Affiliate marketers will agree that KPIs (key performance indicators) are essential in determining the success of an affiliate campaign. Without it, you will also have no way of telling if a program has a high chance of succeeding.
How to Use KPIs
You can use KPIs in two ways: to determine a program’s profitability for marketers and to optimize your program for managers.
For marketers, they need to focus on certain KPIs that indicate profitability. These KPIs are year-over-year growth, percentage of new affiliates and the likes. Some KPIs are misleading. Some people think that KPIs like conversion rate is important. But that is not the case. You’ll find out more about this below.
For affiliate managers, you can choose the KPIs that indicate profitability and optimize that. However, optimization methods can only do so much. Your program should be profitable to begin with if you want to have a better KPI portfolio.
Why Use KPIs
You need KPIs to know if a program is worth promoting. As an affiliate marketer, your time is limited. People cannot expect you to write content, promote on social media, do SEO and write press releases at the same time. With this, you need to focus their energy on programs that will give you the highest return for your time spent.
Fortunately, KPIs allow you to breakdown certain affiliate marketing platforms and methods into variables. With this, you’ll be able to see the relationship between the variables. You will then clearly see if one variable causes another or if one variable affects the other.
How can this help you in the long run? Well, it’s simple.
KPIs will help you determine if an affiliate program is worth promoting. Promoting affiliate programs is not cheap. With affiliate programs having the 3rd largest marketing budget behind PPC and email, it is therefore important to allocate your resources well. In fact, the US affiliate marketing spend has reach as much as $4 billion in 2016 and this is expected to increase at a rate of 17% in the coming years. This goes to show how serious affiliate marketers are in promoting products and services.
Since KPIs can have an impact on budget and profits, a careful study must be done. After all, not all KPIs are important. Some affiliate marketers can be overly obsessed with these indicators that they miss the entire picture. Indicators like conversion rate and earnings per click are not important. Instead, you need to focus on the factors that affects revenue.
Today, I am going to show you the KPIs that you should ignore and the KPIs that you should focus on. Hopefully, this will help you in choosing the right affiliate programs to promote.
KPIs You Must Ignore
Let’s start with the KPIs you must ignore. These KPIs are often found in affiliate directories but they offer no indication of an affiliate program’s success.
Number of affiliates.
An affiliate program may have millions of affiliates but that doesn’t mean that it is making a lot of money.
Money comes from affiliate activity. The more affiliates that actively promote your product, the more sales the program gets.
With this in mind, there is no need to be obsessed with the number of affiliates. Quality is better than quantity. Even if a program has tons of affiliates, the number is meaningless unless each of them is making a sale.
This is the reason why the number of affiliates is never a good indication of the success of an affiliate program. A program with 300 affiliates can do just as well as a program with 10,000.
Percent of active affiliates.
Some affiliate program holders tend to panic when their percentage of active affiliates is so low. They think that it is not a good indication of having a good program. So what they do is they delete inactive affiliates.
Some affiliate program holders simply don’t get it. Some affiliates may not be driving a sale, but they are working on it. So deleting them out of the blue will almost always anger them.
And that’s not all, they will make sure that other affiliates know what you are doing.
It is not that the percent of active affiliates is not important. But optimizing for it is not a good option.
This is the reason why the percent of active affiliates should not be trusted. For all you know, the merchant may just be deleting active affiliates to bring this number up.
Conversion rate is important for online stores and salespages. It indicates the rate at which the page manages to convert a visitor into a buyer.
However, this variable is not to be trusted in the world of affiliate marketing. Why? Well, conversion rates may vary from affiliate to affiliate. A conversion rate for one person may not be the same for the other. With this, it is a useless metric to consider if you are looking at affiliate performance especially if you are going to use it to determine your likelihood of succeeding with the program. .
Earnings per click.
Earnings per click may not be as important as you think it is. Sure, it shows you how much money is made with a certain number of clicks but it is hard to determine where the clicks come from.
Here’s the thing: affiliates use different promotion strategies to promote offers. While some may use a free coupon, others may use content. These methods have different EPCs. So if you promote a coupon site, you cannot use the same EPC for content affiliates. This will mislead affiliates to think that the EPC is high when it is only like that because of the ‘coupon’ offer.
Yet, this is what most affiliate program holders do. With this, it is important to just skip this metric if you are looking at some affiliate programs.
