Arbitrage is a complicated financial term that can be boiled down to a fairly simple explanation, “buy low, sell high.” Don’t, however, let this simple definition camouflage the complexities of a classic financial technique that’s found a home amongst affiliates who are looking to get an edge on the competition.
In the affiliate version of arbitrage, web publishers buy PPC traffic at lower price than their CPA pays out and pocket the difference. As an online marketing strategy, it can work pretty well, if you know what you’re getting into.
We recently sat down with Allan Stone, the VP of Business Development at CAP’s parent company, Affiliate Media to find out exactly what arbitrage is and how affiliates can use it to their advantage. Here’s what he had to say.
Stone boils arbitrage down to its core essences saying:
Let’s say that an affiliate gets paid $100 per CPA Player they deliver. They find a good source of traffic that costs them $60 to acquire a player so the affiliates can buy that traffic all day long and it will back into a cost of $60/player and they earn $100/player thus returning them a $40 earnings per player they deliver.
While buying low and selling high sounds simple enough, it’s something that requires a fair amount of research before you dive in. (Remember, if it were easy everyone would be doing it.)
Stone cautions affiliates to approach it with the same risk adverse attitude that their more sophisticated players might use. That’s because arbitrage is a high risk/high reward method.
It’s very risky so make sure that you are delivering traffic to the right partners with the right promotions to capture as many conversions (Revenue) as possible. Be prepared to lose money before finding success.
Besides being challenged to find a partner who can actually deliver qualified traffic gambling affiliates might be challenged to find someone who will work with them at all. Remember, there are still plenty of companies who simply won’t work with the online gambling business, no matter how legal it is.
Besides being deceptively simple, arbitrage is also something that can take some time to really work. So if you’re looking for a quick fix, Stone says you may want to look elsewhere.
There can be quick hits of success through arbitrage but to properly scale its definitely a long term play.
Because it can seem to be a bit complicated, and costly, arbitrage is sometimes overlooked by smaller affiliates, but Stone says that doesn’t have to be the case:
They (smaller affiliates) can buy traffic for their own site then direct that traffic to other offers, this is effectively arbitrage. Also if you find a small niche of traffic that works well it is easy to scale.
Though arbitrage isn’t one of those affiliate marketing strategies you’re going to hear a lot about on industry forums, that doesn’t mean that it’s a new technique. Plenty of super affiliates have been effectively using the technique for years and, according to Allan, it could be adapted to work in today’s social-media heavy web marketing atmosphere.
Arbitrage is basically with PPC affiliates have been doing for years but I think the industry could be moving in that direction for other forms of traffic like display, social media and email.
At the end of the day, arbitrage is a marketing strategy template that can be used effectively, but should not be used recklessly.