How to Set Up a Fair Affiliate Commission Structure
Your affiliate partner program is more than just another performance marketing channel. It is a framework for managing and leveraging partnerships.
Within this framework, relationships are at the core, and fairness is key to a successful relationship. Your partners need a fair and appealing incentive to be part of your affiliate ecosystem, one that encourages them to make their audience your customers. This is especially key in highly competitive sectors such as fashion, where everybody wants a piece of the pie.
What is a good commission rate for affiliates?
Determining the ideal commission rate for affiliate marketers can depend on a range of factors, including the industry, product type, and profit margins. A standard affiliate commission rate typically ranges from 5% to 30%, but many factors can influence this figure.
Lower-priced products or services might allow for a higher percentage of commission, while high-margin industries may necessitate lower rates. Additionally, the competitiveness of the market and the perceived value of the affiliate program can impact the attractiveness of the commission structure.
Striking the right balance is crucial to attract quality affiliates who can drive meaningful traffic and conversions. A fair affiliate commission rate can help you find the partners that add the most value to your brand.
How to set a good commission rate for your partners AND your business
It’s crucial for most brands to ensure the cost of sales across their marketing channels is as low as it can be without negatively impacting revenue. On the face of it, this may seem at odds with the goal of rewarding partners fairly.
However, this “more for less” mentality does not mean you need to simply cut costs across the board. This can be achieved by being more strategic in how and where you spend – ultimately resulting in a fair and beneficial partner program for all parties.
With this in mind, when establishing the affiliate commission structure of your program, there are two key things to consider to ensure viability for your business:
1) What commission rate can you afford?
It might seem obvious but, when establishing a commission structure for your affiliate partner program, you must consider your profit margins. In other words, make certain you can afford the commission you’re paying out.
For one of our menswear retailers who stocked a wide range of brands, all with differing margins, we set up differing commission rates per product, brand or category. The new rates rewarded higher commission for higher-margin products, and lower commission for lower-margin products in line with the large spectrum of price points the retailer managed. As they were based in the UK, but served customers internationally, we also took the cost of fulfilment of international orders into consideration.
This approach led to a more manageable affiliate commission structure relative to the brand’s profit margins and objectives, all while ensuring affiliate partners were still rewarded for their efforts.
2) Is your affiliate commission rate competitive?
Your partners want to make as much money as possible, just like you. In a competitive landscape like the fashion industry, if a partner can earn more money with one of your competitors (or resellers), they have less incentive to work with you. Before establishing your affiliate commission rates, scope out what other brands are offering and match it or – where possible – beat it.
How to set a good affiliate commission structure
The partners you have across your affiliate mix should vary greatly, all serving different touchpoints in the customer journey. So, it makes sense to tailor your commission strategy to address these differences and reward partners based on perceived value.
1) Lower commission for conversions lower in the funnel
Partners such as voucher code and cashback sites typically convert customers at the stage when they’re already committed to buying but are weighing up their options and looking for the best price possible.
It’s logical, then, to offer a lower commission rate for those affiliates converting customers at this stage of the journey, increasing rates based on perceived position within the customer journey. You may offer content partners driving brand awareness the highest commission, for example, and CSS partners a fair but competitive rate in between the two.
2) Attribution-based commissioning
The widely used “last-click wins” model in the affiliate channel can mean these top-of-the-funnel partners lose out on being rewarded for customers they have introduced to the brand. In order to maintain fairness across your full mix, it is worth considering implementing an attribution-based commission model, in which commission is awarded to contributors as well as converters.
Your affiliate partner program is not a channel for short-term solutions. It involves cultivating relationships long-term to achieve sustainable success. As well as having a fair commission structure forming the foundations, you must seek to build on this, and grow your partner relationships over time.
3) Tiered commissions
If your partners are performing well, why not reward them for this as part of your commission setup? You could look to increase a partner’s affiliate commission rate if they generate a specific amount of revenue within a set period.
4) Bonus incentives
Similarly, you can complement commission rewards by offering bonus lump-sum rewards for affiliates who achieve these set goals. Both of these strategies can help overcome stagnation, particularly alongside conversion rate optimisation efforts such as optimisation of partners’ content or offers.
Your partners are often brands in their own right, and brand awareness is a key focus for them too. Offering your partners something exclusive they can offer their audiences such as early access to a new outerwear product launch or a sale, an exclusive cashback rate or exclusive discount, can help position them as a reliable and beneficial site for consumers.
If your partner is a go-to site for consumers when browsing, your brand’s presence on this site makes you a go-to for consumers when purchasing. It’s a win-win!
Are you ready to make your affiliate program the best in the business? Get in touch.