It’s crucial for most brands to ensure the cost-of-sale 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 programme for all parties.
With this in mind, when establishing the commission structure of your affiliate programme, there are two key things to consider to ensure viability for your business:
What can you afford to reward?
It might seem obvious but, when establishing a commission structure for your affiliate partner programme, 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 commission structure relative to the brand’s profit margins, all while ensuring affiliate partners were still rewarded for their efforts.
What are your KPIs and how can your commission structure be leveraged to achieve these?
As well as serving to reward your partners for their promotional efforts, your commission setup can serve to help you achieve your business KPIs. For example, if a core business KPI is acquisition, then you can incentivise your partners to help you achieve this goal by offering a higher commission for any sales driven by new customers versus a lower rate for sales coming from existing customers.
Be careful how you use this approach, however! If competition is high, partners may direct their users to other brands offering stronger commission rates, a key consideration for multi-brand retailers.
On the subject of viability for your partners, the most crucial question to tackle here is:
Is your offering 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 rates, scope out what other brands are offering and match it or – where possible – beat it.