The Math Behind Making Money

So you’ve got your campaign set up, and the data is starting to flow in.

Maybe money’s coming in too, maybe it’s not – but believe it or not, it’s the data that is the important bit.

With the data, you can start optimising toward reliable success: but before that, you need to understand how to read the data. And that means a bit of math.

This is one of the key skills of an affiliate marketer.

So brace yourself. It’s time for the science bit.

Using Science To Make Profit

Affiliate marketing is a mixture of art and science.

The art is coming up with ads and campaigns that will appeal to an audience.

The science is looking at the results from your campaigns, and figuring out how to optimise them to success.

So, if you ever wondered at school what you’d use maths for: you’re about to learn how to turn maths into money.

How To Tell If You’re Losing Money

Here’s the first bit of math you’ll need:

EPC > CPC = PROFIT

EPC is “Earning Per Click”. CPC is “Cost Per Click”. If your EPC is higher than your CPC, you are making money. That applies whether you’re getting one click a day or one million clicks a day.

And one of the great secrets of affiliate marketing is this: a campaign that works at one click a day will often work just as well at a million clicks a day – but you’ll make a million times more money.

Whether the campaign’s big or small, all you need to do is make your EPC higher than your CPC.

How To Make EPC Big

So what “levers” can you pull to change our EPC and CPC?

EPC = Conversion Rate x Landing Page Clickthrough Rate x Payout Of Offer

For each click you get, they have to click through to our offer, then actually sign up to our offer. Then you get paid.

So, for example, if you have a landing page Clickthrough Rate of 20% and a conversion rate of 10%, and a payout of $5, you have an EPC of $5 x 0.1 (10%) x 0.2 (20%) = $0.1

How could you improve this?

  • You could redesign our landing page so that more people click through it.
  • You could rewrite your ad headline so that it better prepares people for your landing page or offer.
  • You could test multiple offers to find one with a higher conversion rate than 10%.
  • You could ask your affiliate manager for a higher payout! Don’t neglect this one – it’s often the easiest way to boost EPC.

[i]TIP: If you’re direct-linking, as we did in “Your First Campaign”, your landing page clickthrough rate is effectively 100%. You might be asking why we use landing pages at all in that case: the answer is that they have a huge effect on conversion rate. A direct-linked campaign in this case might have a CTR of 100%, but a conversion rate of only 1% – meaning your EPC would be $0.05. That’s why one of the first optimizations we’ll look at will be adding a landing page to your campaigns.

How To Make CPC Small

The other way to make money is to reduce your Cost Per Click. Even if you’ve got a terrible EPC, if your CPC is tiny you can still make a lot of money.

Different traffic sources have different strategies for reducing CPC, but they nearly all boil down to this:

CPC = Cost Per Thousand Banner Views (CPM) / Average Banner Clickthrough Rate (CTR) x 1000

If you’re paying $1 per thousand views, and your CTR is 0.1%, you end up with a Cost Per Click of $1 / (0.1% x 1000) = $1

That’s not great!

How could you improve this?

  • You can eliminate the banners you’re testing that have low CTRs, boosting your average CTR.
  • You can bid less for your views: which might mean you get less views, but will reduce your CPM.
  • You can advertise with different targeting parameters that will get you more views for less money. For example, you can advertise to deeper login counts in POF or on less competitive sites in adult.
  • You can add elements to your banners to try and improve their CTR: coloured borders, for example, will often boost CTR.
  • You can test different images and see if they gain a higher CTR.

And That’s How You Make Money

What you do now with your campaign is to wait until we have enough data (see the next part of the guide), then start pulling these levers to see which ones best reduce your costs (CPC) and increase your revenue (EPC).

Once you have made your EPC higher than your CPC, you are a profit-making affiliate marketer!

What To Do Now

Before you move on, check that you’ve absorbed the basics from this lesson.

Take a few moments to write down, in your own words, what relationship EPC and CPC have to your profit. Then list a few things you can change to increase your EPC, and a few things you can do to reduce CPC. Be as specific as you can: for example “I could ask my affiliate manager at F5 if there are other offers I could test that might get a higher conversion rate” or “I could find and test another 5 images, looking for pictures with really eye-catching colours in them.”

Coming next: Optimising Your Banners

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