Affiliate ROI and ROAS metrics and calculations
If you want to make money as an affiliate by bringing traffic to your website and encouraging visitors to follow potentially lucrative links to your affiliate partners, sooner or later you will need to consider investing some money in advertising and promotions!
Spending a little bit of money at the outset can lead to earning serious commissions, and targeting your advertising and promotions carefully will soon pay for itself, and allow you to boost your profits for the long term too.
However, in order to make the most of your paid ads and achieve the best possible return on your investment and spending, you have to be able to calculate your ROI-or return on investment. This helps to tell you what is paying off and what is simply costing you money, and allows you to fine-tune your paid promotions and how you use your advertising budget to get the most back.
If you are struggling to understand affiliate ROI or want to know how to calculate ROAS-and work out which metric will be the most useful for you read on to learn everything you need to know about ROI affiliate marketing and how to calculate ROI formulas.
What is ROI affiliate marketing, and what is ROAS?
ROI stands for “return on investment,” and it is represented as a calculation of how much you earn from something compared to how much you spend on something. ROI affiliate marketing means using return on investment calculations to work out which products, promotions or links perform the best for you, which enables you to look at different campaigns and products side by side to determine which is the most profitable.
ROAS, on the other hand, stands for “return on advertising spending,” and whilst this might seem like the same thing-it is actually rather different. ROI takes into account how much you have earned after the expenses incurred-the cost you paid for the promotion-are taken off, expressed as a monetary percentage-whilst ROAS provides a ratio calculated from the difference between the amount you spent and the amount you earnt.
Both of these calculations can provide valuable information for you in context, as long as you use them and calculate them correctly.
Next, we will look at how to work out ROI percentages and give some marketing ROI examples, followed by information on how to calculate ROAS and how to use this data.
How do you calculate ROI formulas?
To calculate affiliate ROI, you first need to have the figures for how much you have spent on the campaign, link or promotion you are looking at for the time period in question, and how much you earned from it within the same timescale.
First of all, subtract the total figure for the cost or spend from the total profit or yield, and then divide this figure by the cost or spend itself, to give you a final figure.
Here is a simple example to get ROI figures.
Say you spent $10 on a promotion and made $20 back from it. Deduct the $10 spent from the $20 income, which leaves $10; then, divide the $10 by the amount you spent ($10), which gives you $1, or a return of $1 for every $1 you spent, or a 100% return.
If you had made $2 for every $1 spent, this would be a 200% return, which demonstrates how to work out ROI percentages.
How do you calculate ROAS?
To calculate affiliate ROAS, take the total earned from the campaign and divide it by the amount you spent to give a ratio or percentage.
Here is a simple affiliate marketing ROAS example.
Say you spent $20 on a campaign and made $100 back from it. Divide the 100 income from the 20 spend, which gives you 5, or a ROAS ratio of 5:1, or 500%.
This means that for every dollar you spent on the campaign, you got $5 back.
How to use ROI and ROAS calculations for affiliate marketing
In order to make money as an affiliate, you have to be able to measure your success and work out what campaigns, promotions or partnerships are working for you and which are failing.
Knowing this is useful for many reasons-it helps to ensure that you don’t waste time and money on things that aren’t making a profit, and lets you concentrate on growth areas-or alternatively, it shows you when something isn’t doing well and may need more work.
Here are some of the best ways to use ROI and ROAS calculations as an affiliate.
• Work out what type of paid advertising platforms are paying off for you, and returning the best yield on your investment. For instance, say you have two types of paid ads-one of which only costs $1 each while another costs $2. You might think it is best to stick with the cheaper option, and free up more budget-but if your $1 ads produce a ROI of 50% while your $2 ads produce 75%, the $2 is more effective and economical.
• Compare different affiliate partners side by side, to work out which one yields the most income compared to their spend-for instance, if you spend $100 on promoting each of two schemes and one produces an ROI of 100% while the second produces 110%, your $100 budget performs best and works hardest with the second scheme, so you may want to concentrate on promoting that one.
• Calculating ROI formulas and ROAS can help you to work out which of several affiliate commission models you are using is the most profitable too.
For instance, say one pays per click whilst another pays per action. You might have to spend more to win each successful action than you do to win each successful click, but if the ROI per action percentage is higher than the ROI per click, then again, the more challenging model that requires the higher spend will still be more economical and produce the better return.
Ultimately, understanding how ROI and ROAS work for affiliate marketing and how to apply them to work out your profit levels as well as the actual profit will help you to fine-tune your endeavors to maximize your affiliate income, and build upon your success without throwing money away on promotions or schemes that are not paying off.