If you are an affiliate marketer, then you know that traditionally the conversion rate is the ratio of potential customers who visit the product site and those who actually purchase the product. However, there are other aspects that need to be considered when you calculate the overall conversion rate.
Besides the traditional conversion rate, another factor you want to consider when you calculate the product conversion rate is the rate of returns. In my own affiliate marketing endeavors, I have found that some products may convert as high as 5%, but with a 60% return rate. At this rate of return, the actual conversion rate is lowered to 2%. Other products have had a 20% return rate, which lowers the overall conversion rate to 4% if the initial conversion rate is 5%.
One of the problems of not calculating in the rate of return is that you may end up calculating how much you can spend on advertising your product if you are using a search engine ppc advertising scheme. For example, let’s say you have a product that you make $30 per sale on. You advertise your product in a leading search engine having calculated your cost-per-click based on a 2% conversion rate. To break even you should only spend 60 cents per visitor. Now let’s say the product has a 20% return rate. This means that out of every 10 buyers, 2 return the product. Your new conversion rate then becomes 1.6%. If you are advertising based on a 2% conversion rate, you are spending too much and will end up losing money. At a 1.6% conversion rate, you should only be spending 48 cents per click in order to break even. As you lower your cost per click, however, you also lose potential traffic to your affiliate site.
Another factor to consider in calculating the conversion rate is the rate of chargebacks and insufficient funds. Taken together, they can represent about 10% of your sales. Using the same model above, this further lowers your overall conversion rate to 1.4%, which means you will lose money if you are advertising the product for more than 42 cents per click.
Since conversion rates for any given product can change over time, you want to make sure you are constantly recalculating your advertising costs based not only on the basic conversion rate, but also on the rate of return and the rate of chargebacks and insufficient funds. Without considering all three of these factors, you could end up losing a significant amount of money on advertising and be out of the affiliate marketing game.
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The author of this article runs AffiliateMarketing101.net and AffiliateMarketingGuides.com, an affiliate marketing guides review site.
