You’re a savvy Internet entrepreneur. You run a lean organization and you’ve bootstrapped your business to grow it into the thriving company it is today.
You’re truly abundant-minded and that’s helped you get where you are. You feel good about creating opportunity for others, and you take great pride in being able to pay people well…
As long as you’re getting a good return on your investment (ROI).
After all, you’re abundant-minded; not charity-minded.
When it comes to hiring people, your affiliate manager is probably both one of your biggest investments, and one of 2 or 3 people in your business that generate the biggest returns.
But how do you know how well your investment is paying off? How do you measure it? What do you measure? (Side Note: These are key questions you should be asking about every single person you’re paying- not just your affiliate manager.)
First let’s cover the “I” in ROI – the Investment.
You’re most likely paying your affiliate manager a base fee, or salary, plus a commission on the sales they generate. Add those both up to get your investment.
If you’ve hired a new affiliate manager with little experience, and need to spend time training them, add that into your investment as well:
# of hours spent training your affiliate manager X $ value of your time per hour.
For example, if you value your time at $100/ hr and you spend 20 hours training your new affiliate manager, you need to include $2000 in your Investment equation. If you value your time at $1000 per hour, then you need to include $20,000.
Think through all of the other investments you’re making in this person and add those to the equation as well. That might include health benefits, payroll taxes, annual bonus, travel costs, etc.
Now you know what you’re investing.
Now let’s cover what you’re getting – the “R” in ROI, or your Return.
Here are 5 things you should take into account:
1. Net profit you earned from sales generated by new affiliates who were recruited by your affiliate manager: This is an easy one. Who are the new affiliates your affiliate manager has brought on board, and how much money have you put in your pocket from their promotions?
You’ll also want to take into account how much it would have cost you to do that work by yourself…
This includes the dollar amount at which you value your time, and the opportunity cost of spending your time on affiliate recruitment versus other revenue-generating activities that only you can do, like creating a new product.
2. Increase in sales from existing affiliates: If you have an existing affiliate program, calculate the average monthly sales your affiliates are generating for you before your affiliate manager gets active.
For example, you might look at the last 6 months, or even the last 12 months. Add up the profit you’ve made on the affiliate-generated sales each month and then divide by the number of months, like this:
January: $50,000
February: $20,000
March: $10,000
April: $35,000
May: $5000
June: $55,000
__________________
$175,000 = Total Profit from Affiliate Sales in the last 6 months
$175,000/6 months = $29,167
Now you’ve got your baseline!
You know that, without your affiliate manager, you’ve been able to generate $29,167 in profit from affiliate sales per month (on average). Any profit your affiliate manager is able to generate above that gets added into the “return” part of the equation.
3. Time savings from not managing your affiliate program yourself: More than likely, you didn’t achieve the baseline calculated above by doing nothing. You put in some hours of your own time to bring in those sales and grow them to the baseline level. Sustaining that baseline isn’t going to happen by itself.
Therefore, consider the number of hours you think it takes on a monthly basis to sustain that baseline. Now multiply that number by the dollar value of your time per hour.
For example, if you think maintaining the baseline takes 10 hours of work per month and you value your time at $300 per hour, then that costs you $3000 just to meet the baseline.
If you’re paying your affiliate manager $6000 per month, you’re halfway to profitability if your affiliate manager can just sustain your baseline number!
Now, imagine what else you can do with those 10 hours of your time, since your not spending it on your affiliate program…
That’s 10 hours more per month you can spend building a new a product that might generate another $200,000 in profits this year!
Or that’s 10 hours more per month that you can dedicate to improving your existing offer so that your average customer retention rate on your membership program goes from 3 months to 6 months – doubling your revenue!
Or that’s 10 hours more per month that you can dedicate to dialing in your conversions on cold traffic.
Or how about this – that’s 10 hours per month you just freed up to spend with your family. Or surfing. Or hiking. Or whatever floats your boat.
Now we’re talking big profits.
4. Lifetime value of the customers added to your list: In addition to the sales your affiliate manager is generating for you, they are also adding new people to your list –both buyers and opt-ins.
Assuming you take good care of those people, many of them are likely to buy from you for years to come.
Affiliate managers just get paid on the initial affiliate promotion. You get to keep 100% of any money you make by promoting offers to your list after the initial sales funnel.
If the average lifetime value of a customer on your list is $200 and you paid your affiliate manager $20 to acquire that customer (averaging out the affiliate manager’s cost to you (the Investment) over the total number of customers they’ve added to your list), then that’s a 900% ROI!
Now you just need to work the leverage points. Hire an affiliate manager with better connections – BOOM! Bigger ROI. Increase the lifetime value of your customers – BOOM! Bigger ROI. Sell products with a higher price point – BOOM! Bigger ROI. You get it.
5. Other value add services: What other value added services is your affiliate manager providing that isn’t necessarily in their “job description”, but they do it anyway, and it saves you money because you don’t have to hire someone else to perform those tasks?
Here are a few examples:
• Writing email swipe copy (normally a copywriter’s job)
• Editing email swipe copy (normally a copywriter’s job)
• Working with your customer service team to lower your refund rate (normally an Operations Manager’s job)
• Working with your platform (Infusionsoft, Ontraport, etc.) to troubleshoot technical issues with affiliate links, funnel breakdowns, etc. (normally an IT person’s job)
• Providing expert advice on your funnel design, sales page copy, pricing, positioning, etc. (normally a Marketing Consultant’s job)
Estimate how much it would cost you if you had to hire another person to perform the value-added tasks being done by your affiliate manager, and add that to your Return.
Add up the totals from 1-5 above, and you’ve got your total Return.
Now, to calculate your ROI, follow this formula:
(Return – Investment)
_________________________ x 100
Investment
Here’s an example:
Let’s say that by adding up the totals from 1-5 above, you determine that your affiliate manager has delivered value of $500,000 this year.
When you added up their base fee, the commissions you paid them, and any additional expenses you had in hiring or managing them, you determined that you invested $100,000.
Your return on your investment is, therefore, (($500,000 – $100,000)/$100,000) x 100 = 400%!
That means that for every $1 you gave your affiliate manager, they gave you $5 back! You recovered your initial investment and then made another $4!
If you’ve hired well, have a solid funnel, and you’ve given your affiliate manager the budget and the tools they need to be successful, then your affiliate manager should be able to deliver significant ROI to you just by recruiting new affiliates, increasing the performance of your existing affiliates, and adding new customers to your list. The time savings and the time you can now dedicate to higher order tasks is just icing on the cake.
While your affiliate manager is probably one of the more highly paid people on your team (sales people usually are in any organization), when you look at the complete ROI picture, you’re probably making out pretty handsomely.
Now that’s a savvy entrepreneur.