Calculating budget in affiliate marketing
Conducting an advertising campaign involves such “trifles” as calculating budget, profit, CPA, CPL, CPC, eCPC, CPS, CTR, CPM and ROI. There are special formulas that will help you to perform all these calculations, and today we’ll show you how.
CPA (Cost Per Action)
One of the most important indicators in affiliate marketing is price per action. It is calculated using the following formula:
CPA = cost of the ad / number of target actions.
For example, in 3 weeks of running a casino ad you managed to collect 466 deposits. The total budget for the advertising campaign was $2100. Therefore, the cost of one deposit (i.e. one target action) is $4.5.
CPC (Cost Per Click)
CPC is the price per click, that is the indicator of how much you spend on one click user makes on your advertisement. You can find out using the following formula:
CPC = cost of the ad / total number of clicks.
The result is the cost of a click. The indicator is essential for calculating the budget of the entire advertising campaign.
EPC (Earnings Per Click)
EPC (earning per click) – average income from one click. The indicator is calculated as a ratio of net income (profit) form sale of traffic to the number of clicks. As a rule, in affiliate marketing webmasters use the indicator to calculate the income.
EPC = payout of affiliate program / number of clicks.
For example, you received $100 from the affiliate network, whereas you got 1000 clicks. Therefore, your EPC equals $0.1.
CPS (Cost Per Sale)
The abbreviation CPS stands for the cost of sale, meaning that affiliate is paid for attracting customers to the advertiser’s website. Payout is made for the first transaction only – if in the future client decides to make another purchase, affiliate will not receive any fee.
The CPS can be calculated as follows:
CPS = cost of the ad / number of orders.
If you spent $2500 on advertising and received 30 orders, your CPS will be about $83.
CPL (Cost Per Lead)
CPL or the cost of one lead is yet another important indicator in affiliate marketing. Calculated by the formula:
CPL = cost of the ad / number of leads.
For example, if the cost of advertising is $1000, and the number of leads is 400, the cost of one lead will be $2.5.
CPM (Cost Per Mile)
Another important indicator for an advertising campaign is CPM. This term refers to the price per 1000 impressions. The following formula is used:
CPM = cost of the ad / audience reach * 1000.
Reach refers to the estimated number of website visitors who will see the ad. Ad networks may provide approximate reach figures, but these figures are not always accurate. That is why CPM is usually calculated upon completion of the campaign with actual number of impressions, and a bid (maximum rate for impression) is set before the launch.
The calculations are as follows: advertising on a website with 10 000 active subscribers costs $1200. Therefore: $1200 / 10 000 (audience reach) * 1000 (fixed number of impressions) = $120. With this indicator you will be able to optimize advertising expenses by selecting the appropriate advertising platforms and networks.
CTR (Click Through Rate)
CTR is one of the key indicators for an advertising campaign. It shows how often users click on your ad. The calculation is done by the formula:
CTR = number of clicks / number of impressions * 100%.
This percentage will help you assess the quality of the ad campaign and understand whether you target the right audience. It often happens that higher CTR brings cheaper clicks, so you get more impressions.
Ad networks use CTR to generate ads. Average CTR of display advertising on Yandex.Direct and Google Ads is above 10%, but it rarely exceeds 0.4-0.5% for banners.
The definition of profit
Profit is the income from affiliate marketing. This indicator is calculated by subtracting all expenses for the purchase of traffic and use of services from bulk payout of the campaign:
Profit = payout – expenses.
For example, you received 300 applications from the landing page, 100 confirmed ones. The payout for each lead is $15, so total income is $1500. However, you spent $200 in the ad network on push notifications, therefore your profit equals $1300.
Bear in mind that in order to make the right calculations you should add up all the expenses, such as: cost of tracker, spy services etc. You can find out more in our publication on hidden spendings in affiliate marketing.
ROI (Return On Investment)
RIO is calculated as follows:
ROI = (investment income) / total investment * 100%.
There are many online services that will help you to calculate ROI for you campaign. Check out the link.
In general, calculating the budget in affiliate marketing is a fairly simple exercise, which is unlikely to take more than 5 minutes. These figures will form the basis for a successful advertising campaign.
Don’t forget to make your calculations!
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