There are plenty of ways you can set up the commission structure for your affiliate program, but time is money, so it’s well worth giving it some thought to make sure you get it right on the first attempt. Here’s a bit of advice that you may find useful along the way.
All too often I feel the commission structure of an affiliate program gets over-looked, with the retailer simply picking a flat commission rate that is comparable to their competitors. While this is often a pull for affiliates, my own take is that merchants need to look at the bigger picture.
How can my commission structure help develop my affiliate program long term?
In most instances, affiliate marketing is mainly geared towards promotions and discounts. And while that may seem obvious, from a retailers perspective there is a lot to take into consideration: the margins (during premium and sale periods); the average order value, and how to make the most of the products on sale.
Here is how I would approach things…
I may have the ability to offer 10% commission on full price items, but when I go into a 50%+ sale, will my margin still cover this? My best option would be to set up a separate commission level for sale items also. I wouldn’t want to put myself in a position where when I enter a period of discount the number of sales go up, but I’m still paying out much too much commission to make any money. My commission structure should be working for me, not against me!
Do I have the ability to offer more commission on some products? If this is the case, maybe I would be better off considering commission groups. Commission groups can give more flexibility with promotions and allow retailers to push a specific range or line more than others. For example I may have a small margin on Brand A, but a huge margin on Brand B. By having them in different commission groups this will allow me to offer more commission on Brand B, incentivizing this brand whilst still maintaining my margin on Brand A.
Offering different commission on different items can be extremely useful in other ways too, most notably when working with cashback affiliates. If I have different commission groups it means cashback sites can populate their merchant pages with more offers. In turn this allows customers to see how much cashback they can get dependent on the items they purchase, often choosing the brand which allows them to claim the most.
3) Average Order Value
Average order value should also be taken into consideration when setting up a commission structure. I may have the ability to offer 10% commission, but if I was a travel retailer or furniture retailer, my AOV could be £1000+. Obviously this 10% commission makes me a very attractive merchant, but just a 5% commission would still be very appealing, because the AOV is so high. By setting commission at 5% this also gives me an extra 5% margin to play with and offer as extra money off during promotions, and to increase exposure from affiliates.
As I mentioned above, affiliate marketing is largely based around discounts and promotions, so don’t just assume that because you’re offering a high level of commission your affiliates will make a high volume of sales. If they have no good offers to promote because your entire margin has been spent on the commission, then you’re unlikely to be maximizing the potential of your affiliate program. Give your program the best chance of success by making your commission structure as flexible as it can be, so you can successfully work with as many affiliate types as possible.
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