Getting
to grips with clickthroughs, conversion rates and other bugbears
of the serious affiliate...
Many affiliate programs go out of their way
to hype the potential returns you could make, while
glossing over  or at the very least, obscuring  the
fundamental math that makes these returns purest fantasy.
By understanding the math behind affiliate
programs, you'll be able to compare e.g. a $0.02
clickthrough program with a $20 flatfee program and a 5%
commission program and work out how to win!
The following example should help you get up
to speed...
Let's imagine that 4 pages on your site each
instantantly received 100,000 visits from 100,000 separate
visitors (If only generating real visits was that easy!)
After you recover from the surprise at seeing
your web counter blur itself into a frenzy, you take a
closer look at the affiliate programs you were running on
those 4 pages.

On page 1, you were running a
clickthrough program that paid you $0.03 per click (to
the first page) and 5% of all visitors to the page
clicked on the link. In other words, 2,000 visitors
clicked on the link and you just earned $60 (2,000 x
$0.03)!

On page 2, you were running a
clickthrough program that paid you $0.07 per click (to
the second page). Again, 2,000 visitors clicked on the
link, but only 500 visitors made it as far as the second
page. On this page, you just earned $35 (500 x $0.07)!

On page 3, you were running a flatfee
program that paid $7 per new customer. 1,000 visitors
clicked on the link, of whom 30 actually bought
something. Unfortunately, 10 of those customers had
already shopped at that affiliate site before, so you
sent over 20 new customers. Congratulations  you just
earned $140 (20 x $7)!

On page 4, you were running a %
commission program that paid 10% of all sales. Again,
1,000 visitors clicked on the link, of whom 30 actually
bought something. The average sale was $50. So you
earned $5 per customer ($50 x 10%). You just earned $150
(30 x $5)!
So you can see that in this example scenario,
the "best" affiliate program was the one that paid 10%
commission on sales, even though some of the other programs
may have LOOKED more appealing at first glance.
Because the above example assumes only one
affiliate program per page and the same number of
impressions to each page, the math is still straightforward.
But in real life, things aren't so simple... You may be
running many affiliate programs on one page, and you may
have very different levels of traffic going to different
pages on your site.
Normalization is the name of the game
In order to make sense of the math in any
given situation, you have to decide on a standard metric
 that is to say, a "base unit of measurement" that you will
use to compare the performance of different kinds of
affiliate programs. You then need to normalize all the
different types of data so that they are expressed in terms
of this standard metric.
A very widely known metric is the CPM
(Cost per Thousand). In other words, $1 CPM means that for
every 1,000 ad impressions, you are able to generate $1.
If your site has two ads per page, and each
ad averages $1 CPM, then if your site gets 20,000 pageviews
in a month, you will end up earning $40 (2 ads per page x $1
CPM x 20 thousandpageunits)
By normalizing each affiliate program's
performance into a CPM equivalent value, you can easily
compare the effectiveness of several different programs.
A) To convert a clickthrough rate into a CPM
value:
1. Find out the number of clickthroughs to
the ad
2. Multiply the number of clickthroughs by the $ value of 1
click  this gives you your total revenue
3. Find out how many ad impressions were needed to produce
the total revenue you just calculated
4. Divide the total revenue by the number of ad impressions
5. Multiply the result by 1,000. Hurrah! You've now got a
CPM value for your clickthrough affiliate program
Example:
1. There were 50 clickthroughs to the
affiliate site
2. Each click pays $0.04 so your total revenue was 50 x
$0.04 = $2
3. You needed 4,000 ad impressions to get that revenue
4. $2 / 4,000 = $0.0005
5. $0.0005 x 1,000 = $0.50 CPM.
B) To convert a flatfee payment into a CPM
value:
1. Find out how many ad impressions (on
average) you need to show to produce one new customer
2. Divide the $ value of 1 new customer by this number of ad
impressions
3. Multiply the result by 1,000. Hurrah! You've got a CPM
value for your flatfee affiliate program
Example:
1. You produce a new customer every 3,000 ad
impressions
2. A new customer is worth $12 so each ad impression is
worth $12 / 3,000 = $0.004
3. $0.004 x 1,000 = $4 CPM.
C) To convert a % commission payment into a
CPM value:
1. Find out how many ad impressions (on
average) you need to show to make one sale
2. Find out what an average sale is worth
3. Divide the $ value of an average sale by the number of ad
impressions calculated in 1.
4. Multiply the result by 1,000. Hurrah! You've got a CPM
value for your % commission affiliate program
Example:
1. You produce a sale every 1,500 ad
impressions
2. A sale brings in $50 and the affiliate program pays you
10% commission, so each sale is worth $5
3. Each pageview is worth $5 / 1,500 = $0.00333
3. $0.00333 x 1,000 = $3.33 CPM.
Learn to obssess over the right things
Many affiliates get carried away with concern
over how much money they are making for every click the
advertising they are running generates. The various
affiliate networks fuel this obssession by focusing the bulk
of their reporting around the value of a click.
STOP right there!
There is one huge, fundamental piece missing from this
picture... Different types of advertising will produce
different clickthrough ratios.
In other words, an ad on Page 1 of your site
may be generating $0.10 for every single click on it. An ad
on Page 2, in contrast, may only be generating $0.05 per
click. But if the ad on Page 2 is clicked on more than twice
as frequently as the ad on Page 1, you will actually make
more money off of the ad on Page 2 for any given number
of visitors. This is why it's so important to keep going
back to a CPM metric, which can be used to make a full and
fair comparison between the results of two different
affiliate ads.
KEY INFORMATION TO TAKE AWAY
All other things being equal, the best
affiliate program for any given situation will always be the
one that brings in the highest return on a CPMequivalent
basis. Don't get hung up on the value of a click  focus
on the return you get for a given number of visitors, and
always choose the affiliate ads that maximize that return.
