Affiliate marketing has been gaining traction over the last several years, largely because it is an old-school strategy for a new-media darling: influencer marketing. Influencers are happy to get paid to promote others’ products through their own posts, stories, live streams, and other content and media assets. According to Statista, affiliate marketing spending in the U.S. alone is expected to reach $8.2 billion by 2022. However, selecting the right KPIs (key performance indicators) to measure the effectiveness of affiliate or influencer marketing campaigns can be tricky.
KPIs should not bring anxiety or redundancy. Instead, they should track what will be of interest to marketing leadership and will tell the team what’s working and what isn’t. Social media marketing has its own myriad set of KPIs. So what metrics should marketers consider when measuring the effectiveness of their affiliate programs that largely live inside social media and other digital channels?
Let’s have a look at five KPIs that provide the best insights for affiliate marketing programs.
1. Website Traffic From Affiliates
This is a great top-level metric — understanding the sources driving traffic to your website, as displayed in Google Analytics, is still a mainstay for measuring the strength of campaigns, whether affiliate or otherwise.
To better understand the traffic that affiliates can bring, it’s important to understand where and how your website traffic originates. Then, once you begin working with affiliates, you are in a position to observe and understand any changes.
Website traffic can give you clues as to what is broken in your affiliate funnel. Sure, sales are the ultimate KPI, but if website, landing-page, or app traffic from affiliates has dropped or even tapered, it’s time to reevaluate and recharge your affiliate marketing efforts, including increasing the incentives or commissions.
The easiest way to track the individual performance of affiliates is to assign each a unique URL or discount code that they can use when promoting your websites, products, or services. Affiliate management software can help you manage all of these unique URLs and codes and can provide visibility into how many clicks or discount codes have been used. In this way, you can measure affiliate performance.
2. Lifetime Value of Customers Sourced by Affiliates
Lifetime value (LTV) is a prediction of the net profit that each customer sourced by an affiliate will bring to your organization over the entire customer relationship.
Measuring LTV for affiliates can be tricky. Some companies and products cannot measure the “lifetime” of a customer, because buying habits are sporadic. Further, sometimes a customer buys repeatedly but the length of the relationship is difficult to measure. An example of this might be a shopper who makes multiple purchases from a specialty online retailer around the holidays but only visits a handful of times during the year.
The formula to calculate LTV for customers referred by affiliates is:
(Average revenue per referred user/Churn rate) × Profit Margin
Setting up to measure LTV for affiliate marketing may take a while, but once this KPI is up and running, it can provide deep insights into the longer-term value that influencers deliver to your campaigns and your bottom line.
3. Lifetime Value of Customers Sourced by Affiliates
While there are platforms that allow you to manage thousands of affiliates at once via a single dashboard view, it’s better to manage a smaller, higher-performing group than thousands who bring in only a handful of sales each per year.
Why is a smaller group preferred? The larger the organization and the larger the army of affiliates, the more time-consuming the recruiting, training, and communications. Affiliates need support, product training, questions answered, and the like, and enterprise marketing software cannot handle this on its own. Having too many underperforming affiliates is a drag on resources.
Study affiliate activity to uncover more information about the quality of your affiliates. This can be done over a particular time frame or on a campaign-by-campaign basis. If only a small percentage of your affiliates are active, it’s time to reevaluate your affiliate training, engagement, and even recruitment strategy.
The formula to calculate active affiliates is as follows:
Active affiliates/Total affiliates
4. Incremental Revenue From Affiliates
Incremental revenue measures the contribution of marketing to sales. It is the increase in sales resulting from advertising and other marketing campaign efforts. Incremental revenue from affiliates is the revenue delivered from new customers that have been referred by affiliates.
This revenue figure demonstrates the overall impact of your organization’s affiliate program on the business. To compare how affiliate and influencer marketing stack up against other marketing channels and campaign investments, you can place this incremental revenue figure from affiliates side by side with incremental revenue captured from other channels, such as PPC, content, and social.
The formula to calculate incremental revenue from affiliates is:
Revenue from affiliates/Total revenue from other marketing channels
5. Long-Term Affiliates and Contribution Margin
Marketers agree that the most important value creation occurs when a one-time customer becomes a repeat customer.
In terms of affiliate marketing, the strategy is the same: You want to convert your one-shot deals or “one-hit wonders” into affiliates who make recurring sales. The more affiliates you convert to repeat sellers, the more effective your marketing efforts (and most likely, the higher your sales and profitability).
To calculate contribution margin, subtract any costs related to recruiting, training, and managing an affiliate from that affiliate’s average sales:
Average sales for the affiliate − Costs to recruit, train, and manage the affiliate
KPIs help you measure the effectiveness of your marketing programs, including those related to affiliates and influencers. Sales are an obvious metric, but other affiliate KPIs go deeper to help you understand what’s working and what’s not.
By focusing on the right KPIs, you can make your campaigns more successful and drive long-term growth in your organization.
Discover how affiliate marketing can increase your sales today.