13 Affiliate Marketing KPIs And Profitability Factors To Consider When Choosing A Product
Sep 13 2020
18 min read
18 min read
Table of Contents
How do you decide if a product is worth promoting as an affiliate?
Apart from the obvious things like relevancy to your audience and high commission rates, what else do you look for in a product?
If you’re struggling to answer this question, you’re not alone.
New affiliate marketers rarely look beyond these two things when choosing affiliate products.
As a result, they leave a lot of money on the table.
Successful affiliate marketers are different.
They evaluate the overall profitability of a product instead of jumping on it just because it offers an attractive commission.
This is why they make MUCH more profits promoting even low priced products as compared to newbies who go after every shiny object without fully understanding it.
So what exactly should you evaluate in an affiliate product?
In this detailed article, I’ll tell you everything you need to know.
Let’s dive in.
What Are Affiliate Marketing KPIs And Profitability Factors?
To decide whether you should promote a product or not, you need to look at the bigger picture beyond the commission rate a product offers.
In more specific terms, you need to evaluate an affiliate product against the right KPIs and profitability factors.
Don’t get confused by the fancy terminology.
A KPI is simply a measurable value (a number/score) that helps you understand if a product is profitable for your business or not.
They’re primarily used for measuring the performance of your business but you can also use them as a benchmark for evaluating affiliate products.
Here are a few examples to help you understand what KPIs are used for.
KPIs are used differently in different contexts but we don’t want to go into the details because it’s irrelevant from an affiliate marketing perspective.
All you need to understand is that evaluating a product on the right KPIs will help you make the right choice.
The same goes for other profitability factors outside the standard KPIs.
They’re the real questions you need to ask when choosing an affiliate product because they give you a full picture of what you’ll actually earn from a product in the long run.
In the following sections, I’ll share the key factors (including several KPIs) you need to consider when deciding whether an affiliate product is worth promoting or not.
01 - Affiliate Program Type
This is the first thing you need to consider when choosing an affiliate product.
There are several types of affiliate marketing programs with completely different customers and marketing channels.
Plus, the amount of money you make with a product will greatly vary depending on the affiliate program type.
What are the different types of affiliate programs?
- Pay Per Sale Affiliate Marketing
In Pay Per Sale affiliate marketing, you earn a commission when your referrals purchase the advertiser’s product.
This is the most common affiliate marketing model and has the best long-term business prospects because it allows you to build an audience and drive repeat sales.
Amazon Associates, the world’s leading affiliate marketing program, is a prime example of this affiliate model (you qualify for a commission when your referrals purchase a product).
The commission rates in Pay Per Sale affiliate programs are usually a lot higher (from 10% to 75%) as compared to the other affiliate models.
- Pay Per Lead Affiliate Marketing
In Pay Per Lead (also known as Cost Per Action (CPA) affiliate marketing), your referrals don’t need to purchase a product for you to earn a commission.
Instead, PPL campaigns reward you when your referrals complete an action like filling a survey form or a contact form, downloading an eBook, making a phone call, or land on a specific page.
You can find CPA affiliate offers on platforms like MaxBounty or Flexoffers.
The commission rates and payouts in these affiliate campaigns are pretty low plus it’s a short-term affiliate model where you never really get to build a relationship with your audience.
Most of the time, the traffic for such campaigns comes through paid advertising campaigns.
Hybrid Affiliate Marketing
Some affiliate programs offer a combination of the CPA and Pay Per Sale affiliate models.
Constant Contact, a leading email marketing platform, is a good example.
This particular affiliate program offers $5 for every lead that signs up for a free trial and $65 for every lead that converts into a customer.
Hybrid affiliate programs are rare but offer the best of both worlds.
How Affiliate Program Type Impacts Your Earnings
The difference in earnings between these two affiliate marketing models can be significant.
