It is interesting that we do not see much written on affiliate marketing analytics, whereas if there is one industry that relies on analytical data especially heavily it is affiliate marketing.
So, what do you want to measure in your affiliate campaigns?
The answer will depend on what side of the court you’re on. If you are an affiliate involved (or considering involvement) in an affiliate program, you’ll be looking at one set of metrics. If you are an online advertiser who runs an affiliate program (sometimes also referred to as a merchant), your list key performance indicators will actually be different. On this reason, we will look at two sets of KPIs here: a set for affiliates, and a set for merchants.
KPIs for Affiliates/Publishers
As an affiliate marketer, you’ll be constantly analyzing a number of metrics that are not directly connected with the advertisers you promote; but when looking as what’s happening on the advertiser’s/merchant’s website, and in their affiliate program, you’ll want to be comfortable understanding at least the following 3 performance indicators.
Nearly every affiliate network out there (Commission Junction, LinkShare, Google Affiliate Network, ShareASale, etc) displays EPC data, and affiliates must understand how to read it.
EPC deciphers as Earnings per Click. Unfortunately, the very abbreviation is somewhat misleading. In actual reality, EPC figures normally reflect EPHC, or earnings per one hundred clicks sent by affiliates to the merchant’s website. This metric is calculated as an average based on all affiliate traffic and corresponding sales volume sent to a merchant within a specified period of time. In other words, EPC reflects an average affiliate program’s payout per one hundred clicks. Therefore, the formula for calculating EPC in the affiliate marketing context is: EPC = Profit ÷ Clicks × 100.
In the vast majority of cases, you will have access to EPC data prior to joining an affiliate program, and this metric will basically tell you the average per-100-clicks earnings of others affiliates in the program.
2. Conversion Ratio
This extremely important metric is unfortunately not always publically displayed before you join an affiliate program. Some affiliate networks (e.g. AvantLink) will let you see conversion ratio (CR) data prior to signing up with any program, but in most cases you will have to monitor this on your own after you have already started working with a program.
Let’s have a look at an example. Suppose, you are comparing a smaller merchant that sells the same product that Amazon.com does, but since the smaller merchant has direct access to the manufacturer, they can sell it for only three-quarters of Amazon’s price. Amazon’s price is $12, while the smaller merchant’s is only $9. Additionally, the small merchant pays twice as much in affiliate commissions (8% against Amazon’s 4%), and supports longer cookie life (90 days against Amazon’s 24 hours). However, Amazon’s landing pages (with all the reviews, better product images, detailed description, etc) convert at 5%, while the other merchant’s pages convert at 2%. What does it mean for the affiliate?
Traffic sent to smaller merchant:
100 hits * 2% = 2 sales
2 sales * $0.72 (or $9 * 8%) = $1.44
Traffic sent to Amazon:
100 hits * 5% = 5 sales
5 sales * $0.48 (or $12 * 4%) = $2.40
Affiliate program’s conversion ratio is extremely important; and it is also important to understand one other thing: the responsibility for the conversion of affiliate-referred traffic is always a shared one: (i) affiliates should work on referring well-targeted traffic, while (ii) merchants should ensure that their own websites actually convert. I have seen affiliate programs with zero conversion rates, and not because the affiliate-referred traffic wasn’t right! In some cases the merchant’s offer wasn’t competitive, while in others they had major shopping cart problems that prevented safe and speedy checkout… Merchants (I hope you’re reading this part too), when there are no (or low) conversions across different affiliates in one program, look for an internal problem.
3. Reversal Rate
This is another metric that is just as important as the conversion ratio, and unfortunately just as CR it is being way too often hidden from the affiliates’ eyes. Reversal rate essentially tells you what percentage of transactions that affiliates refer to an advertiser get cancelled/voided, and hence the commission gets reversed.
Very few affiliate networks (e.g. ShareASale, AvantLink) give this information out, and this is truly unfortunate. Reversal data really helps you put the above-quoted two metrics in perspective, and get a full understanding of what to expect from an affiliate program. If, for example, one affiliate program is paying a $20/lead, while a competing advertiser is crediting its affiliates $15 for each referred lead, and the former has a 35% reversal rate, while the latter – 0%, you will be much better off partnering with the one who pays $15. The calculation here would be as simple as $20 – 35% = $13.
So, besides looking at such affiliate program information as commissions, cookie life, performance bonuses, payment terms and transaction lock dates, look beyond the descriptive, focusing on such hardcore data as the above-quoted three metrics.
I’d like to end this section with word of caution: never base any decision on any one metric. Always look at the whole picture, as only the sum total of all metrics will give tell you the true story.
KPIs for Advertisers/Merchants
Here I would like to take a look at things from an angle that is not getting much publicity. I’ll look at affiliate program performance through the eyes of a merchant that looks both at his/her affiliate program performance, and also the performance of the program’s manager.
When looking at how well your affiliate program is doing, and especially how well it is managed, I recommend focusing on the following 5 performance indicators:
1. Affiliates Recruited
This is the number of new affiliates recruited into your program.
2. Activity Index
Not to be focused only on KPI #1, you want to also know which of your affiliates are truly active (displaying your links, sending you traffic and conversions). The activity index is calculated as the percentage of affiliates active in the program over a given period of time (one month recommended).
Inactive affiliates need to be motivated to get active. Look at the number of previously stagnant affiliates activated within a given time period. Make it your affiliate program manager’s goal to focus on activating non-producing affiliates. Motivation and activation are just as important as recruitment. Read more about the right ways to handle it at http://bit.ly/AFFmtv
Look at the increase in hits/clicks sent to your website by affiliates. Some also measure the number of impressions of merchant’s creatives/links, but I do not believe this to translate into any kind of valuable performance. While the impressions count may be interpreted as a branding mechanism, there are many other factors that can be tied in with impressions, and when choosing between impressions and clicks, I would recommend measuring the latter.
5. Transaction Volume
Finally, the increase in affiliate-referred sales or leads is your most tangible KPI. When analyzing the sales increase, focus on the monetary figure and new customers referred (by all means, remunerate sales to returning customers, but instituting an additional bonus for new ones is always nice, and keeps affiliates motivated); whereas analyzing leads, look at the numbers and quality of leads.
While some would also like include affiliate program’s conversion ratio (CR) — discussed in detail above — into the list of KPIs according to which an affiliate program manager should be judged. I would argue that frequently CR has very little to do with either affiliate or the program manager’s performance. CR — if defined as the ratio of affiliate-generated qualified actions (sales, leads, etc) to the total number of affiliate-referred visitors to your website — is something that is heavily dependent on the landing pages, the overall usability of the merchant’s website, and the competitiveness of offer. It is for the same reasons that we should not include EPC, AOV (average order value), or any other KPIs that are contingent on factors other than the performance of your affiliates or your affiliate program manager.
Best of luck with your affiliate marketing endeavors, and remember to always measure, test, and improve.