Figuring out a commission rate for your affiliate program can be a tricky matter. How much should you pay your affiliates and which payment structure should you pick, pay-by-sale commission or ongoing commission?
One of the most important decisions you will have to make at the start of your program is to decide how you will reward your affiliates for their performance.
When searching for a good affiliate program to join, most marketers will look at the commission rate first, as they will want to know how much they can expect to earn from their work. If the commission rate is lower than expected, many of your potential affiliates will simply look for another, more rewarding program to join instead. With so many competitors around, offering a poor commission rate as part of your affiliate program will almost certainly make it hard to attract motivated marketers.
But having a very high affiliate commission in your program might not exactly be a good idea either, as it can hurt your profit margin and make the entire program not worthwhile. Thus, offering an attractive but reasonable commission rate will be your best chance to attract the right affiliates.
Figuring out how you should reward your hard-working affiliates can be tricky as well. Offering discounts, brand products, or special offers work well for some companies. But the majority of brands that operate affiliate programs pay their affiliates a percentage of the profit earned from the products they sell. With this type of reward, two methods are especially popular – the pay-by-sale commission and ongoing commission models.
But how should you pinpoint the ideal affiliate commission rate for your program and which one of the two methods will work best? Keep reading — in this article, we’ll explain the similarities and differences between the pay-by-sale commission and ongoing commission models to help you find the best fit for your program (and your affiliates too).
How to pick the right type of commission for your business
Whether you plan to offer discounts, merch, or cash-based rewards, figuring out how much to pay your affiliates can be challenging. Especially if you are just starting out with affiliate marketing. Looking at the data available online, the average affiliate commission rate is usually between 5% and 15%, but sometimes as high as 30% or even 50%, and as low as 1%.
Why are there such differences? The commission scale will depend on multiple factors, including varying industries and product types to price and available incentives. You may discover that 10 different affiliate programs in your industry have 10 different commission rates because of these factors!
You could use an online affiliate commission calculator to get a rough estimate of how high your reward should be, but it would still only be a rough estimate. To calculate precisely how high your commission should be, you need to do some research.
First, have a look at the production costs of the promoted product or service and its retail price. In other words, how much could you offer your affiliates to make the program worth their while whilst still making a profit for yourself? Once you have this info, it’s time to look at what your affiliate competitors are doing. What are other companies in your niche offering? How much, and when are they paying? What type of affiliate payment method do they use? Do they offer any incentives for top-performing affiliates, or do they use a tiered reward system?
You might be able to find the answers to most of those questions on your own just by Googling competitors’ terms and conditions or their affiliate program websites. If not, you could try reaching out and asking them about their rates.
By knowing how much other companies in your industry or niche pay their affiliates, you’ll have a good idea of how much you should pay in order to stay competitive and attract new people to your program. For example, if a brand in your niche offers a 15% commission for each affiliate sale then providing a 10% reward might not bring many marketers to your program. To maximize the competitiveness of a lower commission rate, you could offer extra incentives and bonuses on top of the standard rate.
Having a defined system of bonuses and exclusive or tiered rewards is one of the best ways to keep your current affiliates motivated and attract attention to your affiliate program.
You could also offer all affiliates who fulfill certain conditions (such as certain revenue criteria or being amongst the top 5 performing affiliates) a cash bonus on top of their regular payroll.
Another idea for boosting your affiliates’ motivation is to provide them with performance-based incentives in a tiered reward system. In this system, each affiliate who hits a pre-defined goal that you set will move up to a higher tier with better commission rates or other valuable incentives.
Sounds like a lot of work? If you try to handle these tiers and bonuses manually, then running your program could indeed quickly turn into a management nightmare. However, Post Affiliate Pro can be the answer to that problem. With its Performance Rewards feature, you can set criteria for offering bonuses or automatically moving affiliates up to higher tier levels. Every time an affiliate meets those criteria, the system will automatically assign them to a higher tier or add a bonus reward to their payroll.
Pay-by-sale commission versus an ongoing commission model
Now that you hopefully have a better idea about how much you can pay your affiliates without hurting your own profits, there’s one last thing to decide. Will you pay your affiliates for each sale they drive (this is called Pay-by-sale commission or the PPS model) or for bringing long-term customers to your company (the ongoing commission model)? Here’s an overview of both options to help you decide which one would fit your company better.
1. Pay-by-sale commission (PPS)
Paying affiliates for each sale they make is one of the most popular methods of rewarding them for their efforts. The basis of the Pay-by-sale commission model is simple: once a customer buys a product through an affiliate link posted by a blogger or social media user, the blogger receives a percentage of the profits earned by the product’s manufacturer. For affiliates, it’s a clear method that keeps them motivated to always give their best efforts. They know that the more people click on their links and convert, the more they (as affiliates) will earn.
Meanwhile, for companies, PPS is a low-risk way to boost sales as they only have to pay for results that affiliates have already achieved. The pay-per-sales commission model means that if no sales are made as a consequence of affiliate marketing, they don’t have to pay a single cent. It’s a low-risk solution compared to other marketing channels that have upfront costs.
Another benefit of this method is that it’s incredibly easy to track. There’s no need to follow several metrics in order to determine a marketer’s performance and how much they should be paid. All you need to do is keep an eye on the number of sales each affiliate makes and pay them accordingly.
This method has a few associated risks, though. First, most sales-driven commissions are one-time payments, meaning that an affiliate will only earn something for each customer once. While this is a good method for retail affiliate programs, it may not work as well with subscription-based products.
In this model, all leads are treated in the same way without differentiating long-term customers from one-time buyers. How much the affiliate will earn also depends on the product’s price. If a marketer manages to drive regular sales on cheaper products, they will earn less money compared to an affiliate who makes fewer sales but of more expensive products.
2. Ongoing commission
The pay-per-sale method isn’t a good option for everyone, however. Companies with subscription-based business models (SaaS companies, gyms, etc.) rely on returning customers more than making one-off sales.
Using this commission method, your affiliates will get paid for each returning customer rather than for each sale they drive. For example, if an affiliate brings in a new customer who renews their software subscription monthly, they’ll get paid every month. In this instance, the affiliate’s focus is to encourage customers to return and build long-term relationships by offering sufficient value.
These types of affiliate partnerships can last for months or even years as long as the customer keeps renewing their subscription or making repeated purchases of the product, which translates to recurring revenue for both the affiliate and the company selling the product.
The most difficult aspect of this commission method is that affiliates and brands have to keep making an effort to convince the customer to stay with them. And even despite this effort, brands usually have little control over how long a customer ultimately stays with a brand. The payments, while occurring regularly, are often also smaller than they are for pay-per sales ones.
Compare the pros and cons of using the pay-per-sale commission model or the ongoing commission model, otherwise you won’t know which one best fits your business and program. Fortunately, once you’ve decided, you can relax and leave the management of your marketers’ payrolls to Post Affiliate Pro. You can rest assured that your affiliate commission rates will be paid on time and that your marketers will be rewarded for their performance too.