2.2 - The Numberz (Advertisers)
This could run about 40 posts and still not cover all the intricacies of the "Numbers" as a CPA Offer Owner, so I'll start with djshorty's question about chargebacks. For some good background reading, I covered the basic math of starting a CPA offer here, and you should read penguinbc's excellent write-up regarding minimizing CBs starting here.
OK, so in the Numbers category, chargebacks are the biggest external threat to running a CPA offer for any length of time, here's why. All domestic MID providers have to play by the big boy's rules, the big-boys being Visa/Mastercard, and to a lesser degree American Express. Amex is their own brand of harshness, so basically no CPA offers even take Amex anymore (I finally stopped taking it on new signups this year).
The newest rules basically look at two "red flags" for chargebacks, percentage and count. Percentage refers to the magic "1%", once you pass 1%, they start looking at you a lot more closely. Domestic-issued merchant accounts are more strict about this then international merchant accounts. International tend to have much worse rates for the Advertiser and even more add-on fees. so if you are able to stay under/close to 1% (tough) then go domestic whenever possible.
The 2nd of the red flags, Count, is newer. In addition to the 1% rate, Visa/MC have also instituted a "hard-count" tripwire as well. Once you have over 100 chargebacks in a month, regardless of what actual % that equates to, you get some unwelcome attention even if you are well under the 1% rate. you could have a tiny chargeback rate as a percentage of orders, but if you do thousands of orders a month with any kind of CB rate, you are going to pop up on this radar pretty quick
The hard-count serves a slightly different purpose, it was put in place to stop people from being able to "scale" the types of offers/businesses that Visa/MC wanted to crack down on (*cough* most CPA offers*cough). Before, you could have a bunch of different merchant accounts that you would rotate between so that you could artificially dilute your chargeback rate by directing new vs rebill transactions (new signups have a lower chargeback rate than the larger rebill $$ amount), so you'd fill up your "bucket" of more-likely-to-chargeback transactions on one merchant account and then move to the next one until a later month when the CB rate had dropped down. In this way, a merchant could delay their "Day of Reckoning" for many more months, collecting rebills all the while. The hard-count makes a merchant have to get so many more merchant accounts, at a time when the review process is getting stricter, that it becomes unfeasible to keep that many accounts open, especially when getting shut down on just one (called TMF or "Matched") means the rest of the merchant accounts in your name get shut down too. Not any fun when you have dozens of merchant accounts each owing you money for daily batches, and probably each holding some of your money in reserve already.
In many ways, its a giant psychotic game of musical chairs, you are trying to move from merchant account to merchant account, while staying ahead of your CB rate catching up to you from the previous ~3 months worth of transactions, before the music stops. Once the music stops, bad things happen (Offer dies, reserves are lost, affiliates and networks get screwed, girlfriend leaves, dog moves to a shelter, etc).
The problem with chargebacks and how your % rate is calculated, is it lags. Unless you are precisely managing your growth rate month after month, the music is probably going to stop for you eventually, its just a matter of time. Here's why:
Say in Month 1 of your Offer, you sign up 10 free trial signups per day, for a monthly total of 300 "free trial signups". You rebill them on Day 15, so from Day 16 forward, you are going to have the 10 new FT signups, plus an additonal 10 rebill txns from signups during the first half of the month, for a grand total of 450 transactions in Month #1. Now in the first 15 days, chargeback rate is a non-issue (seldom do people chargeback just the FT txn, which is typically $4 or $5, by itself, unless you are really shady, or fraud affs have snuck into your program). Once the $90 or whatever monthly rebill hits the (sometimes) unsuspecting cardholder who thought they were only on the hook for $4 FT amount, that's when the chargebacks hit, and they hit hard.
so, say just 2% of the 150 rebill txns in Month 1 example do a chargeback (3 chargebacks) and just 1 of the FT txns does too, because their kid signed them up or they got cold-feet (happens all the time), so you have 4 chargebacks across 450 txns, for a monthly CB rate of .88%, under the threshold of 1%. Great, No problem, right? Nope, we now continue to Month 2..
Month 2, you scale up slightly and are now signing up 15 new FT signups every day instead of 10, plus you have 10 rebill transactions from the prior 2-week period being charged every day from Day 1-15. In the first 15 days you have 450 transactions.
From Day 16-30, you are getting into the 2nd rebill of the people who signed up in the first 15 days of Month 1 (150 txns), the 1st rebill of the ones who signed up Day 1-15 of Month 2 (225 txns), and the 15 new FT signups for that period as well (225 txns), for total of 600 txns in Month 2, now here is where the math gets rough on you...
