It is no secret we're still in a recession, and many businesses are facing truly hard times. Some are viewing the technique of cutting affiliate commissions as a way out. Bad idea. It neither speaks of their respect towards affiliate partners, nor motivates affiliates to perform better.
Today's email from a friend, who's also an online merchant with an affiliate program, brought a sad reality into the picture. He shared how he's struggling to keep his business afloat, concluding "I haven't paid myself in four months, and my savings are all gone. After investing almost $500,000 into my business -- $250,000 alone last year -- I have hit rock bottom." He was asking for advice on how to steer his business out of it, but not once has a thought of dropping the affiliate commission rate has crossed his mind.
In contrast, several other online businesses have dropped affiliate commissions lately. While their reasons for doing so are unknown to me, it certainly wasn't a good idea. I tweeted about it, and received a swift reaction from a fellow affiliate marketer to my tweet:
Here's the text of an email one merchant circulated among their affiliates yesterday:
Not to alarm you, but we have changed the base commission from 10% to 5%. Please note that this does not affect high performing affiliates. If you have produced sales in the past 12 months, your commission WILL NOT be affected. This change in policy only applies to new affiliates.
If you fall into this category and your commission has changed, then do drop me an email to make the adjustment accordingly.
...and here's a message from another merchant (not even a human-typed email, but a notification that the affiliate network is set to send out when a commission level is changed) that landed in affiliate email boxes just a few hours ago:
This is an automated notification regarding a commission change for the [Merchant's Name] Affiliate Program.
This merchant has made a change to their default commission rate.
Previous Per Sale Commission: 15.00%
New Per Sale Commission: 12.50%If you have any questions regarding this change, you should contact the merchant via your [affiliate] account.
In reply to my above-quoted tweet, another affiliate wrote back saying that all of this is "rather misguided... and not fair at all." I completely agree. By the very definition we are talking a performance-based marketing here, and when the remuneration provided for that perfomance ceases being enticing, the intricate blend of the tangible and intangible that we call "motivation" flies away to never return back...
Looking at the text of that first email, I can't help but wonder how they expect stagnant affiliates to get active if they just told them they've missed the boat. While someone will be earning twice as much as they do, it's too late for them.
About half a year ago I wrote about this in my own blog, and my advice remains the same:
You want to make your calculations right at the very outset. Lowering the commission rate (permanently or even temporarily) at any time during the life of your affiliate program is a grave mistake. It can easily bury your reputation, and your affiliate program. Put yourself into your affiliates' shoes and you will understand why.
Respect your affiliates, and let your actions mirror this respect.
The rule is simple: if you want your affiliates' motivation to drop, drop that commission rate. If, however, you truly care about your affiliate program, your brand, and its online future, think several steps ahead, and do it as early as that program setup stage.
Geno Prussakov is the Founder & Chair of Affiliate Management Days conference, Founder & CEO at AM Navigator, author, internationally known speaker, and a guest blogger at Econsultancy.
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9:08AM on 4th February 2010
Speaking as a fellow affiliate manager, particularly in the UK i think this stems from the original setup of affiliate programs, in that it used to be the case that networks, agencies and affiliate managers would reccomend 'going right to the wire' in terms of reccomending a retailer what commission they should give to affiliates.
as a result you get commissions set at rates that don't make financial sense to the merchant, in some cases killing the merchants own margins.
but its also a chicken and egg situation, what do you do when you're competeing directly with other merchants/competition in the same space? obviously matching their commission comes in pretty high as one of the priorities.
Affiliates have 'had it good' for quite some time, changes in commission structure should be expected, althought a deeper explination and some degree of compromise is needed.
One thing you haven't mentioned is conversion rates, as you've mentioned on your blog previously, a better conversion rate can sometimes allow for a lower commission rate.
on the whole i agree that lowering commission isn't the best of things to do, but for some merchants there isn't any other option. what it boils down to is making sure that you have a decent affiliate manager from the outset and that the campaign is well planned right from the beginning.
4:17PM on 4th February 2010
Here's one that I received about a week ago:
If you ask me, merchants who adjust their own commissions should not be allowed to make it nothing.
Also, if you are a merchant who drops (or raises) the commission for your affiliates, send them an email! The commission change notice isn't enough... explain why you dropped (or raised) the rate.
Founder at AM Navigator LLC
5:29PM on 4th February 2010
@Ken: Than you for your comment. Unfortunately, I do not believe that any explanation will help affiliates in the above-quoted situations (especially the first one, where some affiliates will be paid twice as much), and neither do I agree that to be competitive a merchant needs to first set their commission level at the level that makes no economic sense to them, planning to drop it once the program picks up.
On the other hand, you're right on the money with the comment about conversion. The ultimate question is always that of the final payout, and it is contingent on 3 variables: (i) commission rate, (ii) conversion ratio, and (iii) reversal rate [more here].
@Eric: Wow! They went from $5/lead to $0/lead?! It also looks like they haven't even bothered notifying their affiliates, but once again, it was a network-generated email that you've received.
I agree, no merchant should be able to drop that commission level to the $0.00 mark. But one could also ask if $0.01 would be any different...
8:53AM on 9th February 2010
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5:53AM on 18th February 2010
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9:49PM on 23rd February 2010
Heres a motivational tip from the perspective of a online affiliate website owner. Keep your affiliates happy at all costs. Marketing is the backbone of a growing business. If you de motivate the hand that feeds you it will stop feeding you.
10:03PM on 23rd February 2010
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