How to choose your affiliate commission rate
A brand’s commission rate can play an important role in whether an affiliate chooses to work with that company. Affiliates want to be fairly rewarded for the promotional activity they undertake to advertise the brand’s product or services.
Having completed a competitor analysis, there should be a clear perspective on what rival brands are offering in your vertical. This therefore will be a guideline to what level you reward your affiliates. Coming in at a lower rate could (but not always) see affiliates choose a competitor over you.
Every business is unique and comes with its own set of challenges and budgets for the affiliate channel. So, there is no one level of commission I would recommend.
Traditional retailers tend to offer lower rates than pure-play due to greater overheads. Whilst SaaS tech programs tend to have much higher numbers. All verticals are going to be different, which is why research is vital.
How to calculate affiliate commission rates
Profit Margin
A good starting point to determining your commission rate is to work out your profit margin. This is the price you sell your product or service for with a deduction of the costs to produce it. On one level, this could be labour and material costs. But, you can go more detailed and include items like delivery, storage and taxes.
Once you have this number you can work out the average across your entire product range. The result will be the top amount an affiliate could earn without it becoming a negative cost to the business.
But, be mindful that profit margin must start to include all affiliate costs moving forward, not just the commission. If you have management and network fees these should all be included to determine a channel budget.
Competitor Rates
As covered in your pre-launch audit, an analysis of competitors could ascertain how attractive your affiliate program is versus another brand.
This is important as you are planning to target a lot of the same affiliates. If they have a more established program, there might be an uphill battle to get affiliates to choose you over your competitor.
Should your budgets allow. Beating your competitors, even as a launch offer, can be a great way to steal affiliate attention towards your company.
To get a better understanding of all the commission rates offered by a brand. You may need to covertly join their affiliate program. Often program descriptions only outline basic rates and not elements like VIP or partner type incentives.
Resellers
The DTC (direct to consumer) model might not be the only way you sell your products. Wholesale businesses can be great cash drivers for brands. But, it also throws up issues to be mindful of.
Now, instead of just looking at direct competitors. Brands need to be researching what their wholesale partners are offering. What are they offering both affiliates and consumers that might be better than you?
Amazon for example is huge and will have lots of resellers. Customers benefit from quick delivery and easy payments. But, commissions are notoriously low. Does this create an opportunity for you with affiliates?
Lifetime Value
This is a metric a lot of affiliate managers overlook when analysing the success of their programs.
Certain affiliate types can be ideal for encouraging first-time purchases while others create more repeat purchases. Work out what both mean to your business and model this into your commissions.
Remember, when a customer first purchases. They enter your system whereby you have their email and purchase details. If you have good retention or repeat purchase number it could be beneficial to offer a higher first customer incentive to capture these customers. This could be cheaper than paying to capture this customer again through the affiliate or other digital channels.
Tiered commission rates
To maximise ROI and to incentivise a wider range of affiliates, it can be beneficial to introduce a tiered commission structure.
Having run the numbers when calculating your affiliate commission. There should now be a better understanding of how much you can offer and how it compares to other brands.
A combination of different incentives is a secret weapon for the most successful affiliate programs. It enables varying publisher types to always feel incentivised. Whilst rewarding other KPI’s not just a standard last-click model.
These might include:
Performance tiers – rewarding affiliates for hitting pre-defined weekly or monthly targets
First sale bonus – this can be tied into lifetime value but also encourages new affiliates to start promoting quicker
Category commissions – if you have a category or product with a higher margin offer partners a bigger commission on them
VIP commissions – reward your most valued affiliates with a higher commission rate
Recruitment incentives – encourage partners to recruit for you by offering them a single bonus or commission split for every new affiliate
Launch commission – to grease the wheels of a new affiliate program offer a higher commission rate for a fixed period
Attributed commission – this can be a bonus for any affiliate whereby they weren’t the last click and therefore missed out on the commission
So, by offering these incentives alongside your standard rates you can start to define a much more attractive commission model for affiliates.
Low Commission Rates
You might find that despite all your calculations you just can’t compete with competitors with regards to commission rates. Well, if that is the case there are some tactics you can use to remain appealing.
Free products – give your affiliates free products or a trial to check out your brand and enable them to write a detailed review
Longer cookie window – this typically 30 days on most programs, but can you offer a longer window at no extra cost to the brand
Press invites – make partners feel like brand ambassadors by inviting them to events
Exclusive offers – this can improve conversions and only become a cost the brand when a purchase is made
Content bonus – give content publishers ideas on how to talk about your brand and reward them for their articles
Landing pages – a co-branded landing page will increase conversions and make the affiliate feel loved
Exclusive content – offer your affiliates a first look at new products or services and create exclusive banners to help them promote
Although we know commission rates are the beacon of an affiliate program for new partners. Offering a diverse range of commission rates and additional incentives can also be beneficial.
In a channel where we are judged not just on revenue but also ROI. Be innovative and reward publisher while maximising your budget to greater effect.