For example, in CPA marketing you’ll rarely drive repeat sales because of the nature of the products/services. Plus, you’ll mostly be driving traffic using paid advertising which means you’ll need to invest money upfront. The commission rates are also typically low but the sales cycle is shorter and faster.
For example, a typical CPA offer would pay you $0.5-$1 for every referral that fills and submits a contact form.
In Pay Per Sale, the products are more expensive, offer higher commissions, and allow you to earn more per customer in the long-run. Plus, you can build an audience and drive repeat sales for most products. However, it’s harder to drive traffic and convert the leads into customers.
This is why most affiliate marketers prefer the Pay Per Sale model.
When you’re choosing a product to promote, make sure you understand what affiliate model it belongs to and how much it can help you earn in the long-run.
02 - The Type Of Affiliate Commission On Offer
From here onwards, we’ll stay focused on Pay Per Sale affiliate marketing since that’s the model we recommend to our readers.
One of the biggest factors to consider when promoting a product/program is the commission model it offers.
There are mainly two types of commission models and your earnings can vary a lot depending on which one you choose.
In one-time commission programs, you only get paid once when your referral initially purchases the product. There are no commissions if your referral renews subscription, upgrades the product or purchases it again after the first term expires.
BlueHost, which runs the biggest affiliate program in the web hosting niche, is an example of the one-time commission model where you’re paid $65 for every qualified sale.
This is the most common commission type used by retail affiliate programs like Amazon Associates and many other leading affiliate programs in the B2B software and services niche as well.
In recurring commission programs, you sell once but keep getting paid every month as long as your referral is subscribed to the product.
This is a highly profitable commission model but only works in SaaS and subscription-based services.
For example, the ClickFunnels affiliate program offers up to 40% recurring commissions to its affiliates.
GetResponse, one of the best email marketing & automation tools, offers both one-time and recurring commissions.
This example will help you understand the long-term advantage of recurring commissions.
Let’s say your referral signs up for the $49/month Plus Package in GetResponse.
If you opt for a one-time commission, you’ll earn $100 once and that’s the end of the story.
But if you choose the recurring commission program that offers 33% of the sales price as commission every month, you’ll earn $16.17/month for as long your referral remains a GetResponse user.
In one year, you’ll earn $161.7 from one customer.
Because switching email services isn’t easy, and GetResponse is a really good service in the first place, your referrals are likely to stick around for several years if they’re getting value from the tool.
If you refer 10 customers who stick around for just one year, you’ll earn a total of $1617 as compared to $1000 for the same number of customers in the same period for the same product.
And the difference will keep getting bigger as your number of referrals increases.
03 - Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is one of the most important KPIs for affiliates promoting SaaS and subscription-based products (affiliate programs).
What is Customer Lifetime Value (CLV)?
CLV is the total monetary value (profits) an organization earns from an average customer during his/her time with the company.
Since you’re an affiliate marketer, CLV for you will be the profits you’ll make in commission (on average) from a referral throughout its lifetime.
In simpler terms, CLV is the average amount of money (commissions) you’ll make from every customer you refer to a SaaS or subscription-based business.
As I said, this is only applicable to recurring commission programs.
When you know the CLV of a product, you can estimate the number of recurring commissions you’re expected to earn by referring a customer.
Let me help you understand this concept with an example.
ConvertKit, a popular email marketing tool, offers a 30% recurring commission for every customer you refer to them.
For 3000 subscribers, ConvertKit charges its $41/month billed annually. At 30% commission, this means you’ll earn $12.3/month for every successful referral.
Over 12 months, this commission will be $147.6 per customer.
Suppose you refer 10 customers to ConvertKit. 6 of them stick for the whole year while 4 customers leave after the 5th month.
What’s your total annual commission from ConvertKit?
Customers retained for 12 months @ $12.3 commission per month
(12.3 x 12) x 6 = $885.6
Customers retained for 5 months
(12.3 x 5) x 4 = $246
Total Average Commission Per Customer in 1 Year From ConvertKit
$885.6 + $246 = $1131.6
$1131.6/10 = $113.16
So on average, referring a customer to ConvertKit gives you $113.16 per year.
