Seven Strategies for Intelligent Commission Setting – By Matt Swan

by Colleen on February 24, 2012

A common but critical question among advertisers is “what commission should I pay affiliates?” Unfortunately, there isn’t a simple answer, and implementing an effective commission structure requires careful consideration.

1. Consider the price of other online marketing options
Compared to other media, the affiliate channel often stands out as a cost effective way of generating additional sales. Revise spending based on your goals, projections, and the return on investment from each channel.

2. Identify industry standards and competitive rates
Consider payment models that are common in your industry. For example, finance programs generally pay a flat rate, while retail and travel often pay a % of the sale. Also, know the competitive landscape. If similar companies offer better rates, affiliates may give your program less exposure or avoid it altogether.

3. Understand the relationship between commission and Earnings Per Click (EPC)
Many affiliates choose programs based on EPC – a value calculated from commission payout and the conversion rate of your website. Often overlooked as a key priority, a well optimized and usable site with high conversion rates will allow for more flexibility when determining commission payout.

4. Align payout with your objectives
If new customers provide added value, set a preferential rate for affiliates able to generate new customer sales. Similarly, if certain products carry a greater margin, set the commission to reward affiliates that sell higher margin products.

5. Recognize that the key to engaging affiliates is flexibility
A “one size fits all” commission won’t necessarily bring the desired results. Typically, a majority of sales generated through an affiliate program are delivered by a small number of affiliates. Motivating these strong performers can be very different from mobilizing mid-tier and long tail affiliates comprising the rest of the campaign.

6. Motivating top tier vs. long tail
To engage strong performers, 1:1 negotiations could encourage affiliates to invest more time and drive more revenue. For this method to work, it’s imperative to set the base commission rate at a level that allows room for negotiation.

Negotiating rates can also be more beneficial than setting commission tiers, as they tend not to motivate the top affiliates. Similarly, unachievable tiers can de-motivate long tail affiliates. Instead, mobilize long tail affiliates with customized rates for achieving sales targets and increasing visibility.

7. Strategy based on affiliate type
Reach more potential customers by implementing a strategy that considers the needs of each affiliate type – including content, PPC, comparison shopping, mobile, incentive, email, coupon sites and more. Each segment should involve a different approach to maximize performance.

For example, coupon sites often deliver high sales volumes. When issuing a code, it’s possible to offer lower commission to offset the loss on margins. If your program accepts PPC affiliates, make sure that commission covers click costs plus profit margin.

Flexibility and understanding what motivates different affiliate types is key to intelligently setting commission structures for affiliate programs. This knowledge will ultimately lead to greater engagement with affiliates and an increase in branding, traffic and revenue.

Matt Swan is a Client Strategist at Affiliate Window and buy.at.

Download the entire FeedFront issue 17 here – http://issuu.com/affiliatesummit/docs/feedfront-17

FeedFront issue 17 articles can be found here as well: http://feedfront.com/archives/article00date/2012/2

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