ROI (return on investment) is likely the most important metric for just about every CMO. Naturally, the main reason you’d want to measure your ROI is to avoid spending money on marketing efforts that are not generating enough profit.
Today, more than ever, CMOs have to prove the positive financial impact of affiliate marketing in order to keep the program funded.
Measuring Affiliate Marketing ROI
On the one hand, measuring your marketing ROI may not be so straightforward. What if your relationship with that partner was already bringing in revenue?
What if the homepage placement you purchased lasted 10 days, and you averaged $100 per day in revenue both before and after the placement?
If you assume that you would have seen $1,000 in revenue from this publisher without the placement ($100/day x 10 days), then your true ROI for the placement is 100%.
When calculating the ROI for your entire affiliate program, remember that there are several other costs to consider in addition to commissions.
There is most likely a network fee, and costs related to managing your program, whether it’s managed in-house or by an OPM (Outsourced Program Manager).
Did you purchase any paid placements, or pay a fee to get on a publisher’s website?
What about creatives? Do you outsource banner creation?
All these costs need to be factored in to determine the exact ROI of your affiliate program.
Simple Affiliate ROI Formula
(Total Revenue – Total Costs)/Total Costs x 100 = ROI
In its simplest form, if you spent $500 on a homepage placement with a partner, and saw $2,000 in revenue during the campaign, your ROI was 300%.
($2,000 – $500)/$500 x 100 = 300
When Should An Affiliate Program become Profitable?
The answer, however, isn’t as easy as many would like. There are a few things to take into account, such as:
- Are you starting in your busy period, in your down quarter, or somewhere in between?
- How well known is your brand?
- What network or platform are you launching on?
- Are you launching with all the tools your affiliates will need or is this more of a soft launch?
- What is the competitive space like?
- Are your products and services already proven and their demand already demonstrated?
- How long have you been selling products online?
- How long has your site been around and what other channels are you using to sell?
- Are you dedicating resources to this program, such as an in-house affiliate manager or team or an affiliate management agency such as JEBCommerce?
But let’s start with a ballpark figure to help you get started right now. The basic rule is not to expect true performance and profitability before month 6.
Managing an affiliate program takes time, it is resource intensive and relationship based. It takes time to identify partners, contact them, get them excited, get them activated and optimized.
At month 6, if your program isn’t meeting expectations and delivering an acceptable percentage of your online business, either big changes need to be made, you are missing a few key points, you need new affiliates, and/or new tools, or this may just not be a great channel for your company.
Six months provides enough time to alter strategy, recruit affiliates, test promotions, product merchandise strategies, and more.
Can We See Success in Our Affiliate Program before Month 6?
Definitely! Many of the programs JEBCommerce manages produced a healthy percentage of sales or leads by month 3.
By 3 months, you should be able to identify things that are working and things that aren’t and alter your strategy and/or the execution of it accordingly.
If you are around your third month and seeing little to no traction, you or your affiliate management team should be reinforcing or altering your launch strategy.
Programs of unproven companies or products with little brand recognition and companies with no other marketing in other channels, will most likely experience a longer ramp up time as you need to factor in product education and a little brand recognition into the whole process.
Retail programs tend to show results between month 3 and 6. Lead gen can show results right away or, at times, take longer than retail, and business to business programs tend to be more complex and challenging. So some additional time may be necessary.
These aren’t hard and fast rules, but a decent guideline to show you that it does take some time to build a strong and profitable affiliate program. But you should see results, successes, and failures within the first six months and a good affiliate manager will recognize these as you are launching to ensure the quickest success possible.