Some affiliate programs like ClickFunnels offer additional commissions for products your referrals purchase during their subscription tenure.
In such cases, you’ll add them to the annual revenue per customer to get a more precise per customer value over a year.
However, you can only get these numbers after promoting a product for a few months because no company publicly shares its CLV.
But you can get in touch with other affiliates promoting the same product or the product’s affiliate manager and ask them the average number of months a customer uses their product.
This would help you estimate a rough number you can expect to earn per customer per year.
How is this number useful?
When you know how much you’re set to earn per customer by promoting a product, you can compare it with other similar products to see if it's worth your time and effort.
For example, if an affiliate product offers 70% recurring commissions but you know that the average customer of this product doesn’t stick around for more than a month, it’s much more profitable to promote a product that offers 30% recurring commissions but retains its customers for 12+ months.
04 - Product Purchase Frequency And Upselling Potential
This is another key factor to consider when choosing an affiliate product.
Product purchase frequency is the number of times an average customer purchases a product in a given period. This is different from the recurring commission model that subscription businesses offer.
Why is it important?
Because the more frequently a product is purchased, the more you can earn from it as an affiliate.
For example, a product that customers buy once in several years offers $75/sale. In comparison, there’s another product with a much higher purchase frequency (several times a year) and offers $15/sale.
In most cases, promoting the second one will result in higher profits per year.
I know what you’re thinking. No retail affiliate program offers commissions on repeat product sales.
I agree, not in my knowledge.
But a high product purchase frequency means that the customers regularly have to make the buying decision. This gives you a better chance to attract customers who’re purchasing competing products.
In retail products, the purchase frequency is generally higher for consumable products. Categories like electronics and home appliances also have a high purchase frequency.
Other than retail, online services like logo design, application development, content marketing, etc. also have a high purchase frequency.
The other factor that’s closely related to purchase frequency is the upselling potential of a product.
This simply means that the product you’re selling can be upgraded in some way or there are other complementing products that your customers can purchase to make their original purchase more useful.
For example, if you’re promoting web hosting services as an affiliate, you can also upsell logo design and website design services.
Should you only promote products with a high purchase frequency?
Purchase frequency is an important metric for sure, but the right approach is to build a product portfolio that includes both short-term and long-term products with low and medium-high purchase frequency respectively.
05 - Cookie Duration Of An Affiliate Product
Affiliate cookie duration is the time in which your referral needs to purchase a product for you to be eligible for a commission.
For example, the affiliate cookie duration for Amazon Associates is 24 hours only. This means that the customers you refer to Amazon must purchase a product within the 24-hour cookie duration for you to qualify for a commission. If they purchase after 24 hours, you won’t earn any money from their purchases.
The Shopify affiliate program, on the other hand, has a cookie duration of 30 days.
This is a crucial factor to consider when choosing an affiliate product because the purchase process for every product is different.
For example, you’ll spend way more time evaluating your choices, comparing prices, checking features, etc. when you’re purchasing a new car as compared to a cheaper product like a juicer or weighing machine.
If the product you’re promoting has an unrealistic cookie duration that’s just not long enough to allow you to close deals, many of your referred leads will be lost.
Therefore, always check the cookie terms when signing up as an affiliate for a product.
06 - Affiliate Support And Promotional Material
You really like a product, it offers an attractive commission rate, and it’s in high demand.
Sounds like the perfect product to promote, right?
Not so fast.
You might regret signing up for an affiliate program if it doesn’t offer any dedicated support for affiliates. This also includes ready to use marketing and promotional material that could save you hours of work and make your job much easier.
Many leading affiliate programs offer dedicated affiliate relationship managers who help you promote their products the right way, share useful strategies that are working for their top affiliates, give you ideas for improving your campaigns, and even suggest what products you should promote.