KPIs You Must Focus On
But all is not in vain. There are still some KPIs that can indicates the success of an affiliate program. These are some that I have found.
New affiliates approved.
Yes. You should ignore the total number of affiliates. But you must not ignore the number of new affiliates approved. Why? Well, it is an indication of the demand of the program.
You need more than an overnight success. You cannot promote a product that only sells for a limited time. You need a program that still sells now. And the number of affiliates is a good indication of that.
Affiliate program holders should strive to optimize this by continuing to promote their program. They should always reach out to their existing affiliates and send some recruiting pitches.
Percentage of coupon and content affiliates.
I have told you earlier in the discussion of EPC that the results of content and coupon affiliates are different from each other. Coupon affiliates tend to have a higher EPC but they drive a lower amount of sales. A good percentage is 40% content affiliates. This means that the program is being promoted more on content than on special deals.
Having more content affiliates is good for program holders. Not only will they have a higher chance of getting a sale, but they will also get free backlinks from their content affiliates. This is good for SEO and will generally get their site ranked higher on the search engines.
Percentage of new customers.
How can you know if a certain affiliate program is active? You have to look at the percentage of new customers.
It is not enough to look at the number of new affiliates, you also have to look at the customers. Why? Well, customers indicate the profitability of the website.
Fortunately, affiliate managers can now track this through analytics. There are now some tracking pixels that manage to report new customers. This can be integrated in the cart and backend of the ecommerce site.
Aside from affiliates, affiliate program holders should also actively seek new audiences. If they need to employ more content affiliates, they must do that as this will allow their products to get exposed to more people.
Average order value.
Some brands have multiple products. And these are often sold at different prices. One affiliate may be able to sell lower priced products in huge quantities and this can affect the average order value of the program.
With this, we can say that average order value is a good indication of the profitability of a program. Also, it can give you a clue on which products are selling and which ones are getting ignored.
Affiliate managers can also use this KPI to tweak their system. They must do something to encourage their affiliates to sell their less popular products.
Percentage of affiliate sales versus overall sales.
If you want to know if a certain affiliate program is profitable, you have to look at its percentage of affiliate sales versus overall sales. This will show you where most of the website’s revenue is coming from: affiliates or direct sales.
Ideally, you’ll want a program that derives a significant amount of its sales from affiliates. It doesn’t even need to be that high. 10 to 20% of affiliate sales will do.
Why so low? Well, it seems that larger brands tend to sell their products directly from their site. In fact, the percentage can get smaller if the website is popular. If you’re lucky, you’ll see a website with a 60% percentage of affiliate sales but that’s rare.
You’ll want to promote a program that will last. And how do you know that it will last? The answer is year-over-year growth.
Year-over-year growth will show you the monthly fluctuations in sales.
For example, an online gift shop will have higher sales in certain months. It will usually have higher sales on December, February, May and June. Why? The holidays, of course!
But your goal is not to scrutinize the monthly fluctuations. That is expected given the industry of an online gift shop. But you should compare that month over the previous month. That’s the way to track if there’s growth.
Here are some of the things that you must look out for:
1. Number of Orders – Did the number of orders increased or stayed almost the same? Did it decrease? You’ll want a program that has a steady year-over-year increase
2. Net Sales – While conversion rate is not a good KPI, net monthly sales is a good indication of the average sales of the website. It will also show you what to expect for a particular month.
3. Clicks – While earnings per click is not that important, clicks are important. But I am not talking about just any click. I am talking about real people. There is no use inflating your click count if it will not result to sales.
Year-over-year growth will allow you to see if you are working with a program that has a consistent demand over the years. And not only that, you also get to see its raw earning potential. I think this makes it one of the most important KPIs in the bunch.
Return on Ad Spend (ROAS)
Affiliate marketers spend money to get money. And they do this by spending on advertising.
As I have said earlier, affiliate marketing has the 3rd greatest ad spend online. It is expected to grow at a steady rate of 17% per year.
With this, a greater return on ad spend is needed if you want a successful affiliate marketing campaign. This is the reason why ROAS or return on ad spend is very important. It is a clear indication of the profitability of an affiliate program.
I hope this article managed to teach you about the different types of KPIs available. Hopefully, it had led you away from unimportant KPIs so that you can focus on the important ones. What do you think? How can you implement these KPIs in your program? How will you use it to find programs that you can promote?