by Taylor Barr on 17 Jul, 2018 ~7 minutes read

If you are an affiliate marketer, and have promoted SaaS products (like LiveChat), you know that the key to growing your commissions relies heavily on whether your referred customers stick around and use their account. Why? Well, often times the commission structure for SaaS based affiliate programs is recurring; commissions are earned monthly depending on how long the customer sticks around.

But sometimes it’s hard to understand the metrics that will help you analyze the health of those accounts and even more importantly, take the next step in learning what you (or the merchant) can do or change to improve that affiliate performance.

In this article, I am going to go over 3 metrics, in-depth, that you can start tracking today, to grow your affiliate commissions tomorrow.

Let’s get started.

SaaS Metric #1: Lifetime Value (LTV)

Lifetime value is a cornerstone metric internal to all SaaS companies and should be a highlighted metric all SaaS affiliate marketers should track and evaluate as part of their promotions.

But first - let’s define what lifetime value actually means. Simply put, lifetime value is (in the context of affiliate marketing): a prediction of the net profit you will make off a referred customer, over the entire relationship of that customer.

Why does it matter to you?

If you have a good understanding of how long a customer sticks around, you can predict roughly, how many commissions you stand to receive from your referred customers.

How do you calculate LTV of your referred customers?

A prefacing statement here: There are many ways and factors you can include to calculate LTV (including account expansion, margin, revenue vs. customer churn, and many other ways). This example uses a streamlined approach to calculating the LTV of your referred customers by revenue since commission % are based off of revenue.

A warning: If you are looking at this section and crossing your eyes with confusion: don’t worry! Just follow the steps, pull the data you have, and work through it. It’s not as bad as it looks!

With that said, let’s get started with the ingredients we need to calculate LTV:

affiliate marketing metrics source

Removing the Retention Rate (Customer) formula in the above picture, (we are going to be calculating by revenue since that is usually contingent of your commissions), let’s work an example in the context of some dummy affiliate marketing data. Let’s use the info above (working from bottom to top) to show how you can arrive at your lifetime value amount.

Let’s say you are calculating LTV month-to-month in February 2018:

This period = February 2018

Last period = January 2018

Retention Rate (revenue):

  • Non new user revenue this period: $2000 (this would be revenue from accounts you referred in January 2018 - that are still paying customers).
  • Total Revenue Last Period: $2500 (total revenue of the accounts you referred in January 2018).
  • Retention Rate is: 80% (20002500)

Churn Rate:

The churn rate shows how many of your referred customers are no longer customers with the merchant anymore (and thus, you are not receiving commissions from).

To calculate the churn rate it would simply be: 1 minus the Retention Rate. In this example, that would be: 1-.8 = 20%

ARPU (Average Revenue Per User):

The Average Revenue per user is critical to understand, given: It dictates how much you make per customer, per month.

To figure that out you will need:

  • Revenue in Time Period - you would take the revenue from both Jan. 2018 and Feb 2018. That equals: $4500
  • # of users in time period - This would be all of accounts you referred between Jan. 2018 and Feb. 2018. Let’s say you referred 100.
  • ARPU is: $45.00 (4500100)

LIFETIME VALUE:

And the answer is… ARPU ($45.00) divided by Revenue Churn (.20) = $225.00 is your lifetime value.

This means that an average referred customer will spend $225.00 with the merchant, over the lifetime of their account. You can then multiply this by the commission rate you are receiving, to see how much you stand to gain from each customer.

So, why is this important and what can you do with this information?

Having a ballpark estimate of your LTV will help you in the following ways:

  • You can calculate estimations, based on an average month of referrals, how much commissions you will receive from each referred customer you bring on.
  • You can leverage your LTV to work with your affiliate manager on higher commission rates for you. For example, if you find that your LTV is really good, you can negotiate higher payouts given those customers stick around longer and will produce more revenue for the company.

SaaS Metric #2: Free-Trial-to-Upgrade Ratio

This is another great metric that helps you understand: How many people you refer take action to upgrade and see value in a paid account vs. those who sign up for a free trial and do nothing.

Why does it matter to you?

Since a lot of SaaS affiliate programs compensate via commissions on paid accounts only (not free trials), it’s VERY important for you to understand how much of your traffic converts/upgrades from free trial to a paid account. Having a lot of people sign up for trial accounts that don’t convert doesn’t help you or the merchant one bit.

How do you calculate Free-Trial-to-Upgrade Ratio for your referred customers?

To calculate this you will need:

  • Total trials in a given time period.
  • How many trials upgraded in given time period.

Divide free trials by those who upgrade, and that is your free-trial-to-upgrade ratio.

So, why is this important and what can you do with this information?

  • If you are driving quality customers but they aren’t upgrading, it could be a context clue that the merchant has a low quality onboarding process. You can then talk with the merchant about what they are doing to convince and convert free trials to paid users.
  • It will help you understand how much commissions you might be losing from a free trial-to-upgrade path or it could be an indication that your latest traffic is low quality or not interested in the offer.
REALLY IMPORTANT: If your free-trial-to-upgrade-ratio in a given month is less than 10%, it should pause to investigate given the bullet points above.

SaaS Metric #3: Conversion Rate

Conversion rate seems like an obvious (not a less-known as the article’s title implies), but it can be more nuanced than one might expect.

Why does it matter to you?

Knowing your conversion rate (and the milestones or events tied to conversion rate at a given time) will help you analyze how many people are interested in the merchant’s offering/product.

How to calculate conversion rate of your referred customers?

Take all converted customers/referrals in a given period and divide it by total clicks/hits to your affiliate links in the same period of time, to arrive at your conversion rate.

Why is this important and what can you do with this information?

Conversion rate is a balancing act. Low conversion rate can be an indication of poor traffic from your promotions as an affiliate or perhaps the merchant changed something about their product’s value proposition that is prohibiting people to convert at a high rate.

Mentioned earlier, that is why it’s always important to analyze what factors were changed in a period of time that might have affected that conversion rate.

Finally, where to go from here?

Some of this data used to calculate these metrics above, might not be readily available to you as an affiliate in a affiliate program. If that is the case, I urge you to work with your Affiliate Manager to discover this valuable information.

Having the ability to estimate LTV of your referred customers, how many convert from your traffic, as well the percentage of free trial to upgraded users - is supremely important in becoming a high performing SaaS affiliate marketer.

Enjoy this post? Check out other posts about affiliate marketing on LiveChat Partners blog:

Why Affiliates Should Bet on SaaS Products

Top 3 Unobvious Affiliate Marketing Strategies that Actually Work

About the author:

Taylor Barr

Taylor is the Founder of The Up Foundry; a global agency that works with successful SaaS and technology companies to grow their affiliate program revenues and solidify their affiliate relationships. He has managed global affiliate programs (generating 7 digits in ARR) and past & present clients include: Ucraft, Sellfy, PromoRepublic, PureVPN, and more. Read all about him here.

Get updates from our blog in one, monthly email

Subscribe →
comments powered by Disqus