For example, a couple of days after I signed up as a BlueHost affiliate, I got an email from my dedicated affiliate manager who not only shared several ready to use banners and landing pages to promote BlueHost but also offered a $10 increase in commission if I wrote a dedicated article about BlueHost on my site.
She also shared several examples of the best performing content formats that are most likely to drive sales for me.
SEMrush has an affiliate program that offers up to 40% recurring commissions per sale. They have a complete section in their affiliate dashboard where you can find dozens of banners, links, landing pages, and even downloadable eBooks that you can promote to drive leads and customers.
Relationship managers and promotional material can play a big role in your success as an affiliate marketer.
They’ll save your time and help you promote the right products at the right times.
So don’t underestimate their importance while choosing affiliate products.
07 - Product Return Rate
Product returns are among the most damaging things for eCommerce businesses. And it could hurt your commissions as well if you aren’t careful while choosing affiliate products.
According to a study, eCommerce sites have a return rate of around 30% as compared to 8.89% in bricks and mortar stores.
On most affiliate marketing platforms, including Amazon Associates, your commission is either released after the product’s return period has ended or it is reversed in case a product is returned.
Either way, it hurts your overall profitability.
There's no point promoting a product that offers really attractive commissions but has a 70% return rate. No matter how much you sell, the majority of your sales will be disqualified because of returns.
This is why you have to ensure that the product you’re promoting is high quality, meets the customer’s needs, and will be delivered the way it’s shown online so that there are no returns.
Because inaccurate product descriptions are among the top reasons why customers return products purchased online.
But no matter what you do, there will be returns and you have to include it in your overall calculations when choosing a product.
The problem for affiliates is that no affiliate platform tells you the return rate of individual products.
However, different studies have found the product categories with the highest percentage of returns.
These are some of the most popular affiliate marketing niches. You can’t completely abandon those categories, of course, but you still need to be careful while choosing products from them.
You have to use your own research and experience while choosing products and then keep an eye on their return rates.
If the return rates are higher than usual, replace the product with a better alternative.
Also, check the product return policy of the affiliate program to see how it impacts your commissions. In some affiliate programs, the return duration is different for customers and affiliates so checking the policy before committing to a product will help you avoid problems in the future.
08 - Commission Payout Terms
Is there anything more infuriating than not getting paid on time for your hard work?
Well, it can happen to you if you don’t carefully read the payout terms before promoting an affiliate product.
For example, I’ve seen affiliate programs where the payouts are made quarterly (every three months!). You have to wait for three months to get paid for your hard work. Not ideal.
Amazon Associates has a 60 day payout period excluding the month in which you make the sale.
Most web hosting affiliate programs also have a payout duration of around 45-60 days.
In general, 30 days is the minimum payout period you’ll see with almost any reputable affiliate program because it allows them to handle returns and other administrative issues.
Another important factor is the minimum payout amount.
You don’t want to sign up for an affiliate program that allows payments only when your commission amount reaches $1000, especially if you’re promoting low priced products that pay only $5-10 in commission per sale.
And the most important thing to check before signing up for an affiliate program is whether it offers payment methods that you can easily access.
For example, if an affiliate program only supports Stripe payments, you need to make sure it works in your region. Or if you’ve had your PayPal account disabled and it’s the only mode an affiliate program supports.
It can be frustrating to see your money locked with a merchant just because you don’t have access to the right payment services.
09 - Product Sales Funnel Structure
What does the buyer’s journey for your affiliate product look like?
What are the steps that users go through from clicking your affiliate link to purchasing the product?
Is there a sales funnel? What does it look like?
Are there upsells or downsells in the funnel? Do you get rewarded for the additional products a referral purchases in the same session?
These are crucial questions to consider before choosing an affiliate product because it can have a massive impact on your sales numbers and ultimately the commissions you earn.
