Affiliate marketing works just as any other business; you put in time and money to make more money. If you are aware of the aspects of affiliate marketing that need financial input then you can play around with the amount you invest so that you get the maximum return on investment or ROI.

ROI is a crucial parameter to monitor. You want greater returns on the amount you put in. And if you form the habit of tracking your ROI, you will be able to divert investments to those activities that are contributing most to your ROI. You will be able to target your audiences better.

In its simplest form affiliate marketing ROI can be represented thus –

ROI = (Gross profit – Investment) / Investment X 100

Here are the investment costs that a website owner into affiliate marketing may incur –

• Pay per click ads to drive traffic to his affiliate site
• Cost of hiring writers to create content
• Outsourcing SEO for website and optimizing landing page
• Website hosting cost
• Getting your own affiliate creative done – text, flash, banner, etc

The same formula works for an advertiser or business that chooses to run an affiliate marketing campaign that will be picked up by affiliate publishers.

In the case of a business the affiliate marketing investment expenses consist of –

• Joining an affiliate network or hosting your own affiliate program
• Preparing a creative inventory
• Appointing an affiliate manager
• Cost of generating product feeds

In the case of businesses that use affiliate marketing, it is not uncommon for the gross profit to be far greater than the investment resulting in a very healthy ROI.