One of the biggest struggles affiliates face, both new and experienced, is taking their business to the next level in terms of funding. We often hear stories about affiliates making six figures per day, but what often goes unmentioned is the significant amount of money required for advertising to achieve those numbers.
In this article, we are going to talk about the different ways to fund your affiliate marketing business. We'll share some strategies, tips as well as experiences from 7-figure affiliate marketers on how they were able to fund their businesses to scale campaigns to 5 and 6-figure days in ad spend.
The unique funding challenges in affiliate marketing
There are essentially three main ways to fund any business:
- Savings: Using your own cash reserves to invest in your business.
- Borrowing: Taking out loans, using credit cards, or securing lines of credit to finance your operations.
- Giving up equity: Offering a portion of your business to an investor in exchange for capital.
However, affiliate marketing presents a distinct set of challenges when it comes to funding. Unlike traditional businesses that might have physical assets or predictable revenue streams, affiliate marketers often deal with fluctuating income and the need for substantial upfront investment in advertising. This creates a catch-22 situation: you need money to make money, but you also need to prove your campaigns are profitable before you can access more substantial funding.
Moreover, the industry's payment structure adds another layer of complexity. Many networks and direct advertisers operate on net-30 or even net-60 payment terms, meaning affiliates must float their ad spend for weeks or months before seeing returns. This cash flow gap can be a huge hurdle, especially for those looking to scale rapidly.
Expanding your funding options
Everyone knows that using credit cards can be a good starting point, however they have their limitations. Even if you secure a card with a high credit limit, like $100,000 or $200,000, it may not be enough to scale your affiliate business significantly. If you're aiming to spend tens of thousands of dollars per day on advertising, relying solely on credit cards won't cut it.
In the following section, we are going to show you other options that you can use to get more funds and build your affiliate marketing businness.
Affiliate-Specific Funding Strategies:
1. Securing favourable payment terms from affiliate networks:
Affiliate networks play a crucial role in connecting advertisers with affiliate marketers. These networks handle the tracking, reporting, and payment processing for affiliate campaigns. One effective funding strategy is to leverage your relationships with affiliate networks to secure favorable payment terms.
Many affiliate networks offer weekly or bi-weekly payouts, which can help maintain a healthy cash flow for your business. By consistently delivering strong results and building trust with your affiliate managers, you can negotiate faster payment schedules or even request advances on your commissions. This approach reduces your reliance on borrowed funds and allows you to reinvest your earnings back into your campaigns.
2. Direct advertiser partnerships:
Another powerful funding strategy is to establish direct partnerships with advertisers. By bypassing affiliate networks and working directly with advertisers, you can often secure better commission rates and more flexible payment terms. advertisers are often willing to negotiate faster payment schedules or even offer prepayment options to top-performing affiliates.
When approaching advertisers for direct partnerships, it's essential to demonstrate your track record of success and the value you can bring to their business. Prepare a compelling pitch that highlights your marketing expertise, target audience, and the potential ROI you can deliver. Building strong relationships with advertisers can lead to long-term, mutually beneficial partnerships that provide a stable source of funding for your affiliate marketing ventures.
3. Credit from advertising networks
Major advertising platforms like Facebook Ads, Google Ads, and others have recognized the potential of high-performing advertisers and now offer credit options to help scale campaigns. This can be a valuable source of short-term financing for affiliates.
Facebook Ads, for instance, offers monthly invoicing for eligible advertisers. This allows affiliates to run campaigns and pay for them later, typically with a grace period of 30 days. The credit limit is often based on the advertiser's history with the platform, including past ad spend and account standing. Affiliates can leverage this credit to scale profitable campaigns quickly without immediate out-of-pocket expenses.
Facebook Ads monthly invoicing feature offers several benefits:
- Receive monthly invoices for ad accounts with a 30-day payment window from the issue date.
- View invoices directly in Business Manager.
- Set up Auto Payment to automatically pay invoices using a linked bank account, or manually pay via bank transfer or check (US only).
- Share access to monthly invoicing with partner businesses, allowing them to set it as their default payment method for ads. This is particularly useful when working with agencies or partners managing your ads.
