Setting 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, and to work with you to ultimately make their audience your customers. This is especially key in highly competitive sectors such as menswear, where everybody wants a piece of the pie.
Fair for your partners, fair for your business
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 program for all parties.
With this in mind, when establishing the commission structure of your affiliate program, 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 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 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.
Not just fair, but far-reaching
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:
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.
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.
There are many ways to go above and beyond to ensure your program is the most appealing in the market for existing and potential partners – examples are:
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 commission rate if they generate a specific amount of revenue within a set period.
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.