Understanding Your Metrics

This is a bit of a technical post, however, if you’re serious about making big money as a affiliate you need to understand your metrics.

Let’s start with the basics :

Cost/Conv

Now if you’re using Google Conversion Tracking you’ve seen this column. Here’s what it means : Cost per Conversion, it’s the amount you spend (on average) to generate ONE sale.

If for every $10 you spend on clicks you make 1 sale, then your Cost/Conv is $10.

So if your payout is $20, you need a $10 Cost/Conv to generate a 100% ROI

Speaking of ROI…

ROI = Return on Investment = profit/adspend = (Commission – adspend)/adspend

What should your target ROI be? That depends on your goals. Generally the lower your ROI the more you have to monitor your campaign.

My target ROI is 100%. If you’re doubling your money with your ppc affiliate campaigns, you can basically take a one month vacation (if you’d like) without checking your stats and you’d be okay. That’s how I choose to run my business, even if I make LESS net profit.

Now if you’re operating on 20% or 10% margins, believe it or not some affiliate do, then you’re basically a day trader who has to constantly monitor their campaigns.

Profit and Net Earnings per Click

Profit is without question the most important metric in your business. I want to introduce another metric to you that’s also very useful, I call it NEPC = Net Earnings Per Click

NEPC is how much net profit your making per click, as opposed to EPC, which is affiliate commissions per click.

PPC arbitrage is ALL about getting your NEPC positive and then scaling that by buying as much traffic as you can with a positive NEPC.

Here’s how to calculate Profit and NEPC…

First let’s define some variables :

N = Number of Clicks

P = Average Payout for Your Offer

C_r = Conversion Rate

C = Cost

From these we ascertain :

CPC = C/N

Number of Sales = C_r * N

Sales Volume = P * C_r *N

Net Profit = Sales Volume – Cost = N*P*C_r – C

NEPC is just net profit divided by the number of clicks

NEPC = P*C_r – C/N = P*C_r – CPC

Now notice that : EPC = P*C_r

So we also have that :

NEPC = EPC – CPC

Which makes sense!

These formulas are really useful in a lot of different situations:

1. If you have two ads with different conversion rates and different CTR you can use the Profit and/or NEPC formulas to determine which ads is producing the most profit.
2. You can determine which adgroup/keywords in your campaign are producing the most net profit for you, so you know where to focus your energy.

Etc, etc, Etc..

Are YOU monitoring the metrics for your affiliate campaigns?