Why Tiered Commission Structures Don’t Work – By Geoff Marshall

by Jenae Reid on August 29, 2017

The commission structure for any affiliate program is one of the most important elements that affiliates look at prior to joining a program, or deciding which merchant to promote among the competition.

One popular option is a tiered commission structure, where the merchant will pay different rates based on certain criteria. Some examples include volume, new-to-file vs. return, SKU or category, and affiliate category type.

Many of these make sense on the surface, but I would argue don’t work, and worse – give away precious spend budget.

The main thought behind utilizing a tiered commission structure is to motivate publishers to optimize performance to the higher rate. However, many top publishers work with thousands of merchants, and are not reviewing the performance of every single brand they work with frequently enough to adjust. They just don’t have the time or resources to do this. The result is paying higher rates without intentionally affecting the result you desire.

For example, say you are trying to drive more new customers through the affiliate channel. You think, “I’ll just pay higher amounts for new customers, and lower amounts for return customers, and the affiliate will optimize accordingly.” However, this is just not the case.

First of all, your partner may well decide to promote your competitor if they see the structure as confusing or unfair. The desired outcome of driving more new customers will not be achieved under the best circumstances, as they will not likely add extra exposure onsite to optimize the new customer rate. In this case, you will be paying higher amounts, but won’t be seeing any extra exposure to acquire more new customers.

The best way to drive new customers is by securing prime real estate with your partners. This has to be more intentional than hoping that they will see how much more they are making on new vs. return customers. You have to intentionally place your brand in front of more consumers to have any chance of acquiring more new customers.

One of the most popular methods that program managers utilize for securing extra exposure on affiliate sites is to give a short-term commission increase. This can be difficult, if not impossible, to do with a tiered structure. Many publishers, especially the loyalty publishers, are unable to be able to effectively display the cash back with a tiered structure, and often choose the lowest tier to advertise to avoid over-paying cash back.

So what should you do instead? Calculate a flat baseline that is comfortable given margin considerations, and allow room for higher rates to secure exposure. Give your partners compelling exclusive offers, or other assets, to secure prime real estate. If none of these options are available, negotiate test rates to try placements with flat fees.

The key is to spend your marketing dollars intentionally, rather than hope that your partners will notice your new structure and optimize accordingly.

 

Geoff is currently serving JEBCommerce as the Director of Affiliate Services, in Coeur d’Alene Idaho.

This article appeared in issue 39 of FeedFront Magazine, which was published in July 2017. https://issuu.com/affiliatesummit/docs/feedfront-39

 

 

 

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