To be eligible for Facebook's Monthly Invoicing:
- You must be an Admin or Finance Editor of a Business Manager account.
- Your business needs to spend a minimum of $10,000 USD per month for the last 3 months.
- Facebook will inform eligible businesses through their Business Manager.
It's important to note that if you manage multiple ad accounts, you'll receive separate invoices for each. Also, when sharing access with partners, you remain liable for all advertising spend made by the receiving business, as per Facebook's Payment Terms
Google Ads offers a similar program called Google Ads Monthly invoicing. Here is the eligibility criteria for Google Ads Monthly Invoicing:
- Your business must have been registered for at least one year.
- You need to spend a minimum of $5,000 USD for any 3 of the last 12 months (or the equivalent in your local currency based on exchange rates).
- To apply, you need to contact your Google customer service representative.
Eligible advertisers can receive a credit line to finance their ad spend, which can be particularly useful for affiliates looking to capitalize on seasonal opportunities or test new approaches.
To maximize these opportunities, affiliates should:
- Maintain a good standing with the advertising platforms by adhering to their policies and maintaining consistent ad spend.
- Keep detailed records of campaign performance to demonstrate the potential return on increased ad spend.
- Use the credit strategically, focusing on scaling proven campaigns rather than experimental ones.
- Be mindful of repayment terms and factor them into cash flow projections.
It's important to note that while these credit options can provide valuable flexibility, they should be used judiciously. Affiliates should have a clear plan for generating returns that exceed the cost of credit before taking on this type of financing.
4. Affiliate-focused loans:
While traditional lending options, such as bank loans or credit cards, can be used to fund your affiliate marketing business, there are also specialized lending solutions tailored to the unique needs of affiliate marketers. These affiliate-focused lending platforms understand the dynamics of the industry and offer flexible financing options.
Revenue-based financing is gaining traction in the affiliate world. Companies like Clearco offer funding based on ad account and revenue data, with repayments taken as a percentage of daily revenue. This model is particularly attractive for affiliates with proven campaigns looking to scale quickly. For instance, you can secure $250,000 in funding based on a consistent $50,000 monthly revenue. You only have to repay 10% of your daily revenue plus a 6% fee.
Instead of requiring collateral or personal guarantees, Clearco analyzes your business data and marketing metrics to determine the funding amount you qualify for.
6. Small business lending sites:
Other affiliate-focused lending options include specialized lines of credit or loans that consider the seasonality and fluctuations common in the affiliate marketing industry. These lenders often have more lenient eligibility criteria and faster approval processes compared to traditional banks.
If you are from the US for example, there are websites like BlueVine that offer small business lines of credit. If you are in another country, look for similar options that can provide business lines of credit for smaller businesses.
By combining these different funding sources – cash, credit cards, bank lines of credit, and small business lending sites - you can significantly multiply your buying power. For example, if you secure $200,000 BlueVine, $100,000 from your bank, and have a $200,000 limit on your American Express card, you suddenly have $500,000 in buying power.
Reinvestment and bootstrapping
While external funding can accelerate growth, many successful affiliates have built empires through careful reinvestment of profits.
A dynamic profit allocation strategy is crucial. Many affiliates follow a variation of the 80/20 rule, but the most successful ones adjust this based on market conditions and opportunities. During peak seasons (like Q4 for e-commerce), some affiliates reinvest up to 95% of profits to maximize growth during these periods.
Campaign optimization should be an ongoing focus. Investing in advanced tracking and analytics tools can uncover opportunities for micro-improvements that add up to significant gains. Affiliates have seen substantial increases in monthly profit from small improvements in landing page conversion rates, achieved through sophisticated split-testing tools.
Allocating specific budgets for testing new opportunities is also important for long-term success. Successful affiliates often set aside 10-20% of their profits for exploring new traffic sources, offers, or niches. This approach has led to discoveries of highly profitable opportunities in new advertising channels, sometimes resulting in new revenue streams generating 6 to 7-figure monthly income within a year.
