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April was very much a bittersweet month.

On the one hand, traffic and revenue for TheDermDetective.com grew substantially by 43% and 85% month-over-month to 13,000+ sessions and over $1,100, respectively.

Revenue has now exceeded my baseline H1 goal of $1,000 per month.

On the other hand, Amazon affiliates got crushed on April 21st by a brutal 50%+ decline in commission rates across multiple categories (visually depicted above).

Two of my primary categories were hit extremely hard:

Luxury Beauty remains at 10% (for now) but I wouldn't count on it staying at those levels.

The latest move by Amazon is another stark reminder of:

  1. Amazon's complete and utter dominance of e-commerce
  2. The urgent need for diversification across merchants

Moreover, Amazon's move should not be a surprise to the industry. It's been taking incremental steps for years now to reduce rates as it solidifies its #1 position in e-commerce.

So... what's next for affiliates like myself? That's the central focus of this month's income report.

In this post, I'll present my current thinking on this issue, including:

But first, I'd like to briefly discuss the business results for April 2020.

Key Metrics

*Defined as percentage of total revenue from Amazon Associates affiliate programs.

Going forward, I've added a new key metric, Amazon Risk, to monitor my dependence on this e-commerce cancer giant. This month's reading of 75% is a step in the right direction compared to an overall average of about 90% across all prior months.

My goal is to get this ratio down to 50% or lower by the end of 2020.

In April, traffic and revenue both grew substantially, far eclipsing the prior month's levels. This comes on the heels of the Amazon rate cut on April 21st which impacted about a third of the month's earnings (so this month's results would have been even better absent the recent changes).

I attribute the recent traffic gains to continued "wins" in SEO, including:

I attribute the recent revenue increases to continuous improvements in CRO, including:

Finally, it's very likely that the global pandemic is having an impact on my business. I'm still not sure whether the net effect will be positive or negative:

Now, let's turn to the main topic for this month: The Elephant In The Room.

The Elephant In The Room: Interpreting Amazon's Latest Rate Cut

Amazon Associates Letter - April 2020

On April 14th, what looked like just another innocent email from Amazon Associates turned into a full-scale nightmare for all of its affiliates, myself included.

R.I.P. Amazon Associates

I mean, at least Amazon Coins still pay 10%, am I right?

Soon after, I spent the next few days:

Emotionally, though, it was definitely a roller-coaster and I think other affiliates probably went through a similar process (The 5 Stages of Grief):

  1. Denial: "this is not possible!"
  2. Anger/Memes: "screw Jeff Bezos!"
  3. Bargaining: "maybe this is just temporary?"
  4. Fear/Despair: "..."
  5. Acceptance: "OK. Let's move on."

Overall, I think you can look at the recent Amazon move in 1 of 2 ways:

  1. Amazon Hates Affiliates: I've been hearing people say this a lot more recently given the scale and persistence of negative changes to the Amazon Associates Program. And it's definitely not over yet as we all know that Amazon will continue to squeeze more value out of EVERYONE, including its suppliers, customers, shippers, and employees, just not affiliates.
  2. Amazon Used To Be Generous, Now Not So Much: If you look at other mass merchants like Wal-Mart (1-4%), Target (1-8%), CVS (4%), and Walgreens (2%), you quickly realize that none of them pay anything remotely as attractive as the old Amazon program. Partly because these retailers have more legacy costs associated with their brick-and-mortar stores but also because Amazon had been deliberately generous to accelerate its dominance of e-commerce. Now, Amazon no longer needs to pay the same rates since they already attract customers organically and is widely considered the "default choice" for online shopping.

Personally, I think #2 is a bit closer to the mark in terms of why Amazon is slashing commission rates. It's been a more than generous program in the past, when you factor in:

  1. The above-average commission rates relative to other mass merchants.
  2. The industry-leading conversion rates thanks to high brand recognition, ease of transaction, convenient shipping options, and loyalty program (Amazon Prime).
  3. The incredible earning potential from residual sales (i.e. products not directly recommended by you, but which your visitors buy nonetheless). This can, in many cases, account for the majority of total earnings from Amazon, even though there's no direct attribution for the sale (i.e. people were more-or-less going to buy those items anyways but did so during your 24-hour cookie).