To Be Continued....
This could run about 40 posts and still not cover all the intricacies of the "Numbers" as a CPA Offer Owner, so I'll start with djshorty's question about chargebacks. For some good background reading, I covered the basic math of starting a CPA offer here, and you should read penguinbc's excellent write-up regarding minimizing CBs starting here.
OK, so in the Numbers category, chargebacks are the biggest external threat to running a CPA offer for any length of time, here's why. All domestic MID providers have to play by the big boy's rules, the big-boys being Visa/Mastercard, and to a lesser degree American Express. Amex is their own brand of harshness, so basically no CPA offers even take Amex anymore (I finally stopped taking it on new signups this year).
The newest rules basically look at two "red flags" for chargebacks, percentage and count. Percentage refers to the magic "1%", once you pass 1%, they start looking at you a lot more closely. Domestic-issued merchant accounts are more strict about this then international merchant accounts. International tend to have much worse rates for the Advertiser and even more add-on fees. so if you are able to stay under/close to 1% (tough) then go domestic whenever possible.
The 2nd of the red flags, Count, is newer. In addition to the 1% rate, Visa/MC have also instituted a "hard-count" tripwire as well. Once you have over 100 chargebacks in a month, regardless of what actual % that equates to, you get some unwelcome attention even if you are well under the 1% rate. you could have a tiny chargeback rate as a percentage of orders, but if you do thousands of orders a month with any kind of CB rate, you are going to pop up on this radar pretty quick
The hard-count serves a slightly different purpose, it was put in place to stop people from being able to "scale" the types of offers/businesses that Visa/MC wanted to crack down on (*cough* most CPA offers*cough). Before, you could have a bunch of different merchant accounts that you would rotate between so that you could artificially dilute your chargeback rate by directing new vs rebill transactions (new signups have a lower chargeback rate than the larger rebill $$ amount), so you'd fill up your "bucket" of more-likely-to-chargeback transactions on one merchant account and then move to the next one until a later month when the CB rate had dropped down. In this way, a merchant could delay their "Day of Reckoning" for many more months, collecting rebills all the while. The hard-count makes a merchant have to get so many more merchant accounts, at a time when the review process is getting stricter, that it becomes unfeasible to keep that many accounts open, especially when getting shut down on just one (called TMF or "Matched") means the rest of the merchant accounts in your name get shut down too. Not any fun when you have dozens of merchant accounts each owing you money for daily batches, and probably each holding some of your money in reserve already.
In many ways, its a giant psychotic game of musical chairs, you are trying to move from merchant account to merchant account, while staying ahead of your CB rate catching up to you from the previous ~3 months worth of transactions, before the music stops. Once the music stops, bad things happen (Offer dies, reserves are lost, affiliates and networks get screwed, girlfriend leaves, dog moves to a shelter, etc).
The problem with chargebacks and how your % rate is calculated, is it lags. Unless you are precisely managing your growth rate month after month, the music is probably going to stop for you eventually, its just a matter of time. Here's why:
Say in Month 1 of your Offer, you sign up 10 free trial signups per day, for a monthly total of 300 "free trial signups". You rebill them on Day 15, so from Day 16 forward, you are going to have the 10 new FT signups, plus an additonal 10 rebill txns from signups during the first half of the month, for a grand total of 450 transactions in Month #1. Now in the first 15 days, chargeback rate is a non-issue (seldom do people chargeback just the FT txn, which is typically $4 or $5, by itself, unless you are really shady, or fraud affs have snuck into your program). Once the $90 or whatever monthly rebill hits the (sometimes) unsuspecting cardholder who thought they were only on the hook for $4 FT amount, that's when the chargebacks hit, and they hit hard.
so, say just 2% of the 150 rebill txns in Month 1 example do a chargeback (3 chargebacks) and just 1 of the FT txns does too, because their kid signed them up or they got cold-feet (happens all the time), so you have 4 chargebacks across 450 txns, for a monthly CB rate of .88%, under the threshold of 1%. Great, No problem, right? Nope, we now continue to Month 2..
Month 2, you scale up slightly and are now signing up 15 new FT signups every day instead of 10, plus you have 10 rebill transactions from the prior 2-week period being charged every day from Day 1-15. In the first 15 days you have 450 transactions.
From Day 16-30, you are getting into the 2nd rebill of the people who signed up in the first 15 days of Month 1 (150 txns), the 1st rebill of the ones who signed up Day 1-15 of Month 2 (225 txns), and the 15 new FT signups for that period as well (225 txns), for total of 600 txns in Month 2, now here is where the math gets rough on you...
To Be Continued....