Risk management is key
When using borrowed money to fund your affiliate marketing campaigns, it's crucial to practice risk management. Avoid putting all your eggs in one basket by scaling everything with a single network or client. If you encounter issues with getting paid, it could spell disaster for your business.
To mitigate risk, aim to have a diversity of clients/ direct advertisers and affiliate networks. Ensure that you are paid quickly, ideally on a weekly basis. It's a bizarre expectation in the affiliate industry for affiliates to spend their own money and then wait extended periods to get paid by much larger companies. Logically, it should be the opposite, with bigger companies trying to pay affiliates as quickly as possible to ease their financial burden. However, this is the state of the industry.
As a general rule of thumb, avoid allowing any single invoice to exceed 5-10% of your total receivables. This way, if one direct advertiser/ affiliate network defaults, the impact on your business is minimized. For example, if al of the direct advertisers you work with owe you a total of $100,000, and you limit each direct advertiser to no more than 10%, the most you could be stiffed is $10,000 when 1 fails to pay up. You would still collect the remaining $90,000 and potentially profit.
Inadequate risk management can be detrimental, especially if you've gone into debt to fund your ads and a significant portion of your receivables is tied up with a single affiliate network or direct advertiser. If they fail to pay, it could ruin your business and affiliate career.
The importance of diversification
Diversification is key to managing risk effectively. Avoid relying too heavily on any single advertiser or network. Even if you're working with the largest networks, there's no guarantee that they will always pay you. Networks can run into financial difficulties, fail to get paid by their clients, or go out of business, leaving affiliates empty-handed.
It's crucial to be realistic about the potential risks and not be naive. Thinking that bad things can't happen to you or that certain networks are always safe is a dangerous mindset. Instead, consider what could potentially go wrong and take steps to prevent those scenarios from occurring.
Partnering with experienced teams as a media buyer to avoid risk
If managing funding, risk, and cash flow feels daunting, partnering with experienced teams can be a viable option. Some companies in the industry are actively hiring media buyers and salespeople, leveraging their decade-plus of experience and valuable lessons learned.
By partnering with an established team as a media buyer, you can benefit from their expertise in handling the complexities of funding, accounting, and risk management. It allows you to focus on your strengths while mitigating the challenges that come with running an affiliate marketing business.
Q and A with Peter Day, the co-founder of the Optimize to Convert affiliate team
Peter Day
Q: Peter, everyone knows you as this 8-figure affiliate marketer. Can you share with us how you got started in the affiliate marketing industry?
A: So it all started when I was about 19 or 20 years old, and my brother was probably 16 at the time because he was a bit younger. My brother and I have been in this industry at this point for a long time. I mean, I'm 32 years old, and even though we're young, we have about 12 years of experience. This all started with my brother and I dabbling in some ads, and we always had this kind of relationship where my brother was running the ads and I was working on getting the deals. That's kind of how our business got started.
Our biggest success started with a campaign we ran about eight years ago with this rent-to-own campaign. It was a lead gen campaign we're running on Facebook, and that campaign was working really well for about a year or two. Then what happened was we kind of fell into this newbie trap a little bit. Many affiliates probably have experienced this type of thing – you have this one winning campaign, and then what happens? You know why it falls apart.
Through this experience, it was kind of like the worst thing at the time, but the best thing for us because it taught us a lot of lessons. We were totally green to the industry, and through this, we probably fell into the same trap as a lot of you guys, right? We were running the campaign, we're making all this money, and it just wasn't even crossing our mind that it could stop, that it could fall apart. It just wasn't even a thought, you know? And looking back at it, it's ridiculous that we weren't even thinking about it.
Then the perfect storm happened. A couple of years later, the buyers stopped buying, the traffic on Facebook got more expensive, we got banned more regularly. So on Facebook, it was banning our rentals. It was like the perfect storm happened, and we were so kind of stupid at the time. We thought the money was never going to end.
Q: How much did you invest in the business?