Of these three factors, Amazon is aligned with its affiliates on #2. Amazon has every interest in boosting its conversion rate and keeping visitors addicted to its platform (Amazon-holics much?).

Now, we've already seen a serious deterioration in #1 as Amazon feels it's confident enough to slash commission rates without suffering any major consequences to its business.

And if Amazon also decides to remove #3, the residual sales, the Associates program might as well be called, "Sending Amazon Free Traffic Since 2020."

In fact, they already have the technology to track direct vs. indirect sales (this is shown under the "Ordered Through Product Links" and "All Other Items Ordered" in the Fees report).

I've also seen some comments that this rate cut is related to the coronavirus, but I really don't think it is. These types of changes are usually planned months ahead of time, not overnight.

In conclusion, I think all affiliates should actively monitor their Amazon exposure and urgently explore diversification options (when I say "all affiliates", I really mean "myself").

I don't think you can ignore Amazon either (at least for physical products), given its market position, conversion rates, and residual sales; rather, de-emphasize Amazon and allow users to choose their preferred retailer using multiple affiliate links/buttons or choice pages (more on this later).

Strategically, I worry about the long-term viability of this industry if Amazon continues its dominance of consumer e-commerce, and expands into global dominance beyond the U.S. What's to prevent Amazon from changing rates to 0% someday, effectively scrapping its Amazon Associates Program?

Unless a healthy level of competition can be sustained, that may become a reality in the next few years in categories where Amazon has eliminated all meaningful competitors (in other words, I'll be spending my money on non-Amazon retailers wherever possible now).

Evaluating Alternative Retailers: Revisiting Earnings Per Click (EPC)

In the next few months, I'll be evaluating alternative merchants including specialty retailers like Sephora and Ulta Beauty as well as skincare brands like NeoStrata and Paula's Choice.

The industry uses a common metric to measure the profitability of sending visitors to a merchant, called Earnings Per Click (EPC). This is often represented as earnings per hundred clicks, depending on the affiliate network.

As a reminder, EPC effectively combines the effects of conversion rate, average order size, and average commission rate (see my annual report 2019 for a full explanation).

For example, if you had a merchant with:

Then, the EPC = 1% * $100 * 10% = $0.10 per click or $10.00 per hundred clicks.

In the case of Amazon.com (US), the EPC for TheDermDetective.com increased from $10 to almost $20 in 2019 thanks to increasing conversion rates (AOS and ACR remained stable).

EPC to Amazon
EPC Breakdown

So far in 2020, EPC reached $20.00 per hundred clicks in both February and March, but declined dramatically in April to just shy of $17.00 due to the rate cut on April 21st.

EPC 2020 Q1

Moreover, if I run the same numbers from April for CR (13.5%) and AOS ($24.52) but at a pro forma commission rate (I'm assuming 2.75% instead of 5.65% average from January to March of this year), then the EPC for Amazon.com declines to a measly $9.10 per hundred clicks.

This move essentially wiped out all of my incremental gains in EPC during most of 2019.

With this new number as my benchmark, I can figure out roughly which merchants might be more profitable compared to Amazon.com's EPC of just under $10.00. I want to stress that this is, of course, an estimate, because actual profitability depends on the efforts of both the affiliate (i.e. how good is your content?) and merchant (i.e. how good is your webstore?).

Affiliate networks like ShareASale report the EPC figure directly based on aggregate statistics while other networks like Skimlinks only provide the commission rate, conversion rate, and average order size, from which you can calculate the EPC yourself.

For example, here is the data for these four merchants:

Affiliate Programs

*Note that SkimLinks charges a 25% fee on posted commission rates so I've included the net number here (e.g. Sephora pays 5% which is 3.75% after fees).

Based on this information, we can see that Sephora, despite being a more popular destination for beauty products, only offers a paltry $3.50 EPC whereas Ulta Beauty, a similar retailer, offers over 3.5x that at $12.37 EPC. This is due to higher commission rates and conversion rates at Ulta (known more for mass beauty brands) compared to Sephora which sells more prestigious brands.

