ROI is the major performance indicator for most if not all affiliates. The ROI is a major indicator for determining the effectiveness of your affiliate program. Knowing your ROI will help you determine what partners/offers are making you money and can help guide you in making business decisions to improve your profits.
Calculating your ROI can be done using a simple formula:
(Affiliate Marketing Revenue – Affiliate Marketing Costs) / Affiliate Marketing Costs x 100 = ROI
Before applying this formula, you will need to gather some information.
- Select the time span to analyze – Since it can sometimes take a bit of time to get a program mature and off the ground, it is not useful to calculate your ROI for a new program. Select a time span that will have enough data to be statistically significant. Six months is a good time span.
- Get your numbers – Once you have the selected time span. Have the revenue, costs, and gross profit of your affiliate program. This will be needed for the formula above.
- Know your goals – It is not effective to calculate ROI if you do not have a plan for your affiliate network. Of course, your goals are always to increase sales, but you will get more benefit from calculating ROI if you have set goals and benchmarks for yourself and your business.
Once you have the information from your ROI calculations you can understand the value of each affiliate or marketing campaign and determine where you can grow. The strength of your ROI depends a lot on your brand and marketing goals. Typically, a 5:1 ratio is considered good. When your ratio is below 5:1 you can review your current strategy, optimize your approach, or reallocate your budget to the more successful areas.
Your Affiliate manager can always be a resource for advice and guidance on optimizing your business to increase your ROI.