As the world becomes a smaller place through advancements in communication technology, affiliate marketing continues to grow on an international scale. Many of the world’s leading affiliate networks have taken their businesses to the global market, building relationships with advertisers and affiliates/publishers around the globe. As you might guess, there are a few challenges with operating an international affiliate business like this, but the most concerning of those is perhaps the currency exchange.
How Exchange Rates Impact Your Bottom Line.
The crazy thing is that even a couple large affiliate networks we’ve worked with don’t seem to realize the magnitude of mishandling currency exchange. Between receiving payments from advertisers and paying affiliates, there is a huge margin of error through exchange rates that can really cut into your profits.
Let’s walk through an example of a U.S. based affiliate network (“NetworkUSA”). Say they setup their affiliate network to have a default currency of U.S. dollars (“USD”) and pay their affiliates in USD. Let’s also say that NetworkUSA is marketing an offer called “Green Card” from an advertiser in Europe that pays €5,00 (“EUR”) for each conversion.
NetworkUSA loads the new Green Card offer into their affiliate network, and since the exchange rate is currently €1,00 Euro to $1.30 USD, they convert the €5,00 of revenue the advertiser is paying them to $6.50. NetworkUSA then sets the offer payout to $3.25, theoretically leaving them $3.25 in profit (or €2,50 with the current rate). They figure since they pay affiliates in Euros they can just convert the amount the advertiser pays them to Euros.
Let’s fast forward thirty days and say that NetworkUSA’s affiliates and publishers have been marketing the Green Card offer for the past month. In that time, their affiliates generated 10,000 conversions worth €50000,00 (or $65,000.00 with the current exchange rate from the beginning of the month). NetworkUSA then generates invoices for those affiliates and pays them a total of $32,500.00.
You would assume that NetworkUSA made $32,500 (50% gross margin), but as you can seen in the screen shot above, exchange rates can really fluctuate. Let’s say the exchange rate has changed and €1 Euro now equals $1.2 USD. The advertiser will still pay NetworkUSA, €50000,00. However, now that the exchange rate has changed, NetworkUSA will only receive $60,000.00 in revenue from the advertiser. Because NetworkUSA already paid their affiliates $32,500, they ended up only making $27,500.00 rather than making the expected $32,500.00. This means they lost $5,000.00 in profit, and all due to currency fluctuation!
To make this situation worse, advertisers do not generally pay networks immediately. It is common practice for advertisers to pay their bills either net 15 or net 30. In our example, another thirty days after NetworkUSA invoices the advertiser, the exchange rate might have changed even more. Perhaps the exchange rate is €1 Euro to $1.00 USD. NetworkUSA receives only $50,000 now. Since they paid their affiliates $32,500.00, they made only $17,500, losing $15,000 in profit.
Even the smallest changes can mean the difference of thousands of dollars. The more frequently your international advertisers pay you, the better (lessening the fluctuation). You can also negotiate with advertisers to pay on your own numbers instead of the advertiser’s or agree to a specific exchange rate with them.
Ultimately, you will need to work with your billing department to determine how your company wants to handle currency fluctuations. In some cases, international networks decide not to use multiple currencies at all (for the sake of simplicity). It is up to the financial department or network owner to weigh the pros and cons of dealing with exchange rates and put the most profitable invoicing plan in place.
In order to run an international network with offers in different currencies, you will need to make sure your affiliate tracking software can calculate revenue and payouts so that invoices are generated for each offer/campaign by currency. Unlike most affiliate software, HasOffers does provide the flexibility to manage multiple currencies in this way, enabling you to take exchange rates into account appropriately. So make sure you don’t lose out on huge profit margins. Make a plan and start generating invoices to reflect actual affiliate earnings and appropriate advertiser costs regardless of the offer currency.
A digital marketer by background, Peter is the former CEO of TUNE, the enterprise platform for partner marketing. In 2018, he sold TUNE’s mobile measurement product to Branch, unifying measurement and user experience. He led TUNE’s efforts to bring better management technology and automation to marketing partnerships, across affiliates, influencers, networks, and business development relationships. Follow @peterhamilton