A: As much as you can
B: As little as possible
C: As much as your biggest competitor
D: As much as you need to get attention
E: I have no idea that’s why I sent you this question in the first place
I’d love to say to you that it is A or D. Unfortunately, it isn’t really that simple. So, in a word, it’s F: None of the above, or some form of all the above and a bunch of other options I didn’t list. It just isn’t a simple answer.
So how do we get to the right commission rate? Well, it isn’t so much a formula as it is a gut feeling. “Well, Jamie, my gut isn’t telling me anything, so what do I do now?” Great question. Here is what I do. I gather data. What data you ask?
- Your top 5-20 competitors
- Their commission rates
- 5-10 complimentary companies
- Their commission rates
- My ROI needs
- My average cost structure
- The highest commission I can pay without losing money on that individual sale
- The highest commission I can pay without losing my job (may be higher or lower, depends)
- My average order size
- My conversion rate online total
- Cost per sale for other online channels (SEO, Email, CSE etc)
- Affiliate Feedback – yes I actually talk to affiliates prior to setting commission rates to get their input prior to launching a program. You get so much insight, it is truly unbelievable
- A sandwich
- Some coffee
- Maybe a Snickers
- Guidance and/or pressures from those above me (“you have to outperform all other channels with half the cost”)
- The highest commission rates in my category
After I make a dent in the sandwich and have some coffee I put all that data up on a white board. I recommend getting this on to something big, getting it visual in one place like this helps you quite a bit. This helps develop my gut feeling. And in the end, that is what you are trying to get to, a highly educated and well thought out gut feeling, but a gut feeling none the less.
Well, there you go. It’s business, you want to protect your margins while providing enough incentive for your partners. You want to give them as much as you can, but hold back some to reward those partners who you discover can truly drive sales for you. The last thing you want to do is rollback a commission (taking it down from 10% to 5%), so you may want to start on the low side. It’s always great to go up, but can be problematic to go down.
Did I miss anything here?
