Calculating affiliate marketing profits can be challenging, and when you start monitoring performance marketing, all the data seems to be daunting. It’s hard to know what it all means and what you’re supposed to concentrate on.
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However, this data is the secret to making money online and optimizing affiliate marketing campaigns. Let’s find out how you can use these magic numbers to increase profits dramatically.
Many marketers are not sure if affiliate marketing is worth investing in. Recruiting an affiliate program manager, paying commissions to publishers, and providing customer discounts. It may well be the case that the affiliate program is not suitable for your company. How can you know?
This simple ROI calculation is one of the marketing tools you can use to help you make this critical, business-changing decision. What do you need to take into account?
This is the average order size compounded by the number of sales that the average customer expects you to make throughout their lifetime. For example, if you sell luxury boats, you might expect a customer to make one purchase from you and never buy it again. On the other hand, if you own an online shoe store, your average customer will purchase six pairs of shoes per year for the next 5 years, and that is 30 purchases.
Only YOU know your market and niche and will tell how many purchases you can expect per customer, based on common sense and previous experience. If you sell recurring monthly digital subscriptions, and the customer pays every month, what’s the average customer’s lifespan on your website?
You can use your profit per customer numbers to figure out what commission you should pay for each sale while still retaining marginal profitability. This will also help you bargain with your largest affiliates – you’ll know how much you can afford to pay while staying profitable.
#Orders Commission is Charged On
A typical consumer who makes their first purchase through an affiliate link is likely to make some future purchases through an affiliate link and purchase some of the products directly from you without searching the website for discounts or details.
Much of this depends on the type of goods you offer and how vigorously you re-market your consumers after making their first purchase. A marketer with a solid, segmented, targeted email campaign would be able to receive a large percentage of direct sales and pay zero commissions on those orders.
This is an approximation of a customer’s lifetime value gained via an affiliate link. It’s the “bottom line” after all the costs associated with discounts, commissions, and fees are taken out of the margins.
From this number, you will be able to predict to some extent whether affiliate marketing is a profitable model for your company. If yes, you should consider adding an affiliate marketing software to your website and launch a referral campaign right away!
Now that we know what plays an important part in affiliate marketing ROI calculation let’s see what we can do about it.
Step 1: Plan before you start.
You need to make sure that you plan correctly before the traffic begins to flood.
If you launch a campaign without adequate preparation, you’re going to be reactive. Instead, it would be best if you prepared properly to have an action plan available.
This means taking action, including:
- Evaluation and analysis of affiliate network offer.
- Recording the conditions for the various offers (If you can only run it in one go or certain traffic types).
- Checking ad placements from several traffic sources (where possible).
- Find out what ad styles are suited to the vertical offer you want to run.
- Investigate whether this form of deal works better as a direct link or a landing page.
- Get ideas from other promotional campaigns.
Having data like this will help you set up better campaigns from the start, avoid dumb errors, and have a good strategy on what you can refine and focus on.
Step 2: Search the Traffic Source Options
The easiest campaign optimizations are on the traffic source side, but not all traffic sources provide the same choices. For example, some traffic sources allow you to purchase traffic based on device type (desktop/mobile/tablet) and OS (Android/iOS) so that you can pause traffic that doesn’t convert from either of these options. Other networks can have different choices or restrictions, such as just mobile traffic.
You will want to make sure that you have your custom variables set up in your traffic sources to get all the data they will give you. For example, certain native traffic sources will pass on the type of traffic from (e.g., editorial news, men’s health, gaming) data that Scaleo cannot collect without setting it up on the traffic source side.
Step 3: Wait until you have statistically relevant data
No one is naive enough to assume that if the first visitor converts, that means that every visitor will convert.
However, many affiliates make bad campaign optimization decisions as they are too hasty. Seeing a trend is beginning to appear and take action, but often they need to wait longer.
Your first collection of visitors which have more visitors who respond well to your advertising.
That’s where statistical meaning comes in.
This old school math theory is a guide to statistics and successful marketing. Here’s a basic description of this. If you have a small amount of data that are all different, that’s low-value. If you have a lot of data that’s all tightly clustered together, that’s high-quality.
Start your Affiliate Optimization Campaign
Now you know a basic campaign optimization process, it’s time to put this affiliate marketing tutorial into effect. If you already have a Scaleo account, you can log in and get started. If you’re looking to get started with your affiliate marketing, sign up for our new Entry package. It gives you the key functions you need to run an affiliate marketing campaign.
When you have an account:
- Identify a good deal from inside Scaleo thanks to our detailed campaign analysis.
- Do some research on the bid and what traffic is ideally suited to it.
- Set up the key elements of your campaign. (You can read how this is in our documentation)
- Start the flow of traffic and wait until you have enough info.
- Start with high-level campaign optimizations
- Squeeze each last penny with more granular choices.
ROI, or Return on Investment, is one of the primary measures of your affiliate marketing campaign’s failure. Analyzing the ROI statistics of the campaigns is a must both for traders and affiliates. As a result, you get a better understanding of what works and what doesn’t work. And because it’s all about maximizing your investments in a way that gives you the most money, I recommend that everyone review the ROI of their affiliate marketing activities on a daily (weekly or bi-weekly) basis.
ROI is usually expressed as a percentage or as a ratio. To measure your ROI from any campaign/marketing initiative, you need just two pieces of information: (a) your gross profit and (b) the investment needed to make that profit. Then you go to the following formula:
ROI = (Gross profits – Investment)/Investment * 100
So, for example, if a campaign yielded $100 in gross profit, and it took you $80 to make that profit, your campaign ROI was (100 – 80) – 80 * 100, or 25%. In other words, the initiative had a 25% ROI.