Setting affiliate commission rates

Why You Should Pay Affiliates What They Deserve

As performance marketing has evolved over the last 5 years, affiliates have been squeezed to such a point that many struggle to make any significant revenue from the channel.

 

Where average commission rates for fashion brands were 10% back in 2012, they’ve now dropped to around 6%. This is a 40% drop in revenue that affiliates will receive for doing the same work. Think about that for just a minute – would you be prepared to do your job for a 40% drop in salary?

 

With performance based commission models, it is the publisher taking the risk and currently the rewards don’t always outweigh this risk. They’re effectively a sales team with no basic salary and a 100% bonus model. Not many people would be willing to work for a company with this structure.

 

Fashion is just one example, but is common across many other verticals in the channel. Voucher code sites have been hit particularly hard, with dedicated commission groups often set up to pay them a lower rate of 1 – 2%.

 

The reason given is that voucher code sites aren’t driving incremental sales and have less work to do than traditional content sites to drive sales. While this may be true in some cases, brands should take responsibility and improve the user journey so that customers aren’t dropping out to hunt for a voucher code. If the voucher code site has driven a new sale, they should be rewarded accordingly.

 

So what can you do to make your affiliate programme more attractive and ensure your affiliate partners are paid what they deserve?

 

 

Truly Understand Your Margins

  • Without understanding your margins across all of your product categories it’s impossible to set up a commission model that is fair for both your brand and your affiliate partners.
  • After analyzing your margins, you should also calculate the average life time value (LTV) of customers that have been acquired via different channels. For example, customers gained via a cashback site may have a greater LTV than customers acquired from content sites. If this is the case, increasing the commission rate for new customers from cashback sites may cause an initial hit to your margins but deliver greater value and profitability in the longer term.
  • Don’t instantly drop the commission rate during sales periods. The affiliates aren’t doing any less work and you don’t get a discount if you’re advertising across other channels such as in press or on TV. You shouldn’t expect affiliates to take a hit.
  • Utilise category-level tracking to pay affiliates a higher commission rate for sales in categories that have greater margins. Most affiliate networks offer this as standard and it will also enable affiliates to drive more sales for your most profitable categories.

 

 

 

Editorial/Content Sites

  • Make it easier for editorial sites to generate sales over clicks by offering them a value add for their readers. For example, if they’re writing a travel piece on a particular destination, give them a discount code so their readers have a reason to book from the link on site rather than going to a voucher code site. Alternatively, give a unique link that provides their readers with a free upgrade (e.g. free breakfast) so that there’s no discounting of the brand itself.
  • Understand the time it takes to produce high quality content. Many bloggers may take 4 hours+ to write a 600 word article, while photography may add a further 4 hours on top. If you’re asking the publisher to write a dedicated article for your brand, you can take some of the risk by providing a one-off payment from your branding budget (in the same way you may already be paying for tenancy deals) and then agree a fair commission rate on top.
  • Use competitions or product giveaways as a value add and reason to work with your brand. For example, host a competition on site that readers are entered into after purchase from a specific content site.

 

 

 

Voucher Code Sites

  • Prevent your customers’ fear of missing out by removing the voucher code input field in the checkout if you don’t regularly offer codes. If you offer codes as part of email campaigns, use dynamic links to pass the code parameters directly to the landing page.
  • Work with a limited number of voucher code sites and ask all to set your brand pages to carry a ‘noindex’ tag so they aren’t visible in search engines. If they aren’t visible in the search results, you’ll have more control over the space.
  • Use a series of voucher codes to generate repeat purchases. If a new customer has been acquired with the help of a voucher code, it’s highly likely they’ll look for another code the next time they plan to book or order something. Offer an attractive new customer discount code (that you can pay the voucher code a fair commission for promoting to their user base) and then offer smaller discounts on the next two shops.
  • Set high minimum spend thresholds to increase the average order value (AOV) from sales via voucher code sites. Specific products or categories can be excluded to prevent erosion of margins and the voucher code sites will receive a higher commission payment for each sale due to an improved AOV.

 

Contact us today to discuss how we can help with ROI management and consultancy services available to engage your affiliate base.