As an affiliate, you want to understand how a passive income stream works, and, more importantly, how to structure a cash flow stream that produces income for you each month without a lot of extra effort on your part.
Affiliate income payments generally fall into two categories –
Upfront payments – you deliver something to an advertiser – clicks, views, leads, or completed sales, to name the most common delivery items – and you are paid for this action in a one time payment that occurs immediately (or close to immediately), and that is the end of your compensation. Regardless of how much more the purchaser buys in the future, you are paid no more for their actions.
Recurring or Residual payments – again, you deliver something as above to the advertiser, and you are paid for the action more than one time. Generally this means that you deliver a completed sale that involves a recurring or subscription based payment – or perhaps involves upsells to the purchaser at a later date; each time the purchaser makes another payment or purchase, you are again compensated for your original efforts.
There are pros and cons to both methods of compensation.
For instance, upfront payments offer quick payouts for the work you do but they do not allow for maximum compensation since they are designed to benefit the advertiser on the back end, and the payout is calculated at the value the advertiser wishes to pay over the LTV (lifetime value) of the customer.
With recurring, or residual, payouts, you will generally earn more over the LTV of the customer – but you will not receive all the earnings in a single, early payment. Instead, you will be compensated each time a new payment is made to the advertiser. If you are working with an advertiser who has a strong program, then you can calculate the expected amount you’ll be receiving – both the LTV and the monthly payments – and budget your earnings over a longer term. This also means that if you stop selling for a period of time, you won’t stop receiving payments (as long as you’re meeting the advertiser’s minimum payout for the period) until some time has gone by with no new sales.
A wise affiliate will find a mix of upfront and residual payments to be a good goal – that way you are constantly being paid for both types of sales. You might decide that splitting your income 60/40 in favor of upfront payouts works nicely for you while you are actively building your network or making sales calls (if you are doing in person work), since it gives you more disposable income immediately.
If you are considering a break from actively working to gain new sales, you should take this mix into account, and spend some time shifting your traffic (or prospecting) to a 30/70 mix, skewed towards residual payouts, so that you can still collect your commission checks while you are involved in something else like school, travel, or working at a full time job that limits your free time.
It’s good to have a reliable source of monthly residual income in case the unexpected happens and you find yourself unable to generate new sales. Whether its a health issue, being caught on the wrong size of a Google algorithm update or just deciding that you really need a break, the last thing you want to do is scramble to make ends meet each month because you didn’t look to the future when you were determining what type of payout structure would best meet your needs.