An affiliate business is one where the parent company signs up individuals who then sell the products on behalf of the company for a commission. Affiliate businesses are some of the easiest businesses to start explaining their popularity among many online businesses. Additionally, profitability is easy to achieve, if the affiliate program is ran properly. The value of such businesses, as is the case for most online businesses, is affected by a number of internal and external factors. We explore affiliate valuation: how much is my affiliate business worth?
How to value an affiliate business
An online affiliate business is usually valued using the level of traffic gained, the revenue generated from sales, the number of affiliates, the number of products sold and the number of commission tiers. It can be valued using the Multipliers method where a multiple — usually identified based on the factors discussed below- is generated and multiplied by the total revenue of the business. The business can also be valued using the level of revenue generated before interest and taxation are paid. Simple and small affiliate businesses can be valued by deducting all business operating expenses from the revenue generated in a specific period of time.
Factors affecting the value of affiliate businesses
The risks involved
An affiliate program with a single product is considered a risky venture since changes in the market trends could wipe off the market for the products. Such a business is likely to have a lower valuation compared to one with multiple products. As the owner of an affiliate business, you ought to diversify your business through incorporation of multiple products.
It is also risky for a business to concentrate in a specific geographical regional, say a town, with respect to affiliate marketing. What if the consumption trends in that town changes? Business are therefore advised to diversify their geographical reach by leveraging more on the use of technology and recruiting affiliates from different regions.
The nature of products
There are products that are in demand throughout the year and there are those that are only in demand during specific seasons. The former provides stability for an affiliate program. A business that deals with seasonal products is likely to have a lower valuation. Those that stock a combination of all year round and seasonal products are the most valuable affiliate business.
Search engine optimization
Being an online business, an affiliate program needs to be search engine optimized in order to attract a high level of traffic. This is usually achieved through the use of various keywords depending on the products stocked by the business.
Organic traffic
Affiliate businesses that can generate organic traffic consistently have a higher valuation. Organic traffic is achieved through referrals from existing clients. It is therefore a great idea to ensure that your business gives the best incentives to the clients such that they continuously generate organic traffic.
Affiliate businesses need to be valued often in order to gauge growth. The information can also be used to come up with strategic plans that can be used to steer further growth. If you do not have the skills to value your affiliate business personally, you can work closely with a valuation business to come up with an accurate valuation. Such a business can also assist you in identifying the risk factors that you could eliminate for further expansion of your business.
