If you’re a merchant running an affiliate marketing programme, when was the last time you reviewed your commission structure? Making changes to the way in which you pay out commission can be beneficial in the long run, but can also be dangerous if done without a great deal of thought. Here are recommendations from Samantha Leigh, communications director at Affiliate Window, for reviewing commission structures…
Merchants typically work with 1,000 affiliates. Of those, 100 are likely to be essential to their online business, 100 will be very important and the rest may well fall into the “nice-to-have” category. Have a good look at where your sales are coming from, both in terms of value and volume. Although you may be tempted to introduce a tiered system to reward the affiliates pushing the greatest volume of traffic to your website, you may alienate a swathe of smaller affiliates that could be facilitating higher value sales.
Do your maths
Many merchants perceive the commission rate to be the most important criteria for affiliates when they choose which merchants to promote above others. In actual fact, the commission rate is often the last thing that affiliates look at. Consider conversion rates and earnings per click (EPC) alongside commission rates before making any changes.
Conversion rates are calculated by dividing the total number of sales by the total number of clicks and multiplying that figure by 100 to get a percentage. If your conversion rate is low, when compared to other merchants in your sector, you should look at what you can do to boost sales by making your site more appealing to potential buyers. Also, look at the way affiliates link to your site; for example they may be able to increase conversion rates by changing the entry point from your home page to a special offers page. If you’ve tweaked your website, and the conversion rate remains low, look at where the non-converting traffic is coming from. You may be getting a large number of visitors through from a blog, for example, but they might only be browsers that have no intention of buying. By minimising the number of these less effective affiliates on the programme, you can demonstrate a higher conversion rate to other affiliates.
Earnings per click can provide an accurate measurement of likely revenues to an affiliate. EPC is calculated by dividing total commissions by the total number of clicks.
Commission and conversion rates should be analysed together. If your closest competitor has double your conversion rate, then to level the playing field, you will need to offer double their commission rate to have an equal EPC on the same products.
Consider all the options
A flat commission rate will publicise that your programme rewards all affiliates at the same rate. It’s worth looking at your overall profit margin before defining this rate, to ensure that you will be able to afford to pay out commission alongside the network over-ride and any agency fees. Carefully chosen affiliates can also be offered a private, increased commission rate to incentivise them and foster stronger relationships with the advertiser. This approach has proved to be very effective.
A tiered commission structure, based on quantity of sales, is one of the obvious options to reward the most profitable affiliates, as long as you’ve done your homework on exactly how valuable each affiliate is. For merchants selling commodity products, such as CDs, you can implement a tiered structure based on volume of sales; whereas other merchants will need to look at the value of sales to ensure that the affiliates pushing big spenders your way are the ones who are rewarded not just those that are sending low-value buyers.
A product group structure is an alternative, where commission depends upon the profit margin generated by each group of products. You might opt to give a higher commission rate to washing machines and dryers than you would to iPods where the margins you get from the manufacturer are much lower. You can always choose to incentivise those product groups that are important to your business.
In addition to looking at commission rates, other incentives should also be considered, such as bonuses for high performance or high growth affiliates, or perhaps competitions and voucher codes to incentivise smaller affiliates. Confetti, for example is currently offering 10p to affiliates for every customer that signs up to their e-newsletter and this is likely to have a positive effect on conversion rates.
Make considered decision
This is a highly sensitive area for affiliates, and making the wrong decision when reviewing commission structures could have long-term repercussions. Your affiliate network should be able to provide you with the information you need to make an informed decision, so don’t rush into any changes without discussing it with them first.