What Does It Matter to You If Amazon.com Gets Rid of Thousands of Affiliates?

By John Aberle | Heart Centered Sales and Marketing

Jul 04

(Technorati: AUZ2VQHDJ5SU ) Will Amazon.com’s decision to cancel thousands of Amazon Associates’ accounts because they are in California or in other states that passed Internet sales tax laws affect you? These laws require Internet marketing companies, like Amazon.com, to collect sales tax anywhere they have affiliates. If you use Amazon as one of your revenue streams, you may have gotten the notice that your affiliate account is closed. Even if you are not currently an Amazon affiliate, their action may affect you too.

Breakeven graph

At breakeven, there is neither profit nor loss. http://aberleenterprises.com/wp-content/uploads/2011/07/Breakeven-graph-110704-el.jpg

The reason Amazon’s solution to Internet tax was short-sighted, is that Amazon showed the world that no affiliate will ever be able to trust them again. Amazon.com had choices besides closing the accounts of the associates in those states. Whether they are right or not, there will be repercussions.

Isn’t Amazon.com so big now, having a few angry former affiliates won’t hurt them?

True, it may not affect Amazon for a long, long time as there are many factors involved, like the popularity of the Kindle. If Amazon recently made you a former affiliate, you must now find other companies’ products to market instead of theirs. The question is, “How strongly will Amazon feel the impact of cutting adrift their Associates?” Will the affiliates who leave take enough business away from Amazon.com to affect its breakeven and eventually turn them to a loss? What will be the effect of thousands of sites no longer advertising Amazon for free? If you are an Internet marketer, you know that most have multiple sites so the impact will be greater than just the number of affiliates cut off.

Breakeven

The point that all businesses must be conscious of is that they need to at least breakeven to survive. In simple terms, breakeven is when Sales equal the combination of Costs and Expenses. Thus, at breakeven, you have neither profit nor losses. But, when sales drop below a certain point, fixed expenses will tip the scale so that you are suddenly losing money. Expenses, like distribution centers, corporate offices and utilities, remain roughly the same regardless of sales. Only your costs vary with sales.  Thus, a drop in sales affects your profits because expenses become a larger portion of your business.

How will losing all of those associates promoting Amazon’s site affect its profitability? Will Amazon.com’s cavalier attitude cost them enough business to fall below that breakeven point?

Failure of Major Corporations

Douglas A. McIntyre wrote on Yahoo! Finance, Ten Brands That Will Disappear in 2012.” Among the major companies that will be bought out or just close by the end of next year are Sony Pictures, American Apparel, Sears, Sony Ericsson, MySpace, and Nokia. Even though some of them may survive, look at these names. Most were institutions. What was their breaking point where they racked up losses so big they either had to sell or close shop? What did they do or fail to do to keep loyal customers?

Forbes Online’s 7/01/11 report on Amazon.com, Inc. (NASDAQ: AMZN), lists their net profit as 2.09% This is not a lot of pad against a major downturn in business. We had international banks we thought were too big to fail that are no longer around.

Breakeven Table

The numbers in this breakeven table are for example only of a fictitious $1,000,000 with a 3% net profit. Look at what a 1% change in sales can do.

As a small business, you have so many things that will wipe out 2.09%. You must be very careful to preserve customer loyalty. And customer loyalty is built on trust, which is the very thing Amazon.com lost with their decision to cut off distributors in any state that passed the Internet sales tax law.

What does it matter to amazon.com if they get rid of thousands of affiliates? It matters because those affiliates have advertised and promote Amazon.com’s products – at no cost to Amazon until a sale was made. Now these people will promote someone else’s products instead. They will no longer be giving Amazon free advertising. Other affiliates will leave too when their states’ pass Internet sales tax bills. While new authors for the Kindle will generate sales, they probably won’t make up for the lost affiliate sales. Amazon has lost a level of trust with their former affiliates and probably with thousands more. While Amazon is big enough they may not need you as an affiliate, remember the lessons of once-giants mentioned above. Any company can disappear due to bad decisions. Watch your breakeven. And, most of all, keep your customers loyal by taking care of them.

Building your profits through strong relationships,

John R. Aberle, Aberle Enterprises

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About the Author

My first Kindle eBook, How Relationship Selling Rewards Small Businesses, went live on April 24, 2012. Until June 11t, 2012, it is available at its introductory rate of $.99. I've lived a lifetime of service and spiritual search so it's natural for me to incorporate these attitudes into my work. I believe that selling and marketing are spiritual service when done with a heart-centered, relationship selling approach. All of business success comes down to building strong relationships.