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Measuring ROI on affiliate advertising

Posted by MoneyNet Staff on July 6, 2017

Measuring ROI on affiliate advertising 

Affiliate advertising, the art of promoting another business’ product or service on your website for a specific commission, can be a well-paid affair if done properly. By properly, we mean sifting through several strategies and choosing the ones that work as not all of them do. Who knew, right? We do and we’ll use this post to address the issue of measuring your return on investment (ROI) in order to determine the performance of your campaign(s). Affiliate advertising is almost solely measured by performance and on its own, ROI is one of the key indicators of either the success or failure of the performance of your affiliate efforts. Analyzing your ROI numbers is vital to the cause of having a better understanding of the do’s and don’t’s so we’ll use this opportunity to see how you can measure ROI, as well as what to do to improve it. One ROI for measurement, coming right up.

Measuring affiliate advertising ROI

Let’s get straight to the point. ROI is the general amount of money you make in return on the initial investment. When it comes to measuring it on affiliate advertising, things are kept relatively simple. ROI is typically specified as either a percentage (as you will see further below) or a ratio (which you will not see further below). For a successful measurement, you need two bits of information:

  • gross/net profit
  • cost of investment

Once you have the necessary data, the ROI formula looks like this:

ROI = (gross profit/cost of investment) x 100

To make it more clear, let’s implement this in a practical example. Say you decide to invest a nice, round figure (we simply love those) of $100 to advertise your CPA offer for two weeks. Once the campaign ends, you see $125 dollars as the final outcome. That means that the net profit from your investment is $25 as it took you $100 dollars to get there. So, the actual equation looks like this:

How to calculate and measure R.O.I chart

ROI = (25/100) x 100 = 25%

Thus, the campaign had a 25% ROI. That figure is important as it gives you a preview of the overall effectiveness of your campaigns. That way, you can determine if you are making the most out of them or if they could use a bit of tweaking. ROI is also useful for comparing it to other your other affiliate campaigns, as well as identifying trends over a given period within the same campaign. The calculation above is a simplified version of ROI that puts focus on direct costs, such as paid traffic, as in our case.

Goal-oriented ROI

Notice how we chose CPA as our example? That’s just one of the many goals your campaign can have. In essence, how your ROI will look like depends on a good deal on your objective. Naturally, the first association that comes to mind are sales (the financial aspect, if you will) but there are also many other factors in the affiliate marketing that can drive sales. For instance, if you are representing a company that is trying to establish itself in a new market, visibility is an important aspect, perhaps even more so than sales at the initial stage as it will put their name on the map and ultimately lead to sales in the future. Other businesses will maybe try to change their image or reshape it to a more targeted audience. Those businesses will opt to measure ROI through positive engagement, meaning all those likes, comments, and shares are a valuable metric used to measure long-term return on investment. Depending on the affiliate program, ROI can be measured based on different goals.

Optimizing your ROI

Not every campaign yields the success you desire so it’s very important to evaluate and analyze every campaign that isn’t providing the return you want. Your primary focus should be your target audience and your content. Why those two, you ask? Because the product or service you are promoting must match the interests and demands of your target audience, otherwise, they simply won’t find much use in your campaigns. The content part is what entangles them to your website in the first place and it must be engaging and entertaining for maximum conversion. Your affiliate link should only supplement the content you create, not make it a hard sell by either being generic or flooded with affiliate links.

cut down affiliate costs

Optimizing your ROI requires lots of testing to see what works and not. As an example, you may test different traffic sources to see how offers convert of different platforms or test different ad copies in order to find out which of the variants in your ad performs the best when compared to multiple versions. When all's said and done, the goal is to optimize your investment to bring you most income. Thus, it’s recommended to check on the ROI of affiliate advertising efforts on a regular basis (weekly, bi-weekly or custom-defined period). That way, your content, strategy and campaign goals can be effectively adjusted or redefined over time for the maximum pay-off

Conclusion

The whole point of ROI is to validate your success, as well as to rectify underperforming elements and use it as a learning curve to improve and maintain success in the long run. Your ROI should never stop growing and you’d be wise to remember that. It’s an ongoing process of defining, measuring and evaluating which becomes routine once you set it. While calculating ROI is fairly easy when focused on the financial side of it, it can take a more in-depth effort, depending on the goal of the campaign. 

Look at it this way - your ROI is an investment of its own as it leads to identifying the most important factors that lead to sales or conversions. From there on, you make your way to determining what platforms and tools will allow you to best convey your campaign message and finally, measure the return you are getting from your spending and overall effort. Sounds good, right?

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cut down affiliate costs

 

Topics: affilate, affilate tips