Starting an affiliate website can be a lot of work if you’re producing the kind of high quality content that readers will resonate with. One popular way to monetize such efforts is to add links to affiliate offers within your website’s content. These types of offers can be found on popular affiliate networks like Amazon, Shareasale, and Commission Junction. Before you jump on board with offers that sound amazing—make the considerations that could impact your bottom line first.
Numbers Don’t Lie
When it comes to making money it’s important to have as much data to influence your decision-making processes. Without relying on quantifiable considerations you’re effectively playing things by gut-feeling alone. Not to say that gut-instinct doesn’t have a valuable role in business—just that hard numbers help remove bias and uncertainty. When looking for affiliate offers it’s important to consider options within the framework of three distinct metrics; Click Through Rate (CTR), Conversion Rate, and Commission Rate. To calculate your total referrals you can either rely on affiliate network metrics or estimate based on your own analytics data. There are many more data point by which you can assess the potential of affiliate partners but these offer the most accurate predictability.
Affiliate networks will provide you with conversion rates and commission rates but understanding your own website’s CTR can be a bit more challenging
One prerequisite in understanding how these numbers will affect your website’s revenue is to first have gathered analytics data. Most affiliate networks will provide you with conversion rates and commission rates but understanding your own website’s CTR can be a bit more challenging for beginners. Essentially, you want to setup what is known as Goal Tracking. This is a popular method of defining certain events (usually clicks) within your website analytics account that will help account for actions of interest. For example, if all your affiliate offers are linked to through an internal redirection system using the url convention of http://youdomain.com/affiliate-offer/offer-url-link/ you would set up an event tracking system to monitor for clicks on links containing the /affiliate-offer/ structure. This will help you determine what percentage of your website visitors are clicking on your affiliate offers in your content and give you your Click Through Rate.
Quick Tip: Using internal redirections for affiliate offers is a common way to keep track of your website’s CTR. If you’re using WordPress for your site there are many different plugins which can help you accomplish this task!
Breaking Things Down
Once you have the numbers you need to come up with some quick calculations to assess the earning potential of certain affiliate networks. There are a lot of metrics which affiliate networks provide such as 7 and 30 day earnings per 100 clicks (EPC). These can help provide some insight but keep in mind this is for all affiliates that send traffic and might not be close to what your website would see—either in overestimation or underestimation. The following formula will help you estimate the earnings potential of an affiliate network, or individual affiliate partner:
For sake of discussion let’s work out an example of how this calculation can be made. You have an affiliate product with a sales price of $100 that earns you a 10% commission and has a conversion rate of 5%. Your website receives 1500 visitors per day, with a CTR of 8% for that offer. For this offer, you could expect to have $100 x .10 x 1500 x .08 x .05 = $60 per day in earnings, or $1800/mo.
Know When to Say No
Amazon’s affiliate program is the most-popular affiliate program in the world, and much of that fame can be attributed to their insane conversion rates. For a typical affiliate website with targeted traffic one can expect a 15-20% conversion rate for the traffic sent to Amazon. This varies (wildly in some cases) depending on many factors but is typical in my experience. Other affiliate programs see numbers in the 2-5% range—some even lower. Amazon’s payout structure is a bit complicated to estimate now since they switched to a category-based system. You can get your average commission after you have a few months data to draw from. For the sake of our discussion, let’s say you have an average 5% commission rate. When using an Amazon offer, you make the following earnings:
For an offer for the same product through another affiliate network with a 15% commission and they have a 3.5% conversion rate:
In this scenario, even though you’d be tripling your commission, you’d be cutting your earnings by 30%. This is a great example of why it pays to not let high payouts have an impractical influence over your decision-making process. Sure, a 50% commission may sound like the payout you’ve always dreamed of but it’s not going to get you very far if the merchant’s conversion rate is .5%.
Affiliate networks can help connect your affiliate website with some really great offers. In some instances, you’ll find offers so aligned with your reader’s interests that it’d be foolish not to use them. On other occasions, you’ll likely find the same types of offers from several different networks. Knowing when to say no to higher commission payouts and stick with merchants who have higher conversion rates can help you tighten up your earnings and make your website more profitable month to month.