One of the conundrums that faces any advertiser with an affiliate
campaign is how much commission they should be paying affiliates.
Unfortunately, there isn’t a simple answer to this question, and
setting a commission rate requires a lot of careful consideration.
When setting a commission structure it is also important to consider the cost of other online outlets. The affiliate channel can be a cost effective way of generating additional sales, if it is benchmarked against the cost of other areas of online.
The key to setting a commission structure that is going to engage all affiliates is flexibility. A “one size fits all” policy for setting a commission rate is not an effective strategy to drive additional sales volume through the affiliate channel.
Benchmarking against your competitors is one vital component of setting a commission structure. If it is not competitive within the segment that you operate, affiliates will either:
a) Opt against promoting your programme.
b) Promote the campaign but not give it as much exposure as your competitors.
Affiliates will partly base their promotion on the Earnings per Click (EPC) that the merchant generates for them. This is not based solely on the commission that is being paid, but also takes into account the conversion rate of your website.
If you have a website that converts at a higher rate than your competitors, you will not necessarily need to pay as high a commission, as affiliates will earn more money for each click through to your site. Of course, you may need to make an extra effort to tell your affiliates this is the reason for lower commissions but site conversion is often overlooked as a key priority within the affiliate channel and a well optimised and usable site will always be looked on favourably by affiliates.
You will also need to consider what the standard payment model is for that particular sector. For example, if you are in the telecoms or finance market, commission is generally paid at a flat rate while in retail and travel the norm is to pay commission as a % of the basket value.
It is also important to ensure that any objectives you have are reflected in the commission structure. If there is added value in new customers for example, a preferential rate could be put in place for any affiliate that is able to generate a significant level of new customer sales. Similarly, if there are certain products that have a greater margin than others, the commission structure could be set to reward affiliates who are able to sell high margin products.
Many affiliate programmes will see the majority of sales delivered by a small group of affiliates. There will then be a mid tier and then a longtail of affiliates making up the rest of the campaign. You are likely to see the greatest impact on sales by working closely with the top volume drivers, putting in place bespoke commission rates and sales targets whilst also ensuring that the mid and longtail of affiliates are not neglected.
Rather than setting commission tiers, it is more beneficial to work closely with individual affiliates on bespoke rates/targets. Tiers do not necessarily motivate the top affiliates to hit the highest commission rates and they can in fact be achieving the top tier already, essentially meaning that you could be paying more without generating additional sales. Similarly, unachievable tiers are likely to de motivate the long tail of affiliates who do not see the opportunity to earn increased commission.
By establishing the additional opportunities for increased exposure across affiliate sites, there is potential to engage with affiliates as media partners to deliver incremental volume. In order to have the flexibility to reward affiliates, it is imperative to set the base commission rate at a level where there is room for negotiation.
Working with different types of affiliate
Flexibility is also the key to working with different affiliate types. In order to extend your “reach” and to target as many potential customers as possible, a merchant should look to implement a strategy across a number of affiliate types – cashback, content, PPC, comparison and voucher code sites will all involve a different approach to maximise sales potential.
For example, when working with cashback sites, an exclusive commission rate above and beyond what is being offered to other affiliates is going to be needed to gain additional exposure, whether this means being included in “top tips” sections or in newsletters to members which could have the potential to reach hundreds of thousands of members.
Similarly, voucher code sites can be classified as an affiliate group and can deliver high sales volumes. If a voucher code is issued then it is possible to set up a commission rate that is lower to offset the fact that you will already be taking a hit on margins to offer a discount (again, consultation with relevant affiliates will allow you to make a more informed judgment).
If part of your affiliate strategy is to allow brand rights to select PPC affiliates (either as direct to merchant PPC or as a complementary PPC campaign through a landing page) you will have to consider the commission levels that are paid to these affiliates. If the commission paid on the sale does not cover the affiliates click costs with additional profit margin, then a PPC campaign would not be a viable offer for the affiliate.
There is also the opportunity to increase the amount of PPC activity that the affiliate is able to do on your behalf, potentially covering off more generic search terms if you are able to offer them an improved commission rate. A minimal increase can result in a high percentage uplift in sales revenue generated due to the extra spend.
Finally, it is also possible to motivate the longtail of affiliates by offering them bespoke rates for hitting sales targets/increasing the visibility of your campaign across their sites. This could include writing reviews on products/services that you offer. Longtail affiliates are unlikely to hit a sales tier but if they are worked with closely, they are able to increase the sales they are driving with a minimal additional cost to the advertiser, with fantastic, targeted branding attached.
To summarise, flexibility and an understanding of the motivations for different affiliate types is the key factor in setting an intelligent commission structure for any affiliate programme. A full appreciation of the finer details should ultimately result in greater engagement with affiliates and crucially an increase in branding, sales and revenue.