Affiliate Marketing: How to Define a Commission Structure
The more complex a commission structure, the less likely an affiliate is to prioritize your products. For example, suppose you pay different commission rates for different categories of products. You do this in order to get affiliates to promote your higher margin products. However, in my experience, this could create resentment on the part of affiliates towards the lower commission rates.
You can still achieve the same goal and avoid affiliate resentment by creating a fixed commission structure for all product categories and then running bonuses and promotions around your higher margin products.
For example, for the month of August, you could offer a bonus of $ 50 for reaching a certain sales target for a particular product category. Or maybe you could increase the commission on that particular product category for a specific period of time. This approach creates less confusion about your commission structure and serves to keep affiliates engaged and activated.
Keep commissions simple
When you define your commission structure, it should be fair and easy to understand. Ideally, you would set your commission at a manageable rate, so that you never have to lower it. Whatever the reason, the lower commission rate causes disappointment among affiliates.
It is always tempting to start a new affiliate program with a high commission rate to get the most affiliates as quickly as possible. However, when you need to reduce the commission rate a few months down the road, you will likely see a drop in affiliate activity. Instead, start with your standard commission rate, but run a limited-time promotion that rewards or rewards affiliates with extra commission based on performance.
Who receives the commission?
Another commission rate structure to consider is attribution-based. It’s not uncommon for customers to exit the checkout process to look for a coupon code when they see a field to enter that code into the cart. They will search for your brand and the term âcouponâ. They will likely find a code on a coupon or offer site.
They will click on the coupon site to access the code and resume their purchase on your site. The challenge here is that if you use last click attribution, the coupon site will receive credit for the transaction even if it hasn’t entered the consumer’s click path before the transaction process is complete.
The coupon site likely played a role in getting the consumer to complete the transaction. However, does the site deserve a full commission? What if the consumer originally came to your site based on a product review they had read on a blog? If you use last-click attribution, this blog will not get any credit for the sale.
Use of attribution-based commissions
One way to solve this problem is to use an attribution-based commission structure. Many affiliate networks offer this possibility. Using attribution-based commission, you can set rules that award commission based on the affiliate’s location in the click path. For example, you can set up a rule that if a coupon affiliate enters the click path within 2 minutes of payment, the affiliate only receives a 1% commission.
You can also ask the tracking platform to find a previous affiliate who should receive a commission for the sale, and you can choose to give that affiliate a full commission or a portion of it.
In the previous example, I used a 2 minute window before payment. This will likely vary depending on the retailer, but you can determine a reasonable window by looking at your analyzes and determining how long it takes an average consumer to checkout.
This is a somewhat complex commission structure, but worth communicating to affiliates. In many cases, your content-based affiliates will be grateful as it helps protect their referrals.
Traffic from coupon sites
It is also important to note that not all transactions generated by a coupon or offer site follow this route. Many coupon or deal sites have built a loyal and active following by providing curated deal content. Their readers will often begin their buying journey by browsing this content. I have seen programs enjoy a 20 to 30 percent new customer rate on promotion sites. It varies by retailer, but the point is, not all coupon traffic is junk.
Finally, it is possible to create a commission structure where you pay affiliates based on new or existing customers. Sales from new customers would benefit from a higher commission rate, while sales from existing customers would benefit from a lower rate. This is possible to set up. Either you return a parameter to the tracking platform on each sale, telling the network whether or not the transaction should be associated with the new or existing customer commission, or you can do some sort of batch processing on a regular basis.
The downside to this commission structure is that there is no transparency for the affiliate. The Affiliate has no way of knowing whether or not their reader is a new or existing customer to you. Because of this, it will likely promote your products the same way to all readers. As such, is it really worth paying a higher commission for new customers knowing that it doesn’t serve to trick the affiliate into promoting your products differently?
Every affiliate program is different. However, the biggest mistake I see with retailers is setting commission rates based purely on profit margins, ignoring the impact the commission structure will have on affiliate perception of the program. Committee structures should be fair, easy to understand and follow, and well thought out.