What commission amount should I pay my affiliates?

Posted October 30, 2012 in ,

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.

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Comments (1)

1 thought on “What commission amount should I pay my affiliates?”

  1. Great perspective on affiliate commissions! This is why we hired JEB Commerce to manage our program. The value you bring to the table is that you work with affiliates and listen to what they have to say. This brings a realistic voice to what motivates affiliates to sell.

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About the author

Jamie Birch

Founder/CEO

Connect with me on: Skype
Jamie is the owner and principal of JEBCommerce. His extensive Internet marketing experience includes all facets of online marketing: email, paid search campaigns, customer retention programs, and much more. This wide range of disciplines has enabled Jamie to excel as a business leader and JEBCommerce to realize a great level of success for its clients. Jamie cut his “affiliate marketing teeth” managing affiliate programs for many well known companies before spending several years at Coldwater Creek, a Top 5 nationwide women’s clothing retailer. While at Coldwater Creek, Jamie established and managed affiliate campaigns, email campaigns, and SEO campaigns – an opportunity that allowed him to develop many of the proven processes JEBCommerce successfully employs today. In recognition of his professional leadership, the affiliate marketing industry has consistently nominated him for Annual Pinnacle Awards over the years. In addition to individual accolades, JEBCommerce is gaining momentum within the Internet marketing industry and is experiencing positive, exciting growth. This is a direct result of Jamie’s positive leadership, integrity, and earned respect – from his clients and industry peers. Need a speaker for your next event? I can do that, too!