A: When my brother Tyler and I started our affiliate marketing journey over a decade ago, we were very young, with Tyler still in high school. We began with a combination of our own cash, about $3,500 collectively, which we earned from mowing lawns and summer jobs. As we started seeing success with our ads and making a profit, we immediately jumped into using other people's money - in this case, credit cards.
We got a few American Express and Bank of America cards and started running ads on these cards, even when we didn't have the money to pay for them upfront. We trusted that we would get paid back by our networks and clients. In hindsight, this was a risky move, as getting stiffed could have put us in a difficult financial situation. Thankfully, it worked out, and we started compiling profits and building our savings.
My brother and I took a calculated risk last year that ended up taking our business to the next level. It was the scariest thing I've ever done professionally, causing many sleepless nights.
Q: Do you mind sharing the calculated risk strategy you took that propelled your business to the next level?
A: Sure, we had been very comfortably spending about $100,000 per day on ads, or around $3 million per month, for a long time. But then we had an opportunity come up to dramatically scale a handful of campaigns across 2-3 verticals simultaneously. The only problem was, we only had about $3 million total in the bank at the time.
We ended up deciding to go for it and scaled up to spending $300,000 per day on ads. At that burn rate, we would deplete our cash reserves in just 10 days if revenue didn't increase proportionately. It was absolutely nerve-wracking watching our bank account drop by $1 million every 3 days. My heart was pounding out of my chest.
Realizing we didn't actually have enough cash to sustain the spend, we had to get creative. We went to each of our clients individually, explaining the situation transparently. We told them that if they didn't expedite their payments to us, we would have to pause all ads in about 12 days when we ran out of money. It didn't matter how big the client was, we needed faster payment terms from everyone to make it work.
Amazingly, it worked. The clients realized we were serious about pausing campaigns and losing out on growth if they couldn't pay faster. Some even paid up entire past-due balances immediately. We got most on weekly or even twice-weekly payment schedules.
As a result, we were able to do $9 million in revenue that month on only $3 million in cash reserves. The profit from that risky move allowed us to get the business to a new level. We've been able to maintain $200-250k/day in ad spend throughout 2023 comfortably because of the new scale we achieved. Had we not taken that risk, I don't think we would have had nearly as good of a year.
Q: Any regrets in your affiliate marketing career in terms of not seizing the opportunity?
A: One of my biggest regrets from early in my career is not taking full advantage of winning opportunities. About 8 years ago when we first found success with a rent-to-own campaign on Facebook, we were generating 10,000 email sign-ups per day profitably. Over the course of a year, we built email lists totaling millions of subscribers.
At the time, we felt on top of the world earning $8,000 profit per email we sent to this huge list. Some days we would send two emails and make $16,000, which seemed like an incredible amount then. But in hindsight, we weren't thinking big enough.
If we had fully maximized that opportunity, we could have scaled the lead generation to 100,000 sign-ups per day from many different sources and monetized it much more aggressively. We likely could have built it into a $50-60k per day profit machine, potentially adding up to $15-20 million per year. But we didn't realize how rare those home run campaigns were and failed to exploit it to its full potential before it finally died out.
The lesson is, when you find something that works, you need to go all-in and milk it for all it's worth. In affiliate marketing, 80-90% of what you try will fail. So when you have a winner, you must scale it to the absolute max. Your winning campaigns have to pay for all your losing tests. Looking back, I would have done anything possible to 10x the results of that rent-to-own campaign, cross-promoting it anywhere that made sense. When you finally have a hit, drop everything else and focus on scaling it as far as you can take it.
Conclusion
Funding your affiliate marketing business requires careful planning, diversification, and risk management. Explore various funding options, such as credit cards, bank lines of credit, and small business lending sites, to multiply your buying power. However, be cautious not to overextend yourself and always practice risk mitigation strategies.
Remember that success in business comes from your wins outweighing your losses. Learn from setbacks and continuously adapt your approach. By thinking critically about potential risks and taking steps to manage them effectively, you position yourself for long-term success in the dynamic world of affiliate marketing.
Thank you for reading, and stay tuned for future updates, where we'll share more valuable insights and strategies to help you thrive in your affiliate marketing endeavors.
