Inspired by the comments over at Travel Blogger Buzz I’d like to talk about the sinister world of Cash Back Kick Backs…. I’ll give my view, based upon my understanding of how they work, and open the floor to anyone who would like to share perspective or correct them. Of course, if anyone decides to talk about how I make money I will have to delete that comment and ban your IP 🙂
It is OK to make money
Before diving into this sordid world, we must remember that it is OK to make money. And how you make money does not necessarily make you a bad person. Bad people can make good money in any number of ways. Good people can also make good money using the same compensation models. This challenge is something that I encounter constantly in the Financial Planning world, when talking with planners who posit that commission based financial planning equates to a non fiduciary role. Well lets quash that for starters with the following model:
As you can see, regardless of model, bad people can exploit it for their betterment, and while you can find a lot of good people who are working for the client on the Fee Only side, there can be bad people there too. Likewise, there can be good people, offering fiduciary advice and being compensated by commission.
I draw an exact correlation here between bloggers who push a ton of links to a small client base vs someone like Frequent Miler, who has enough support and respect that people use his links as a method of compensation, without the content being driven by the links.
It is OK to have a site that is driven by affiliate revenue
I may have been guilty of calling people out for this, but in reality it is perfectly OK for a site to have content purely driven for affiliate revenue. It is a commercial venture, and as I just stated it is OK to make money. Even the most respected journalistic institutions, such as The New York Times place restrictions that are related to financial, and political leanings on its writers, and having a job there does not equate to a free pass to say whatever they feel on that day.
Money is a wonderful thing, and so is transparency
What this post has being building up to is that we should not think of money as an evil, nor should we think of the desire to make it as evil. However, transparency, and disclosures are very important, as they allow the reader to evaluate what is happening, and perhaps decide if any exploitation is occurring. If I had it my way I would disclose everything, and my one Achilles heel right now is that Credit Card affiliates won’t let me disclose the commission I earn else they will force me out of the program. There isn’t much I can do about that if I want to keep the links, and I do want to keep them as a means of compensation akin to the Frequent Miler scenario above. So today, let me disclose that they do pay me something. And lets dig into the world of Cash Back Kick Backs.
There is some excitement about abuse of Big Crumbs in the comments over at TBB, and I don’t quite ‘get it’ – here is how I see it:
Signup for Big Crumbs with this link and You will earn X whenever you shop there.
Signup for Big Crumbs with this links and You will earn X whenever you shop there.
X is constant. You lose nothing between the two links. However, if you use the first link you become my ‘first level referral’ and I get a cut of your purchase, when a double commission is offered. This is quite transparent when you see the following:
As you can see, Amex Gift Cards are currently offering Primary Cash Back of 2.45% and referral Cash Back of 0.35%. Let’s go ‘big’ on that and look at someone rocking the DC Broker method of $75,000 per month, that equates to:
- Primary Cash Back $1837.50
- Referral Cash Back $262.50
So in this example, if you sign up for Big Crumbs using my link (and are a heavy hitter) your X will be $1837.50 per month. And I will make $262.50 per month. Not too shabby eh? In fact, an affiliate driven site might be inclined to write a post about that and pop their own link inside it…
Here’s the thing. When I signed up for Big Crumbs I used someone else’s link. And then I though to myself, you know what… my wife shops online MUCH more than I do, why don’t I introduce her so she too can earn such great cash back, and heck, I can get a commission from her!
What many people don’t tell you is that if you go on to refer someone else then effectively you get to keep both the primary commission and the referral commission, should you be paying the bills. Now, here is why I think it is OK to use Big Crumbs, because I used some other guy to sign me up, and then I signed my wife up, and we are able to make:
- Wife: Primary Cash Back
- Me: Referral Cash Back
So I am not really ‘losing anything’ here. However, it is worth noting that the person who does introduce you could possibly earn a recurring income from your purchases. Let’s look at mine:
In conclusion, I do not think that Big Crumbs is a bad thing, but I do think it is good to make people aware of the fact that I can earn a commission from them, and if they so chose, they could ‘reallocate’ that to themselves. If you are one of the people who signed up, I earned an average of a buck from you and I hope you don’t feel that I tricked you, I didn’t see any harm in it, but reading through replies from people on TBB I guess I can see scope for abuse. If you are on my list, just mail me and I will be happy to send you back the money via Amazon Payments.
EDIT – Frequent Miler informs me in the comments that the referral layer is actually two deep, meaning that if my wife buys $75,000 of gift cards:
- She gets $1837.50
- I get $262.50
- The guy who ‘introduced me’ gets $262.50
All in all this is a total rebate of 3.15%, shared out among the three of us. Additionally, we should note that Big Crumbs is not doing this from the kindness of their hearts, they too are taking a slice of the pie. With that in mind it is worth remembering that firms like Big Crumbs have a customer acquisition budget from places like Amex, and some will kick back more. Two of note from Frequent Miler are Lucky Rewards and Barclay’s Reward Boost, both offering a 4x reward!
Ebates offers a flat fee, the numbers are below and speak for themselves. Ebates does not take a recurring commission, it offers an upfront payment as an introduction as per the below. Here’s my introduction link if you haven’t joined, I can’t see it doing any harm other than making me incredibly wealthy and even more obnoxious.
TopCashBack offers $10 to refer a friend.. and no recurring income. Here is my TopCashBack link. I believe that for the payment to be made you have to make a purchase too, as you do with Ebates.
OK enough pimping! Let’s look at some dirty stuff
Going back to the start of this article I mentioned how even those on the most innocent and well respected compensation model could abuse the plan. The same can be said for this referral game. For example, if a Blogger could latch on and pull in $262.50 per heavy hitter, they could be inclined to not talk about how much they make from this, and what’s more they could encourage a reader to not do something that was actually in their best interests.
This is how a ‘bad’ Fee Only Planner who was being compensated using an AUM (Assets Under Management) model could be inclined to advise his client to not take money out of assets in order to pay down their mortgage, as it would reduce their annual income, or similarly ‘encourage’ more money to flow into the AUM umbrella rather than elsewhere. The BigCrumbs model doesn’t have to a bad thing, I still don’t think it does harm (especially when disclosed like in this post) but it can be abused by bad people.
For example, they could ‘advise’ people to stick with Big Crumbs, for any number of reasons, but their motivation is to gather the referral commissions. They could offer doubt and confusion towards other models that perhaps might offer a greater level of reader cash back (but no Cash Back Kick Backs for them) and they could sit back and make money from ignorance of this. The worst examples of this behavior take active steps to moderate out reader comments that alert their fellows about what is happening.
We see this with Credit card bonuses, and also in this weird, and sinister world of Cash Back. For bloggers out there remember, it is OK to make money, but try to keep your eye on the real prize, which is being a helpful addition to the community and offering interesting content, which may be compensated. Sometimes it is hard to write post after post and see no income, but if you are in it for the money then how far are you willing to go to make a buck from your fellow man?