10 Formulas for Calculating Campaign Budget in Affiliate Marketing
GM, peeps! Let's continue updating the webmaster's glossary with AlienCPA. Today we'll break down ten formulas for calculating budget, profit, and quality of traffic using examples. Grab some coffee and save this piece to your bookmarks.
Profit from affiliate marketing is the difference between the cost of buying traffic and the reward received from the affiliate. For example, you spent USD 100 on clicks in the push notification ad network and received 500 requests from the landing page. From these 500, the affiliate confirmed 100 as your leads. If each lead costs USD 17, your total earnings in the affiliate network are USD 1,700. Subtract USD 100 spent on traffic, and you get USD 1,600 of profit.
CPA (Cost per Action)
Click per action formula looks like that: CPA = the cost of advertising/number of targeted actions. For example, in 14 days of a casino ad campaign on Instagram, the webmaster collected 318 deposits. The budget for the advertising campaign was USD 1,750.
Let's calculate the cost of 1 deposit (our target action): USD 5.50 for one deposit.
CPL (Cost per Lead)
Cost per lead formula: CPL = the cost of advertising/number of leads. The same formula as for CPA.
CPS (Cost per Sale)
Cost per Sale formula: CPS = the cost of advertising/number of orders.
CPC (Cost per Click)
Cost per click means how much the advertiser spends on one click on the ad. CPC = the cost of advertising/number of clicks. It helps to evaluate the traffic source and the ad campaign effectiveness.
CPM (Cost per Millennium)
Cost per millennium formula: CPM = the cost of advertising / coverage * 1,000. Coverage is the estimated number of website visitors who will see your ad. Ad networks indicate approximate figures when creating a campaign, and if you order placement from the website owner, you can ask for this parameter directly. The website's cost of ad can be fixed, while in ad networks, you choose how much you are willing to spend on it.
Our formula in the example would look like this: an ad by a video blogger with 10,000 active followers costs USD 700. Let's calculate: USD 700 / 10,000 (coverage) * 1,000 (fixed value) = USD 70 per 1,000 visitors who see the ad. Knowing the cost per lead, per click, and per visitor seeing the ad, you can optimize your advertising costs by choosing different payment methods.
CTR (Click-through Rate)
It measures how often users respond to and click on ads. CTR = number of clicks / number of as views * 100%
CTR allows estimating the quality of an ad and whether it engages the target audience. Also, this parameter is used by ad networks to change the displayed ads. Banners with low CTR will lose in the auction and receive less coverage, as it’s unprofitable for networks to accumulate users' dissatisfaction. A good CTR for Yandex Direct and Google Ads in search will be above 10%, for banners 0.4-0.5%.
How to increase CTR? Fix banners, try different creatives, and cancel creatives with low CTR. Adjust your targeting so you target your audience more accurately. The higher the CTR, the cheaper the clicks will be, and the more visitors will watch your ad.
Effective cost per click can help with paying for cost per action or cost per sale, i.e., the average cost per click of the affiliate. eCPC= affiliate payments/number of clicks.
For example, a webmaster sources traffic from a banner ad network and receives USD 30 for each confirmed request for a parasite cream. Out of 200 banner clicks, on average, only one person makes a purchase. To calculate eCPC, divide USD 30 / 200 clicks and get USD 0.15. On average, the webmaster earns USD 0.15 per click on this source. Therefore, advertising on the selected source must not cost more than USD 0.15 per click. Otherwise, the campaign will become unprofitable. The eCPC helps calculate the maximum possible cost per targeted action for a campaign to stay effective. Just keep an eye on the advertising costs of the traffic source not to lose profit.
ROI (Return on Investment)
To calculate it, divide the amount of profit received by the amount invested and multiply it by 100% to get the result as a percentage.
ROI = (earnings from investment – invested amount) / invested amount * 100%.
For example, USD 500 was spent for advertising bears made of roses on Instagram for ten days. The webmaster got 45 requests. For each request, the webmaster gets USD 20. ROI = (USD 900 - USD 500) / USD 500 * 100% = 80%.
In the next section, we'll share examples of banner ads and creatives in affiliate marketing. If you think this article requires more information, write in the comments which formula is missing.
In the next section, we'll share examples of banner ads and creatives in affiliate marketing. If you think this article requires more information, write in the comments which formula is missing.
