Affiliate marketing is pretty simple when you boil it down to the basic mathematics. We want to sell a lead for more than it costs us to generate the traffic. Simple logic, right?

You could be forgiven for questioning this wisdom when so many affiliates are busy creating campaigns that have zero hope of scaling.

Before you launch any affiliate campaign, you can save yourself a lot of time by doing the maths required to establish your likely profitability. And not just profitability, but profitability that is worth your time.

A tramp can beg for change and make a profit, but so what? You don’t see ‘get homeless get paid’ splashed across the industry blogs. Profitability is worth jack shit if the energy you’re exerting makes the tramp look like a connoisseur of passive income.

This is especially the case on Facebook where rising click costs have pushed certain niches in to the abyss.

So let’s say you’re going to promote a gaming offer on Facebook. Let’s also say you’re a reckless optimistic son of a gun who refuses to venture out of the American market.

We’ll assume you have an offer paying out $2, and a clean slate to target it as you wish. Before you even think about creative angles for promoting the game, you need to take a step back. Take a deep breath and ask yourself the following questions.

1. Have I established with my affiliate manager a baseline EPC for promoting this offer on Facebook?

If the answer is no, you should probably do so at the next opportunity. I’m saying this not just because the EPC will form a cornerstone of your profitability equation, but because many networks take on so many offers that they sometimes forget to remove the duds from your control panel.

Networks: I’ve never understood why you try to win me over with thousands of different offers. I’d rather you had a smaller pool of advertisers that were closely maintained. Sometimes I find an awesome looking offer, but when it’s buried beneath 3000 others, there’s a part of me that is skeptical about the likelihood of it being desirable to run.

2. If the EPC is lower than $0.15, am I going to be able to generate a CTR of 0.3+% to reduce my CPC costs accordingly?

This is a rough estimate that I apply to Facebook campaigns in America. If the best you can hope for is an EPC of <$0.15, you know straight off the bat that you can't target super broadly. You need laser targeted keyword groups hitting a CTR around the 0.3% mark.If you can't visualise a method of generating this kind of CTR for the offer, the maths don’t work! There’s no need to throw a hissy fit when, actually, you’ve saved yourself a lot of time.

3. Assuming I can strike the high CTR, is the demographic large enough to maintain it over a long enough period to make good money?

Some creative angles are brilliant. But the consequence of laser targeting is the reduction of the demographic size. If the demographic is too small, banner blindness will kick in within days. In this situation, you need to evaluate: is my ROI sufficiently high to justify the campaign’s rapid demise?

If your ROI is low, the maths hinge on your volume.

Low volume scenario: 200 leads at 25% ROI on a $2 payout ($320 spend) = $80 profit
Mid volume scenario: 2000 leads at 25% ROI on a $2 payout ($3200 spend) = $800 profit

The first scenario, the ‘crash and burner’ as I like to call it, wouldn’t be worth my time. That’s less than my hourly rate, and just not worth the investment. The second scenario is worth it, even if it doesn’t make you rich.

If, however, the low volume scenario could be countered by a high ROI:

Low volume scenario: 200 leads at 100% ROI on a $2 payout ($200 spend) = $200 profit

This scenario would be more appealing to me not for the higher profit, but because of the potential in scaling sideways. Any campaign producing 100% ROI is worth exploring, but most of the time, you will need to scale sideways (using similar keywords, doing further demographic research etc) to keep it growing.

4. Does my offer accept under 18 traffic?

Any offer that accepts under 18 traffic reduces the strain on your CPCs. You will generally get cheaper clicks when advertising to kids, so the pressure to deliver a stunningly high CTR is reduced.

5. Can I generate enough volume to get a payout increase?

Sometimes it’s worth running on skinny margins and high revenue if you know that there’s a reward for generating the extra volume. When evaluating your CPCs vs EPCs, take this in to account.

6. Can I buy a payout increase with high quality traffic?

Another strategy for those thinking long term is to seek out the best quality leads and strive to break even. Drive just enough volume to get the advertiser to take notice. Assuming your leads are twice as good as the average affiliate, the raised payout could see you profiting comfortably.

The maths in this case hinge on isolating the advertiser’s favourite type of customers and following the same procedure. What will they cost to reach? Is the demographic large enough to sustain the campaign beyond the payout raise? Can you come up with enough angles to fight off the banner blindness?

7. Am I being an idiot by not considering international markets?

After you’ve evaluated the equations above, you will invariably be left with a pounding headache.

“The maths don’t work, they just make it worse, but I…”

The sad reality is that for most Facebook campaigns in 2011, the maths just don’t work. Where they do, the volume is shot to such a low ebb that your reward for finding profitability is some pocket money and the mild disconnected satisfaction that you ‘beat the system’.

However, taking your ideas to less saturated international markets is a great leveler. From my experience, it can tip the equations of profitability from ‘squeaking a quick buck’, to ‘laughing all the way to the bank’.

Many affiliates just refuse to see the light. Most of them are blinded by the false allure of revenue. Revenue, revenue, look how ballin’ I am, here’s some more revenue!

When you look through your network’s newsletter and see the American version of an offer paying out twice as much as the Euro version, do you actually stop to do the maths?

Reduced click costs + higher CTR + less banner blindness + less competition + greater chances of a payout increase = why the hell are you still advertising to America?

Now I’m not saying that going international is a shortcut to profit, and I’m not saying that advertising to America is a recipe for failure. My advice is simply to do your maths.

Before throwing a hundred campaign ideas at the wall, it helps to grab a pen and some paper, and to actually write down your equations.

What is the average EPC? How can I improve this?
What is my required CTR? How will it affect my volume?
What ROI can I expect? For how long? How about in different countries?

I know affiliate marketers don’t naturally gravitate towards the dark art of actually having to plan shit, but it helps to have some numbers in your head. Nail down the figures before you go image hunting on Bing.

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