Affiliate marketing has changed dramatically over the last few years as the internet, social media, and a number of new channels have evolved. While affiliates thrive on their knowledge and influence over niche audiences, their operations still rely on merchant commissions.
When crafting your affiliate marketing strategy, defining your affiliate commission structure can set the tone for inbound application, partner recruiting, and even overall channel performance, all of which benefits merchants and affiliates alike. Unfortunately, too many marketers use arbitrary commission structures that lack intentionality, which can result in harm to affiliate partnerships and overall success. Learn more about optimizing your affiliate commission structure through intentionality below.
The Problems with Singular Commission Rates
Although overcomplicating commission structures can lead to alienation and resentment among your affiliates, too many merchants and marketers take a one-size-fits-all approach to outlining commission structures, while others forget to implement different rates entirely once program baselines go live.
Offering a singular commission rate comes with some high risks, including:
- Overpaying certain affiliate partners who do not require an increased commission and can function effectively at a lower rate.
- Low-balling certain affiliate partners who will provide increased levels of promotion at attractive rates.
- Limiting cashback strategy by failing to offer an incentivizing kickback to users.
In other words, using a singular commission rate can ultimately harm affiliates, merchants, and end-users all at once.
Building Intentional Affiliate Commission Structures
Instead of creating oversimplified, singular commission structures, be highly intentional with your affiliate strategy for the commission rates that you offer and create payout diversity at both the singular publisher and category level. This creates greater flexibility for affiliates at all levels and ensures that you don’t lose money in the process.
Some recommendations include:
- Implement an attractive baseline commission by analyzing what competitors in the space are offering and provide a rate above the average.
- Offer a lower commission rate to coupon partners. As these partners will drive the majority of revenue volume on your program, this will help protect profit margins.
- If you have a limited product offering and high-cost variance between SKUs (ex. tech products), consider implementing a flat payout per SKU.
- Offer a higher commission to marquee publishers and request additional placements for limited time increased commissions.
The goal is to outline commission rates that are meaningful to each partner category and layer on additional performance incentivizes to support volume.
Common Affiliate Commission Structures
Some common commission structures include:
Fixed margin payments use a set percentage for commissions regardless of the actual sale amount. This structure is common for being easy to track and easy to understand for both affiliates and marketers while leaving little room for discrepancy. As mentioned, however, these types of structures come with plenty of problems that can result in lost funds and lost affiliates.
Time decay structures are designed to reward affiliates that execute conversions closer to the event. Where one affiliate may have piqued a user’s interest, another affiliate may reach the consumer right before the point of purchase. The latter affiliate would receive a larger portion of the commission. This mainly works for popular brands whose campaigns have become over-saturated, as well as companies looking to partner with multiple affiliates to run campaigns across several different platforms.
Position-based commission structures reward affiliates that first make contact with the consumer and those that influence the final purchase. This structure takes into account the potential buying practices of the consumer. For instance, many consumers will visit a site multiple times and browse and compare several different items before finally making a purchase.
One of the most common tools for commissions, this structure rewards affiliates for any transaction that involves using the coupon code, regardless of whether the user got that coupon code from a podcast, email, or print flyer. Coupon codes are easy to track and allow merchants to work with a larger pool of affiliates, both on and offline.
Shopping Cart Disqualification
Shopping cart disqualification allows merchants to only reward affiliates that influence a buying decision instead of paying them after a customer has already decided. The situation has happened to plenty of us: you go to your favorite e-commerce site, put something in your shopping cart, and then search the Internet for a coupon code. Normally, that coupon code would be attached to the affiliate, and they would receive a commission for that purchase. Shopping cart disqualification would invalidate that commission if the buyer paused their transaction or navigated away from the page to find the discount before purchase. Essentially, merchants want to know that their marketing budgets are working and that affiliates are getting the word out.
Cross-platform tracking is becoming the norm considering the evolution of both technology and consumer behaviors. Gone are the days of buying something online from just your home desktop computer. With the growth of smartphones, tablets, and laptops, consumers often own multiple devices through which they can make orders, leave reviews, and research purchases. Cross-platform commission structures reward affiliates even if buyers switch between devices before actually making the final purchase.
These are just a handful of the most common affiliate commission structures, and they are by no means the only structures available. More importantly, there is no single commission structure that will work for every marketer-affiliate partnership, and while creating a custom commission program may take some time, it will ultimately be invaluable to your company and your affiliates. By defining an agile commission structure, you can set the program up for long-term success and continue building upon strong performance. This also ensures the satisfaction of your affiliates to maintain long-term partnerships that benefit everyone.