trends

After the Sale

Stewart Tongue
From the affiliate point of view, webmasters are led to believe that what matters most is reaching the point of sale as often as possible and as quickly as possible. While it's true that without a sale no company can earn revenue, for many adult affiliate programs the actual sale is only the starting point of a more complicated and lucrative monetization process.

As overall sales continue to fall on the weakness of the U.S. economy, the proliferation of pirated content, popularity of free tube sites and other factors, aggressive billing maneuvers are quickly becoming something for everyone in this industry to keep an eye on.

Paysite sponsors are in constant competition with each other for traffic from affiliate webmasters: offering higher payouts per sale, frequent bonus days, rewards programs, free promo content and other expensive incentives. To compensate for those costs and for the larger macroeconomic forces affecting conversion ratios overall, sponsors are put into the position of having to maximize the value of every purchase by a surfer, or even in some cases, every attempted purchase by a surfer.

One well-established method of maximizing revenue beyond the sale comes in the form of cross-sells, which allow a surfer to purchase multiple sites at the same time from a single join form. When done in good faith, a cross-sale can actually be a benefit to a site's customers and the affiliate programs alike.

"With the online porn market tightening we see many new opportunities in alternative billing and we have been buying cross sales from many other adult affiliate programs. We see honest cross sells as a solid long-term investment because our retention rates make the buy price a profitable one for everyone involved," said Clement of VideosZ.com

Some other affiliate programs have become more aggressive with cross sells by including "prechecked" selection boxes and making them less likely to be noticed by a buyer. Others include fine print stating much higher renewal prices on prechecked trial joins. Some have gone so far as to create multiple affiliate programs with the purpose of cross-selling memberships from sites on one of their own programs to sites on another of their programs in the hope of doubling the value of a sale. What keeps all of these tactics in check is the constant pressure from billing processors and credit card associations to keep customer chargebacks to a minimum.

The general rule is that a sponsor program must maintain a chargeback ratio below a 2 percent threshold for all sales in order to remain in good standing with billing processors. In simple terms, if a program has 200 sales during a period, they must have no more than four of those buyers getting chargebacks from their credit card companies during that same period of time.

Keep in mind, chargebacks can be requested for any reason and in an economy that is already cooling, the number of chargebacks due to surfers simply wanting to get their money back after they have already enjoyed the product is rising as well.

Many companies in adult online seek to keep their chargeback ratios at acceptable levels by providing a quality product, an honest tour, fair billing practices and meaningful customer support. For example, having an internal support department that liberally allows credits for unhappy customers (even weeks after they have signed up) allows companies to refund small amounts of money before any of those buyers reach the point of requesting a chargeback from their credit card company.

Others are taking a far more aggressive approach to billing instead. Even if you disagree with the philosophy of trying to squeeze revenue from buyers through less honest business practices, the methodology of some crafty and clandestine adult firms is truly dazzling from a purely intellectual perspective.

Tricks and strategies ranging from the simple and elegant to the complicated and innovative are becoming more and more common these days. In writing this article I spoke with many billing companies, sponsor programs and other sources who were a wealth of information but asked not to be named anywhere in this article for fear that they would be calling attention to their own operations.

To give readers an idea of what is going on without giving readers the impression that they should engage in these kinds of activities, it becomes important to see the downside of aggressive billing before considering the potential upside. Of all the people I spoke with regarding the art of adult online billing, none was more knowledgeable than Kimmykim of Virtualfunds.com

"Over the years, the card associations have attempted to be specific in what they consider to be compliance regulations. However, as with any other developing industry, certain companies or operators have occasionally found ways to circumvent the so-called letter of the law when it comes to maintaining compliant operations," said Kimmykim. "Each time Visa or Mastercard identifies a particularly troublesome method of bypassing the rules, they tend to institute fines and terminations for offending merchants, and then create additional rules expressly forbidding (or reserving the right to impose greater violation penalties) certain methods or marketing or billing by all merchants."

When asked about the possibility of avoiding detection, Kimmykim pointed out: "It's not terribly difficult for the card associations to identify problematic merchants, the chargeback and credit ratios become indicative of underlying marketing or billing practices that lead to excessive chargebacks as a percentage of volume, and once the banks or associations begin to analyze certain transaction types, they can rapidly determine patterns that enable them to discover multiple accounts or MIDs, sometimes with different corporate structures, which belong to the same merchant."

In essence, the crafty companies make it harder for "legitimate" adult companies to do business by casting a shadow on the industry as a whole and even if you take significant steps at creating countermeasures, the chance of going completely undetected for a long period of time is rather small. It's important to remember that while there are millions or even billions at stake in the adult online market segment, there are trillions of dollars at stake in the overall credit card processing industry and Visa has no intention of allowing adult companies to harm the inherent trust necessary from buyers to foster sales overall via the Internet.

Still, adult companies have been engaging in aggressive tactics that include using credit card statement descriptors intended to appear similar to other more palatable mainstream companies so consumers are less likely to notice them on their monthly bill. Others have started making back-channel agreements with other site owners to transfer declined transactions with the intent of scoring a sale anyway from a buyer who would otherwise have been scrubbed out.

Some gather email addresses presale for use in other schemes even if the sale is declined. Most interestingly of all, a few have been distorting their true chargeback ratios by purchasing or being bought out by "clean" companies with the purpose of diluting their own sales statistics.

For example, imagine company A did 40 sales during the period and had 10 chargebacks because their site had been doing a lot of things consumers find unacceptable. A 25 percent chargeback ratio would fall clearly outside the parameters of any billing processor guidelines.

If, however, company A were to buy or be bought by Company B, which has a record of 900 sales and one chargeback during the same period, the resulting combined statistics of 940 sales with 11 chargebacks would fall well within the acceptable two percent limits. This is obviously an oversimplified example, but it is a good illustration of the kinds of things aggressive sponsors have been doing to aggregate statistics and skew their sales data.

While sponsor programs continue to pressure their billing processors to relax standards, turn a blind eye and allow creatively procured sales to slip through, the risk to billers who take that approach is severe. As Kimmykim explained, "When the associations discover that an ISO, a ban, or an HR-IPSP have allowed merchants to violate the disclosure and compliance standards, whether stemming from improperly disclosed terms or duplicitous marketing practices, there is the risk, as we have seen many times over the last dozen years, that not just the offending merchants will be terminated, but the bank or IPSP/ISO will be as well."

So while some business owners may focus solely on the sale at hand, there is enormous pressure from above on billing processors to focus instead on making sure that the practices of their clients do not disturb the waters so much as to destroy any chance of smooth sailing for the overall industry and the credit card associations as well.

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