Like math? You better learn to.

Which option?

  • Option A

    Votes: 230 24.2%

  • Option B

    Votes: 408 42.9%

  • Option C

    Votes: 122 12.8%

  • Just tell me, I'm too stupid to figure it out.

    Votes: 192 20.2%
  • Total voters
    952
Assignment 3
You are in discussions with an advertiser for a special deal on affiliating their product. The advertiser pays you NET30 (30 days after the commission was registered). This means if you sent leads worth of $ 1000 in commissions one day, you are credited that amount 30 days later. Currently you send leads worth $ 40 000 in commissions every month.

You offer this deal to the advertiser:
"You can decrease my commissions by 1 % if you pay me NET10 from now on."
Under what condition does he accept your offer?



My Answer:

I would assume the advertiser wants the potential to make more money than they're giving up. The 1% is really insignificant here, it's the 20 day difference in payments that affects the outcome. With 40k a month, that comes out to 1,333.33 a day (30 day month). With that daily income, we multiply it by 20 days = 26,667 and take out the 1% commission decrease to get $26,400 dollars you make in 20 days at the current, non-reinvested rate. Beat this and the advertiser should consider.

Taking that 20 day total, you need to show the advertiser that you can reinvest your payments every 10 days to offset the risk they take by fronting the cash to you while they wait for their payment on the backend from customers, transaction cycle times, and processing which could be instant or have a "14 day trial" where they get the value back later than the NET10 you want.

With that, we need a little bit more information about how each side is making the money, how the advertiser is getting paid and on what terms, and what kind of metrics you're getting on your investment as the affiliate, namely the ROI and how the speedy payments can grow past that 26,400 mark in 20 days.

Assuming you get an ROI of say 35%, you're in full swing getting commissions every 10 days on the new terms and you reinvest 100% instead of renting a Lambo for the weekend...

10 x 1,333.33 = 13,333,33 *1.35 = $18,000 (Note: you have two 10 day periods in the difference of payments to grow your return in hopes of surpassing the 30 day value that is already there, this does not count towards it as this is your starting value without the new NET10. In other words, you make this currently and begin to take advantage of NET10 the following week.)

18,000 x 1.35 = $24,300 (day 10 of 30days with NET10...the idea behind this is that you have added some value to the daily investments that, when compared with the previous 30 day total, will be of more value to the advertiser. That and it provides a certain % cushion against the risk the advertiser faces of non-payment and thus in fronting you the money; based on the assumptions here).

24,300 * 1.35 = $32,805 at day 30 vs the $26,400. With these calculations and assumptions, the benefit to the advertiser would be that when you reinvest your earnings, you create an additional 6,405 in revenues on top of the $26,400 or 24.5% return. If the advertiser has a greater risk than 24.5% of providing a faster payment (ie chargebacks and cancellations or just non-payments), it may not be a good idea based on the numbers. however, if their risk is that bad already they probably have a poor product.

I hope that made sense. :uhoh2:
 


Assignment 4
You have a website that is budgeted to generate $ 27 000 in revenues pr year the next 4 years.
Webhost costs are $ 1 000 pr year. Advertising costs are $ 2 000 pr year.
You outsource the article writing for the website. You will put on 40 articles pr month, 25 of which are 600 words (per article). The rest are 1000 words per article.
You will pay the article writer $4/100 words.

It is expected that you can sell it for $ 25 000 in 4 years.
Someone is offering you $ 50 000 for the website now.
The rate of return is 10 %.
What do you do - sell it now or keep it running and then sell it after 4 years?


Answer:
Fun little problem, good thing I have my financial calculator from college handy...I may be rusty so this could be off, but here it goes.

The key to this problem is to get the NPV of your website when taking into consideration the cash flows of each year and the cash flow in year 4 + sale price. If it's more than 50,000 you hold it and sell. If it isn't, take the money and run. Assumptions here are that there are no other investments that the 50,000 now can be put into and that we just use the data here.

This can definitely be done in Excel, but I had my calculator handy so bear with me.

$27,000 RevenueYr
- (3,000) Upkeep
- (14,400) Content -(25x600)+(15x1000)= 30,000 Words/100 x $4 =$1200/month
______________
$9,600 profit a year.

note: Multiplying $9,600 by 4 and adding the $25,000 doesn't give you the real value. The rate of return is going to be used to calculate the time value of money and take into account inflation, buying power, and the actual return.

I: 10%
CF1: 9600
CF2: 9600
CF3: 9600
CF4: 9600 + 25000
NPV: $57,106.04

So with my calculations, hoping they're right, you're better off holding it. Personally, I'd take the $50,000 and find a better investment like PPC, however the numbers as they are setup say holding is more profitable. If this is right, I guess I can almost justify spending over 100k for college :eek7:
 
Assignment 5
You are an email marketer. You have observed the following:
Total emails sent pr week for 10 weeks: 49872, 52034, 47322, 56999, 48932, 43456, 53104, 50888, 45032, 49999
Total costs pr week for 10 weeks (the same weeks as above): 1500, 1743, 1388, 1844, 1599, 1333, 1900, 1011, 1803, 1800
You want to estimate a function for your total costs for a week as a function of sent emails that week. What is it?


Answer:

This can be done simply by finding the average of each week's cost per email and then average the 10 weeks for an overall average.

I used Excel to get an average cost/email of $0.0320.