You can refer a thousand people to a product’s site but if it has a broken funnel, they won’t convert into customers and you won’t make any money.
In SaaS products, you’ll mostly be sending people to the product’s landing page where it either converts them into email subscribers or free trial users.
In this scenario, what is the cookie period? How do you get credit for a sale if a referral converts into an email subscriber but delays the purchase by a month?
There’s no point sending traffic to a product that signs up visitors to its email list with only a 48 hour cookie period.
Then you have Amazon Associates, the biggest retail affiliate program in the world.
Affiliates usually send traffic directly to Amazon’s product pages. If a customer purchases within Amazon’s 24 hour cookie period, you get credited for the purchase.
But that’s not all.
You also get paid for any additional products that your referral purchases in that period. This is one of the things that makes Amazon an attractive option for affiliate marketers.
You can promote a low priced product from Amazon but if people generally purchase more products with it in the same session, your average revenue per customer would be a lot higher.
In short, before deciding to promote a product, do experience the complete buyer’s journey to understand how likely a referral is to purchase the product once you refer them.
10 - Referral To Customer Conversion Rate
The conversion rate shows the percentage of your referrals who take the next step after clicking your affiliate link and convert into customers.
A low referral to customer conversion rate means your hard work is going to waste because you’re sending referrals to the affiliate product’s page but they’re not buying it.
According to a recent study by Adobe, the average eCommerce conversion rate is around 3%. Gifts, Pharmacy, and Apparel have the highest conversion rates while Consumer Electronics has the lowest.
Now compare this to the average conversion rate on Amazon which is around 13% for normal users and a whopping 74% for Amazon Prime members.
This means that for every 100 visitors you send to Amazon at least 13 of them convert into customers. But this number is usually higher because there are more than 112 million Amazon Prime members in the US alone.
This is one of the reasons why Amazon affiliate sites are still so popular.
The commission rates might be lower, but whatever traffic you send to Amazon converts at a much higher rate than most other eCommerce sites.
There can be several reasons for a low referral-to-customer conversion rate.
It could happen because of a poorly designed or optimized landing page. This is completely out of your control. However, you can view a product’s landing page before deciding to promote it.
Another reason could be a poorly designed product funnel that doesn’t convert leads into customers. Again, not in your control.
Thirdly, low conversions could happen because of over-hyped and inaccurate affiliate content which makes false promises. But when the product’s original landing page tells them the true story, they bounce back.
This is certainly in your control and something you should be doing anyway.
Since you can’t measure conversions without promoting and running affiliate campaigns yourself, you’ll have to carefully review a product’s landing page and check-out page before fully committing to it.
If everything looks good, start promoting the product but also calculate the actual conversion rate so that you can measure it against the industry average and decide if you should continue promoting it.
11 - Cost Per Conversion
Your end goal as an affiliate marketer is to make a profit by promoting the right products to your audience.
To calculate profits, you need to know the costs that go into acquiring and converting leads into customers.
Earning $10K per month is no good if you have to spend 12K in acquiring the traffic to drive leads.
What are the lead acquisition costs you need to consider?
There are fixed costs such as web hosting, domain, and website infrastructure and maintenance.
Then you have direct costs like content creation, advertising, email marketing, SEO tools, etc. You have to take all of this into account when calculating conversion costs.
A simplistic way to calculate this cost is by dividing the total direct expense of an affiliate campaign by the number of leads generated from it.
For example, if you’re running a Facebook Ad campaign to drive leads, you can measure the costs by dividing the total amount spent on ads divided by the number leads that are converted into customers.
Similarly, if you’re driving sales through product review on your blog, you’ll divide the content writing cost with the number of customers it drives over a certain period.
Here are the average customer acquisition costs for different B2B marketing channels.
Ignore the ones that do not apply to online marketing. But as you can see, even generating leads through SEO costs $31 per lead.
But this still gives you an incomplete picture.
Your overall profitability will be determined by how much you’re earning against the total costs of your affiliate campaigns.
