A good question came to me in the email yesterday:
Is there a certain metric you use to predict revenue potential for a site?
I have a potential client with a blog that gets as many as 75k uniques and close to 200k pageviews per month… He can’t understand that he has tons of great content that people like reading and that it could be monetized.
There are indeed ways to put together a tentative projection of your future affiliate earnings. While the accuracy of these projections will always be highly contingent on a number of program-specific metrics (2 through 5 below), as well as on how exactly you are going to market merchants on your website, there is a number of variables to consider prior to starting out as an affiliate — metrics that will tell you how well your website may do with affiliate marketing. Consider the following five:
- Clickthrough Rate (CTR) — It will be dependent on (a) the targetedness of your traffic, and on (b) the type of linking you’ll be using (banners, text links, product links, etc). Read more about it here.
- EPC, or Earnings per 100 Clicks — This metric tells you what other affiliates are already making on this program, and while it should by no means be your single criteria (because it’s an average calculated across all affiliate activity within the program), it is a good one to analyze. More in my article here.
- Average Order Value (AOV) — Average ticket which is calculated as a sum total of all affiliate-generated orders referred over a given period of time, and then divided by the number of orders.
- Conversion Rate (CR) — The click-to-sale or click-to-lead conversion rate. Analyzing a program-specific CR is easier, especially when it is publicly available to affiliates prior to joining an affiliate program (as is the case with AvantLink-based programs, for example). Analysis of vertical-specific CR is also an option, but won’t be as precise. More on onversion rates here.
- Reversal Rate (RR) — This is the percentage of affiliate-referred transactions that get reversed by the merchant. Unfortunately, in many cases you won’t be able to analyze reversal rates prior to actually joining and experimenting with an affiliate program. Some networks, however (like AvantLink or ShareASale) do provide data on this vital metric even before you sign up with an affiliate program.
Plugging all of the above into the originally described scenario (publisher with some 200,000 pageviews a month), picking a merchant who pays 12% commission (comm) on all sales, presupposing a very close niche match between the affiliate and the merchant, and assuming the following:
- CTR = 1%
- EPC = $60
- AOV = $125
- CR = 5%
- RR = 10%
We arrive at the following calculation:
- Traffic: 200,000 * 1% (CTR) = 2,000
- Sales: 2,000 * 5% (CR) = 100
- Earnings: 100 * $125 (AOV) * 12% (comm) – 10% (RR) = $1,350
To arrive at your personal projected EPC you will want to divide Earnings by Traffic and multiply the result by 100. So:
- $1,350 / 2,000 * 100 = $67.50
Comparing our projected EPC figure to the program’s actual EPC ($60), we see that we are not that far off, and our overall projection must be sufficiently plausible.
Finally, a word of warning: remember that things will differ drastically from merchant to merchant. So, take things easy (especially when there are investments involved) not to fall victim to your own incorrect projections.