# of Emails * $.0320 = Cost/Week
 
bigsherm:

Assignment 3: God, you make it complicated rofl :D

  • The 1 % _is_ very important
  • The $ 40 000 are irrelevant
  • The advertiser has to find the effective interest rate. Find it!
  • The advertiser compares this rate to ... and chooses to ... if ...


Assignment 4: VERY good! Everything is correct except for the NPV (and thus the end-answer). Maybe you pressed something wrong on your financial calculator.

In pure mathematics: NPV = 9600/1.10 + 9600/1.10^2 + 9600/1.10^3 + (9600 + 25000)/1.10^4 ~= 47 506

NPV < 50 000 --> thus, sell now!

Despite of that, very good and explaining answer. :)

Assignment 5:
Good :)

Alternatively, you can use regression and you will find:
C = 262,79 + 0,02671 * x
Where C = total costs, x = no. of sent emails.
 
Yeah, haven't used this calculator for a while now, looks like the interest was compounded 12 times a year as opposed to the 1 in the calculator. Oops.

As for #3, I'm going to have to look at that one, the answer didn't come right to mind like the others. Obviously.

Regression, I remember that from my stats classes...teacher was batshit crazy, maybe that's why I don't like it.

Thanks for the input.
 
That regression is funky, to say the least.

The regression coefficient (r) is .3699606367, so we have a weak correlation.

The coefficient of determination (r^2) is .1368708727, so 13.687% of the variation in y is accounted for by the regression of x on y, y being costs per week, and x being emails sent per week.

Needless to say, stats is only 10% running the numbers, the other 90% lies just below the surface.
 
I didn't check the r^2, but if those numbers are true, everything you say is correct. :)
 
Great stuff. Will make use of the spreadsheet and calculator when analyzing offers. That's one less mistake (out of one thousand) that I'll make on my noob journey.

+rep
 
Hi,

Well, I just did what Henry Ford used to do. Rather than waste time working it ok, I just got someone more intelligent than me to tell me the answer.... :evil_laughter:
 
Knukk,


Can you give the breakdown of question 3? I'm curious as to what you're searching for here as I have no ideas other than calculating interest over extra 20 days in holding vs. increase in revenue with faster payment turnaround....if that is the case, I'll give it hell again.
 
Yeah, haven't used this calculator for a while now, looks like the interest was compounded 12 times a year as opposed to the 1 in the calculator. Oops.

As for #3, I'm going to have to look at that one, the answer didn't come right to mind like the others. Obviously.

Regression, I remember that from my stats classes...teacher was batshit crazy, maybe that's why I don't like it.

Thanks for the input.
 
Just thought I'd share a very simple script. You set your estimated cpc, budget, payout and then the script calculates how many conversions you need to break even. You need to have PHP installed on your server, if you do, just upload it and the rest is pretty self explanatory.

PHP: 
<?php

if ($_POST['cpc'] && $_POST['budget'] && $_POST['payout']) {

       $cpc = $_POST['cpc'];
       $budget = $_POST['budget'];
       $payout = $_POST['payout'];

       $clicks = $budget/$cpc;
       $conversionsTBE = $budget/$payout;
       $conversionRateTBE = $conversionsTBE/$clicks;
       $conversionRateTBE = $conversionRateTBE*100;

       $data = "You can afford apr. ".floor($clicks)." clicks. You need apr. ".floor($conversionsTBE)." converions to break even, a conversion rate of <b>".substr($conversionRateTBE, 0,3)."%</b><br />";

}

?>

<form method="post">
Esitmated CPC <input type="text" name="cpc" />
Your Budget <input type="text" name="budget" />
Offer Payout <input type="text" name="payout" />
<input type="submit" name="submit" value="Calculate!" />
</form>

<?php if ($data) { echo '<div style="border: 1px solid #000; background: green; padding: 5px; color: #fff;">'.$data.'</div>'; } 
?>
 
  • Like
Reactions: tygoldberg
bigsherm said:
Knukk,


Can you give the breakdown of question 3? I'm curious as to what you're searching for here as I have no ideas other than calculating interest over extra 20 days in holding vs. increase in revenue with faster payment turnaround....if that is the case, I'll give it hell again.
Click to expand...
Here is my solution to it:
The idea is that by you offering the advertiser a 1 % decrease on their payouts to you by paying you in 10 days instead of 30 days, they can measure an effective interest rate.

The formula for the effective interest rate is: (1 + per cent factor)^(days pr year / (previous payment time - new payment time)) - 1

Effective interest rate: (1+0,01)^(365 / (30 - 10)) - 1 = 0,1991 = 19,91 %. If the advertiser can finance himself at a cheaper rate, he will accept it.
 
Oh, before I go, here's the spreadsheet I have open 24/7 for quick calculations. If you're not using something like this, take mine, or build your own. If you don't understand it at first, just look at the calculations I'm using. The colored cells are the only ones you need to change.

View attachment 675[/QUOTE]

Thanks for the spreadsheet it will be a great help!!! Also good to find a link where I do not get DICK ROLLED.
 
Again another thing that makes me feel like a total dumbass..

Thanks for sharing the info and the questions guys. No PPC course or gurus teach this kind of practical/complicated/much needed stuff.

Mike, thanks for the spread sheet.

Can we get some more scenarios?? The cost valuation question for the website was really cool. With a small biz background, i would have jumped on the $50k offer.

Thanks again
 
You must log in or register to reply here.
Top Bottom