Whether your brand has an established, high-performing affiliate program that you’re seeking to optimize or you’re new to the channel and navigating its nuances, it pays to know your way around specific KPI’s—especially return on ad spend (ROAS).
What most category-leading brands know well is that affiliate marketing tends to be one of the most effective models for increasing your return on ad spend. But high ROAS is rarely realized overnight. It requires a proper understanding of what it is and what needs to be evaluated and executed within your affiliate program to maximize returns.
What is ROAS?
ROAS, or return on ad spend, is one of the more critical business metrics for online advertisers as it captures how effective your media investment was in delivering positive value versus how much you spent on that media. These insights are especially important to brands who want to identify which aspect of their media spend deserves more budget.
Historically, brands have used ROAS to evaluate the effectiveness of a specific marketing campaign, ad group and even the overall effectiveness of a specific keyword.
Today, thanks to emerging technology, brands are now also looking more closely at this KPI within their affiliate programs.
The Relevance of ROAS
ROAS is critical because it helps determine how a particular marketing initiative or partnership is contributing to a brand’s bottom line – and most brands want to make sure they’re not losing any money when it comes to ad spend.
Without considering this metric, a brand is basically guessing at whether a campaign or partnership is generating more revenue than cost, and whether or not this will allow maximization of return on future ads.
The ROAS Reality Facing Most Brands
In terms of traditional digital marketing (paid social, paid search, display, programmatic, etc.), a primary challenge for brands is that their ROAS decreases over time as they have to spend more and more to realize consistent returns.
Competition is a key component of this. The more crowded a brand’s vertical, the more they’re having to spend to compete for recognition, voice, relevance and keywords. All of these factors can decrease ROAS significantly.
Why ROAS’s Star Is Rising In Affiliate Marketing
Affiliate marketing’s prominence has grown over the past five years, in large part due to the evolution and sophistication of new types of partnerships. In some cases, these partnerships may require more investment and complex compensation structures.
One of the ways brands evaluate these new partnership opportunities is to look closely at the returns they are generating. Then, once performance has been proven and more budget has been allocated, brands and their affiliate management team are leveraging ROAS to determine how to optimize the partnership.
Another reason ROAS is a rising star within affiliate programs is because companies that are used to evaluating ROAS in their paid marketing channels are launching affiliate programs in greater numbers.
For example, direct-to-consumer (DTC) brands are increasingly adding an affiliate program to their marketing mix. Many DTC brands initially gained awareness and new customers by leveraging paid marketing, so they’re familiar with evaluating ROAS within those channels. As their brand grows and competition increases, they start looking for more cost-effective ways to diversify their marketing, elevate name recognition, improve return on ad spend and ultimately drive more searches for their brand.
And most see affiliate as the next logical step in their marketing maturity.
What’s more is that most DTC brands understand the value of working with the right partners to ensure that they’re maintaining – and elevating – their brand awareness and relevance. As such, they’re more inclined to compensate their affiliate partners up-front (e.g. a flat fee) while also compensating them (e.g. revenue share commission) after they’ve driven a conversion—even if it means a lower ROAS initially. The value is in the long-term. And the most efficient, effective way to assess that long-term is to monitor ROAS.
ROAS and the Power of Partnerships
Although affiliate is often referred to as a channel, it’s really more accurate to call it a model because it’s a framework for managing and optimizing partnerships – partnerships that many brands are leveraging to run their paid social and paid search campaigns. They’ve discovered that many affiliate partners have the expertise, bandwidth and sophistication to run these campaigns far more efficiently and cost-effectively than the brand trying to do it in-house on their own.
And the brand realizes far higher return on ad spend in the process.
For greater insight into return on ad spend and why brands tend to realize higher ROAS with an affiliate program, give our “How Brands are Increasing their Return On Ad Spend with Affiliate Marketing” Outperform podcast episode a listen.