All this talk about encoders... so I'll put in one vote for gear tooth sensors.
Our
gear tooth sensors cost about $25 each from DigiKey and one 5K ohm resistor and PWM cable later they are interfaced to the RC.
Granted they don't give direction information, but they also don't need direct mechanical connection and precise alignment. No moving parts means they will last just about forever. Plus they can be used as limit switches (detect ferrous metal their tip) and on sprockets, chain, etc.
Presently we have 0.07 inch resolution on the field with this setup using interrupt-based detection.