How do you measure the success of your affiliate program? A common way to gauge your affiliate program’s effectiveness is to review your metrics and develop a few Key Performance Indicators (KPI) tied to your business goals over specific periods. The following article will discuss the difference between metrics and KPI and provide a detailed list of popular metrics to consider when growing and analyzing your affiliate program.
Differences between Metrics and Key Performance Indicators
Metrics are a measurement of your business’s standard processes or business activity and are used to compare and track performance. It might be as simple as the number of website visitors, clicks, or even revenue. A metric consists of a
- Data source (e.g., affiliate software tracking)
- Method of measurement (e.g., sum)
A metric doesn’t necessarily tell you how well your business is performing but as a data point. For example, if you just looked at the number of clicks driven by affiliates each month, it is a metric, but it doesn’t tell you a lot unless you combine it with other data. Many affiliate program management metrics will work on a single affiliate, a segment of affiliates, or all affiliates.
Key performance indicators (KPIs) are strategic and are used to mark essential business goals or objectives. They are measurable and show how effective you are at achieving a target. If you work on a metric to contribute to your business’s success, then it should be considered a KPI. A KPI might be from a single metric or combination of metrics. KPIs should have a:
- data source (e.g., affiliate software)
- method of measurement (e.g., sum)
- tied to a specific target or goal
- measurement frequency (e.g., week, month, quarter, year)
The primary difference between a metric and the KPIs is that the KPIs are usually tied to specific targets or goals and measured across a particular period of time. The metrics are what support the accomplishment of the KPI. Each affiliate program manager will need to define their own measurable KPIs based on their business goals. An example of a KPI might be to use the metric of affiliate signups with a goal to get 100 affiliates over the next six months. How you define your KPIs is essential to their potential effectiveness in using them as a tool for growth and analysis. Many metrics aren’t necessarily crucial to your business goals or success. For example, merely counting affiliates is a bit of a vanity metric. Having 100 new affiliates sign up for a given period is only as good as the affiliates on that list. It doesn’t tell you how successful each of those affiliates is at promoting your business.
For this reason, it is essential to think about each metric and combination of those metrics to determine the right KPIs to measure your goals when trying to grow an affiliate program. Suppose your objective is to increase the percentage of sales revenue from your affiliate program this year. You might call this your Affiliate Sales Dominance KPI. The KPI might be to increase the number of affiliate sales by 20% in Q3. Other valuable KPIs might be to increase your Affiliate Activation rate by 20% in Q2-Q4 or increase monthly active affiliates by 15% in July. Try and create 3-5 KPIs that are a combination of short and long-term objectives.
Below are some common metrics used in affiliate marketing. Fortunately, many affiliate program metrics are reasonably easy to track and calculate. Use one or multiple of these metrics to create your own KPIs.
The number of clicks from affiliates provides some base information about whether affiliates have their links set up and are currently referring traffic to your website. Clicks alone do not define an affiliate’s success but are one metric that can be used with others to gain insights into your affiliate program. Using a ratio of clicks to sales allows you to come up with a conversion rate. If you find you have high clicks but a low conversion rate, it might suggest an affiliate is sending you low-quality traffic.
The total number of sold products or services is a useful metric to understand your overall affiliate program trends. The quantity of sales is useful when looking at both the individual affiliate and groups of affiliates. Sales quantity works for a standard time range, such as a month or year or a specific time range.
Sales ($ volume)
The total number of sales in $ is a straightforward way to show how much revenue is generated by both individual affiliates and your affiliate program in its entirety. Use this metric to compare the percentage of affiliate sales vs. overall sales in your store. Sales volume in $ allows you to understand how much your affiliate program contributes to your revenue. Use this number with expenses to compare the profitability of affiliate orders with orders from other marketing channels.
The conversion rate shows the percentage of people referred by an affiliate who converted to a lead or sale. It measures how successful you are at capturing the lead or sale. If you have 5 out of 100 visitors who converted to a lead, that is a 5% conversion rate. If you have 2 out of 100 who converted to a sale, it is a 2% conversion rate. The conversion rate is one of the most popular KPIs used in e-commerce.
The conversion rate is a measure of the quality of traffic, your ad creatives, or landing page’s effectiveness. Conversion rate as a metric is useful when comparing affiliates, specific campaigns, or your overall program.
Formula: (Conversion rate = # of conversions / # of clicks) x 100
Anytime a customer requires a refund, reflect it in the affiliate’s commissions. You will not want to pay affiliates for any refunded orders. If an affiliate has a high reversal rate on orders they referred, it should be a red flag. It might mean the affiliate is bringing in low-quality traffic or has false advertising on their website.
Earnings per click (EPC)
Calculate affiliate earnings per click by taking the commissions divided by the number of clicks and multiple by 100. This metric tends to be more valuable for the affiliate than the affiliate manager. Still, it might provide insight into the quality of traffic that each affiliate sends to your website.
Formula: EPC = (Commission Earned / Clicks on the link) x 100
% of active affiliates
Understand the activity level of new affiliates. Calculate what % of affiliate traffic and affiliate sales are from recent affiliate sales. The goal with this metric isn’t necessarily to improve this number by removing inactive affiliates. It is just one data point to understand how many affiliates are bringing in your affiliate sales.
Top affiliates and their share of total sales
The Pareto principle applies to affiliates and suggests that roughly 80% of your sales will come from 20% of your affiliates. Use this data to develop benchmarks such as affiliates who have over X sales per month or look at what percent of affiliates generate 80% of your sales.
Segment your affiliates by active, inactive, and potential affiliates. From here, you can develop a specific plan for helping these affiliates grow and be more successful.
Average order value (AOV)
Most likely, your average order value will be the same for your affiliate sales as your sales from other channels. However, you might find that affiliates push lower priced items in your store. Use the AOV while comparing with other marketing channels.
Formula: Revenue ÷ Number of Orders = AOV
The lifetime value of referred customers (LTV)
If you have a SaaS or subscription-based business, lifetime value plays a significant role in your affiliate program’s success. View this guide to calculating SaaS customer LTV.
After reviewing all of the metrics listed above, think about your business goals. There are many ways to combine the data to develop your Key Performance Indicators to measure success in your affiliate program. Whenever possible, take the metrics and add a specific goal over for a specified time period to create actionable targets to grow your affiliate program. For more growth ideas view our tips for growing your affiliate program. What are your favorite affiliate program KPIs? Let us know as a comment below.