Next, we can compare the two direct brands. Paula's Choice offers a whooping 25% commission rate (18.75% after fees) but ends up being about the same as Ulta Beauty at $12.84 EPC due to its lower conversion rate (1.21% vs. 3.18% at Ulta Beauty). NeoStrata, however, offers a lower commission rate of 15% but an incredible $40+ EPC because of the 2x higher average order size ($110+) and 2x higher conversion rate (2.46% vs. 1.21% at Paula's Choice).

Overall, relative to my benchmark of ~$10.00 EPC at Amazon.com, 3 out of the 4 programs look fairly attractive here based on these numbers. However, I would still include Sephora due to its significant market share and product selection, even though the EPC is nowhere near as strong as the others. This is a similar issue to Amazon.com, in that you can't just ignore a large retailer since consumers will want to shop there anyways so you might as well get the cookie by offering them the choice.

Okay, so now that I can identify attractive merchants based on both hard statistics like EPC and subjective assessments like market share, product selection, product page design, etc., the next step is to let users choose their preferred retailer.

I've seen a lot of websites, like the WireCutter, use multiple links or call-to-action buttons to facilitate this step. This makes the decision easy for the user and requires only 1 click. However, I think this method is very labor-intensive and will require me to make relatively major changes to my post layout to "fit in" multiple links or buttons.

Instead, I've decided to create stand-alone "choice pages" using Geniuslink (an affiliate link service that focuses on Amazon but also supports Wal-Mart, BestBuy, etc.). This means my users will land on a separate webpage hosted by geni.us where they can select their preferred retailer and then proceed to the product page.

Here's an example for the Dr. Dennis Gross Alpha Beta Extra Strength Daily Peel:

Geniuslink Choice Page 1

This method eliminates the design issues but means users need to click twice to get to the product page (with some possible drop off). I'm also conscious of the fact that this exposes my website to additional technology risk by relying on Geniuslink's infrastructure to serve these choice pages. However, I think it's worth trying out for now, especially since I've come to really trust the Geniuslink support team (they do an excellent job at responding and are very receptive to new ideas).

Overall, I think these choice pages will play a key role in helping me diversify away from Amazon. I'm also looking into ways to "nudge" users to visit non-Amazon retailers when Amazon.com is part of the set of options. In other words, most people will probably click on Amazon if they see it; the question, then, is how to encourage them to visit other retailers through the design of these choice pages (such as placement order), as well as in the content itself (e.g. explaining the benefits of other retailers, such as free gifts, product authenticity vs. 3rd party Amazon sellers, etc.).

Display Ads & Info Products: Layering In Informational Content

Aside from shifting to more non-Amazon retailers, I also plan to add more informational content in H2 to round out my website and increase the diversity of both traffic and income sources:

Inverted Pyramid

Overall, I think adding an informational strategy will help balance out the existing affiliate strategy by providing much needed diversification from both Amazon and other merchants using display ads and info products. I also believe it will accelerate traffic growth by targeting higher volume (but lower converting) info keywords and pave the way to building a recurring audience base via email marketing and social media.

Portfolio-Level Considerations: Escaping Amazon's Ecosystem?

This final chapter is more of a footnote (as I am basically brain-dead at 11PM right now).

My last step is to explore other opportunities beyond TheDermDetective.com, with an emphasis on "escaping Amazon's ecosystem" of physical product dominance.

Broadly speaking, I'm interested in opportunities to build digital assets that do not rely too heavily on Amazon or other large-scale tech companies (e.g. Facebook, YouTube, etc.). However, this is much easier said than done (how do you escape Google SEO).

Before I invest my time & resources into my next project, I want to take reasonable steps to make sure that the industry in question will not fall victim to Amazon in the near future. Or at the very least, has a healthy level of competition that can withstand the impact of Amazon.

Some of these categories include:

I wish you all good health and good spirits in this difficult time.

Cheers,

Tom