Maintaining a profitable affiliate program can be a daunting task, and it can be easy to get focused on growing top line revenue. Regardless of the size or age of your program, it’s important to look beyond top-line revenue. This post details how you can improve Return on Ad Spend with three simple programmatic changes any affiliate manager can address to improve program efficiency.
Return On Ad Spend Defined
Before diving in, let’s first define what Return on Ad Spend (ROAS) is. Simply put, ROAS is how much gross revenue is generated for every $1.00 of marketing spend. The formula looks like this ROAS = (Revenue Generated/Spend). It’s typically expressed as a dollar amount but some marketing organizations calculate as a percentage.
Here’s an example: an internet retailer generates $50,000 in gross revenue each month through their affiliate program and spends $9,500 in affiliate commissions, network fees, and other direct expenses during that same period. The ROAS is calculated ($50,000/$9,500)—meaning the internet retailer generates $5.26 in gross revenue for every $1.00 spent through the affiliate channel.
The first step to improving ROAS is making sure operational processes are locked down. Reversing commissions on sales where there is a refund, cancellation or return is a common oversight that comes with added expense for an affiliate program. While it may seem intuitive not to pay commissions when merchandise is returned, your affiliate network will not automatically reverse commissions unless you notify them.
When setting up a process for handling refunds, it is important to understand how your network handles transaction locking. First, figure out what the locking period is for your network. The transaction locking period is the amount of time a merchant has to review a transaction before the commission is paid out and policies vary by network. Some networks allow the merchant to choose the length of time, while other networks use pre-set rules for all merchants. Regardless, the locking period can cause a problem for merchants with longer return periods, and it’s important to architect your program so that transactions do not lock and payout until after the return window is closed.
Finally, you must decide if your correction process will be manual or automatic. For merchants that have a substantial volume of transactions, setup an automated process in order to ensure accuracy and timeliness.
Item Based Commissions
Another way you can improve your ROAS is ensuring that your commission structure aligns with your product margin. Affiliate commissions are not one-size fits all, and virtually all networks allow merchants to pay different commission rates for different SKUs. As a first step, review transaction level data to make sure that affiliates are not receiving commissions for things like shipping, tax, and warranties. After eliminating those inefficiencies, analyze transaction data to ensure you are making a profit on all products and product categories after commissions and network fees are deducted. Once you have identified any unprofitable products or categories, implement an item based commission structure to pay appropriate commission rates and improve profitability.
De-Duplication and Order Reconciliation
Duplicate orders could be doubling your affiliate ad spend! This typically happens when a merchant operates programs on more than one network and does not have the appropriate integration for a multi-network program. The result: two affiliates getting paid for the same transaction.
The preferred solution is using a tag management system to configure which pixel should fire based on your attribution model. If you do not have a tag management system, setting up Gateway Logic is a good alternative. Simply put, Gateway Logic involves segmenting your affiliate traffic by network and does take some development resources to implement. Most networks should be familiar with Gateway Logic and will work with you to set it up. If automatic de-duplication is not an option, you will need to work with your networks to develop a manual process that properly rewards the rightful referring affiliate, while avoiding duplicate commission payouts.