sand, YOU CAN’T GROW FOOD IN SAND”!  Give em a U-Haul and point them somewhere that food can be grown.

In a whole “Freakanomics” sort of way this same scenario may end up being played out in the Affiliate Marketing Industry.  Some smart person in some State is gonna declare that affiliate marketers in their State don’t have to be responsible for affiliate marketing taxation from another State.  And then a whole lotta U-Hauls are gonna get loaded up and on the road.

Whichever State creates this “safe haven” for Affiliate Marketers is gonna win big.  Think of all the data centers, high speed Internet connections, thousands of entire families, and all the supporting merchants, suppliers, shippers, etc. that will flock to such a place.  It would become a sustainable economic boon that will leave some States economically devastated in the process.

All because some State Legislators didn’t have a clue just how unworkable, unfair, and economically unfeasible affiliate taxation via sales tax mechanisms truly are when there are so many taxing authorities and cross border transactions there truly are.

My conclusion?  Either get a U-Haul or lay out exactly how bad this is and get onto your State Legislators right now.