Knowing the exact cost per lead allows you to determine whether you should promote a product or not. If there’s no way to lower the advertising/content creation costs to make your campaigns profitable, it’s better to switch to higher-priced products with better profit margins after your fixed+campaign specific costs are considered.
12 - Approved Traffic Channels And Marketing Strategies
No matter what affiliate program you sign up for, you’ll need to drive traffic to your links to generate clicks and earn commissions.
According to a study by Statista, here are the most popular traffic sources affiliate marketers use to drive sales.
However, you can’t use all of these traffic sources for every affiliate product.
Most affiliate programs have very specific instructions about the channels you can use to send traffic to your affiliate links.
If you violate their terms, you won’t be credited for any sales and your affiliate account can be suspended as well.
For example, Amazon Associates does not allow affiliates to use product links in email marketing. You can send traffic to the affiliate content on your site, but you cannot directly use Amazon product links in emails.
Similarly, many leading affiliate programs do not allow traffic from Facebook advertising campaigns or even organic social media posts.
You have to take this into account while choosing an affiliate product and see whether it aligns with your primary marketing strategies.
For example, if you have a large email list in the weight loss niche and want to promote relevant products from Amazon to your subscribers, the only way to do it is to create a blog or social media post with your affiliate links.
You can’t directly use Amazon links in emails.
You can, however, find high-quality products from CJ, ClickBank, JVZoo, or any other affiliate network that allows email traffic and directly promote products to your subscribers.
Similarly, if you have a large Facebook group in a niche and want to promote affiliate products to it, make sure it allows social media traffic before signing up for the affiliate program.
The other thing to consider, of course, is the cost of traffic generation. We have already discussed this in the previous point.
But if you choose a product that only allows a specific traffic channel, calculate the cost of acquiring traffic from it before signing up as an affiliate.
It’s always better to promote products that align with your existing audience and traffic sources instead of signing up for an affiliate program that requires you to build a traffic source from scratch.
13 - Approved Countries/Regions
There are a couple of angles to this particular point.
Firstly, most of the leading affiliate programs have a list of approved countries/regions from where they recruit affiliates.
If you’re in the US you don’t need to worry because every affiliate program wants American affiliates.
But if you’re in any other country, make sure your country is in the list of approved regions before applying.
The second issue is even more important.
Affiliate programs want to recruit affiliates who’re popular in the countries/regions from where they want to drive sales.
For example, you might be an American blogger or social media influencer but if the audience of your blog is mainly coming from India or Bangladesh, many affiliate programs might not be interested in recruiting you as an affiliate because they are looking for traffic from the US.
Even if you get approved for a program and drive traffic to a product’s affiliate page, it’ll be frustrating to find out that your referred sales were disqualified because your traffic came from the wrong countries.
This is a pretty common issue that even Amazon affiliate sites face.
In case you didn’t know, you have to sign up for the Amazon Associates program separately for all the countries where the program is offered.
If you’re registered as an affiliate only in the US and drive sales from the UK, Australia, or Canada, you won’t earn any commissions.
Therefore, make sure the product you’re planning to promote aligns with your target audience.
Are You Ready To Be A Profitable Affiliate Marketer?
Affiliate marketing has no entry barrier which is why it is the most popular way to make money online.
However, to become a successful affiliate marketer you need to understand the key factors and KPIs that can have a long-term impact on your profitability.
The list I’ve shared in this post should give you a pretty good idea about the things you should consider before signing up for an affiliate program.
You can’t promote an affiliate product just because it offers an attractive commission rate or is popular among your competitors.
Think about all the points I’ve shared and make sure the product is going to be profitable in the long-run.
Trust me, just by knowing these points you’re already ahead of most affiliate marketers who can’t see anything beyond product commissions.
Now, you only need to put this into action.
July 4, 2021
Very valuable strategies. I'll definitely use these to generate more sales.