Understanding Your Metrics
June 6th, 2008 by 
Amit
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:
- 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.
- 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?
affiliate metrics cost per conversion earnings per click net earnings per click ppc metrics
Posted in affiliate marketing | 
You really were an Engineer at MIT weren’t you? Interesting formula does this have any relationship to theoretical physics also? =) Is there software out there that can do all this and graph it all out?
…no wonder you got a PhD in Physics!
thanks i never knew what roi stand for
Good stuff as always. Can you tell us what conversion/keyword tracking software you are using?
Xtreme Conversions, Jeremy palmer’s Optimize My Site, something else?
Thanks,
John P
The more data the better.. it is key an affiliate marketer has to be a promoter and a data sorter
if your great at both you can do affiliate marketing.
That’s awesome for you that you’re making 100% ROI and that you can take a vacation for a month without worrying about anything, but speaking as someone who has been making several thousand dollars a day for the last 3 years on anywhere from 10% to 30% margins I can tell you that I’m about as far as you can get from a day trader. Over the last 3 years I have lost money in a single day only about 10 times or so. 10 times in 3 years is less than 1% of the time. I’d like to see a day trader do that. My consistent volume gives me lots of advantages not the least of which is a ton of credit card reward points.
Amit,
I’m not looking closely at my metrics. Maybe I should. Part of the reason is my campaign is been constantly generating 80%-110% ROI for a month now. As a starter I’m happy with anything over 50% ROI. I think 10%-20% ROI is just not worth the time.
Gagan
Wow, Dr. Amit Mehta…..really love this post! I trully love this side of affiliate marketing! Heap thanks to you!!!
Bravo, Amit! Now this is one meaty post… Would love more just like this…how about Metrics part 2?
- Dave
What??
John P : I prefer Google Conversion Tracking, if the merchant does not allow that Optimize My Site or xtreme conversions will work as well.
So, how do you track conversions if you don’t have access to the final/success pages? For instance, if you’re using the Ebay affilaite program, how do you know when a sale was made?
Nice post Amit. Sounds like you are enjoying Florida.
You generally optimize for CTR on your ads though as Google will reward you with a better quality score, etc eh ?