There are many different opinions on the impact of using tiered commissions to increase revenue in the affiliate channel. Before I get into the potential impact of this tactic, let me take a step back to explain how this approach works.
How it works is pretty simple, let’s say the baseline commission for an affiliate program is 2%, a tiered system would offer a commission increase based on performance, for example if an affiliate reaches a predetermined threshold of orders, their commission could increase by 1-2% percent. The higher the sales threshold reached, the higher the commission increase. The qualifier for a tactic like this may be year-over-year (YoY) revenue growth, month over month (MoM), quarter over quarter (QoQ) revenue growth target or new-to-file customers, etc.
The goal of a tiered commission system is to drive incremental revenue.
Now that we have established what a tiered commission is, let’s look at some of the use cases where this approach may make sense:
- Activation campaign – identify non-productive publishers, driving clicks, but not sales, over a specific time period, i.e. YoY in Q1, and offer a tiered commission based on performance:
- Generate 3 sales in month 1 and earn a 2% commission increase
- Generate 5 sales in month 1 and earn a 4% commission increase; this increase can either be offered retroactively to all sales in the month where sales were driven or in the current month or the month following, i.e. publishers who drive 5 sales in April would receive a 4% commission increase on all sales in May
- Recruitment campaign – offer publishers who join an affiliate program a tiered commission over their first 90 days to help motivate them to put in the effort into promoting a new affiliate program. This may look like 2% increase for generating 5 sales in the first 30 days, 4% commission for generating 5 more sales, 10 total, in 60 days and 6% commission for generating 5 more sales, 15 total, in first 90 days.
- Optimization campaign – offer a personalized tiered commission for mid to top performing publishers within an affiliate program to try and drive enough more sales. This could be a solid approach to test in non-peak periods to identify which publishers would be a great fit to invest in flat fee during peak periods.
A couple of things to keep in mind with a tiered commission plan, make sure the plan is easy to understand and track. Since this is a fairly common tactic in the affiliate channel, some of the larger affiliate networks offer program terms with the option to offer commission tiers. This can save you a ton of time and energy manually entering bonuses. Be sure that before the campaign starts, your publishers understand how many orders they need to drive in order to qualify for a commission increase.
Equally important – follow through with commission increases based on the tiers for publishers who qualify. A success campaign will lead to increase network, publisher commission and possibly agency fees, so make sure you have the budget to support these campaigns.
Notify publishers who qualified for increased commission at the end of each month to be sure they know you have their best interest in mind. This will also encourage them to continue their efforts. Conversely, failing to do so will negatively impact publishers and they may not be as motivated by similar campaigns in the future.
Coupon and vertical publishers respond best to these types of tiered commission plans. They are able to project earnings based on traffic and current conversion rate to estimate their earnings to determine any additional placements they could provide for a tiered commission plan.
Content publishers are also a good fit for these types of campaigns. For these publishers, you may consider a longer campaign since their site visitors are typically top of funnel and may not be ready to purchase within 3 to 7 days.
Loyalty and cash back publishers are not motivated by a tiered commission campaign since they are not able to determine the commission increase and therefore, they don’t know how much additional commission will be passed back to their members. Often times these types of sites will determine which advertisers to promote based on cash back, and as a result, advertisers with lower commission rates appear at the bottom of the page, if at all.
Tiered commission campaigns can be an effective way to drive incremental revenue, without much risk, since there is not any cost for publishers who don’t perform. If you would like to know more about tiered commissions or how to properly set them up, please let us know.