How to present ROI calculations for potential merchant

[Azam.net]

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Posting this for a friend of mine: any suggestions about how one would could create a ROI chart for a merchant consider affiliate marketing please?

He's never had to do one before.

Cheers...

[anshul123]

Key factors

1. Afiliate
2. Total sales
3. Valid sales
4. Impressions
5. Clicks
6. CPM
7. CPA
8. Total Cost in $
9. Total Cost in ₤
10. e CPA in ₤
11. ROI

also if required CTR

[morleymouse]

Hi Nadeem,

ROI's pretty easy with affiliate marketing as everythings fixed.

So say your paying 5% commission, your mark up or margin on the product is 10%

Networks taking 30% override. So your actual cost of sale is 6.5% and profit 3.5%.

So, absolue ROI (eg. profit not turnover) is 3.5%. So invest £100 and you'll get £103.5 back

Then depending on average basket size or product value you just need to make sure you're covering the monthly fee's and your sorted!

Like I said ROI's pretty straight forward, volume isnt. So you know your on a winner, but if nobody takes the programme up and you never actually spend that £100 your ROI's nothing!

[yesasia]

Dan> thats assuming no set up costs or monthly costs. Some networks will have a very high set up cost or monthly costs and these may not be offset by sales the first months.

The ROI will then depend on the sales volume, which will depend on traffic and conversion. Traffic will depend on the network used and on the affiliates expected EPC. To calculate the EPC you need to take into account conversion, order size, commission and returns.

If you enter all these variables in a spreadsheet you can play around with it, you can estimate the ROI depending on different commission percentages. A higher commission implies a higher varaible cost, but also more affiliates, higher volume and faster recovery of fixed costs.

[morleymouse]

Then depending on average basket size or product value you just need to make sure you're covering the monthly fee's and your sorted!

missed off set ups

[pricethat]

Hi Nadeem,

ROI's pretty easy with affiliate marketing as everythings fixed.

So say your paying 5% commission, your mark up or margin on the product is 10%

Networks taking 30% override. So your actual cost of sale is 6.5% and profit 3.5%.

So, absolue ROI (eg. profit not turnover) is 3.5%. So invest £100 and you'll get £103.5 back

Then depending on average basket size or product value you just need to make sure you're covering the monthly fee's and your sorted!

Like I said ROI's pretty straight forward, volume isnt. So you know your on a winner, but if nobody takes the programme up and you never actually spend that £100 your ROI's nothing!

All of that is not strictly true, that would be presenting return on investement figures based solely on a per product transaction, it does not account for the amount of extra stock the company needs to carry, how much of that would not sell (and needs to be worked into it), the extra costs of support (affiliate managers etc). Or is all of that worked into your 10% figure you start with?

I think i seen it before where merchant thinks they make 30% markup on a product based on the buying price but when it comes down to overheads and wages etc, emergencies, buildings, maintenance etc the actual real profit came down to something like 6% of which he was paying 10%. Needless to say his business fell apart with a year.

[morleymouse]

Or is all of that worked into your 10% figure you start with?

to keep my post making sense, its all worked into that

[pricethat]

to keep my post making sense, its all worked into that

Ahhh, so i will be a pedantic little sod then....