Affiliate marketing can be a profitable and successful marketing channel when managed correctly. One of the pivotal considerations that will determine the commercial viability of the channel and keep affiliates engaged is the commission structure of the programme.
A well-designed commission structure not only motivates affiliates but also aligns their incentives with the overall goals of your business. In this article, some of the most popular commission structures will be explored, alongside their pros and cons, to help you determine the best fit for your programme.
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Commission Structure
The first decision to be made in terms of commission structure is whether the programme will be paying out based on CPA (cost per acquisition) or CPL (cost per lead). CPA based programmes are the most popular within the industry and are applicable for pretty much all e-commerce brands with transactional websites. CPL is most appropriate for retailers who have a higher proportion of offline vs. online sales e.g. travel and car retailers.
If you are working on a CPA model, there are multiple options to consider, a few of which will be explored below.
Flat-Rate Commission
A flat-rate commission structure provides affiliates with a fixed £ amount for each sale they drive. E.g., £10 received for each completed and validated transaction, no matter the order value.
Pros:
Simplicity: Flat-rate commissions are easy to understand for both publishers and businesses.
Predictability: Affiliates know exactly how much they will earn per sale, therefore this model allows for consistent payouts and clear expectations.
Cons:
Limited flexibility: This structure doesn’t reward affiliates for bringing in higher-value sales. A high-ticket item or a customer with potential for repeat business doesn’t generate more commission for the affiliate which can have implications for ROAS.
Lower lifetime value consideration: Flat-rate commissions may not consider the long-term potential of a customer, which is especially important for businesses relying on repeat purchases.
Best for:
Businesses that sell low-ticket items or services with a consistent price.
Companies that want to keep things simple and transparent for both affiliates and customers.
Percentage-Based Commission
A percentage-based commission provides affiliates with a percentage of the order value for each transaction. E.g. if the total transaction value was £100 and the CPA rate is 10%, the affiliate would receive £10.
Pros:
Scales with sale value: As the commission is tied to the sale price, affiliates earn more for higher-ticket items, which is a natural incentive to promote higher-value products or services.
Motivation for affiliates: High-performing affiliates can potentially earn more by generating higher value sales which can lead to them trying to encourage this such as writing articles highlighting the advantages of certain products.
Cons:
Potentially unpredictable: Unlike a flat-rate commission, a percentage-based structure can lead to more variable payouts, which may be a deterrent for affiliates seeking more stable earnings.
Lower payout for low-ticket items: For businesses selling low-cost items, the percentage-based commission may not be appealing to affiliates, as the earning potential per sale may be too low to motivate them.
Best for:
Businesses selling a range of products, especially those with varying price points.
Companies with high-ticket items or services where affiliates can earn a significant commission from each sale.
AOV Commission Structure
An AOV commission structure rewards affiliates who drive higher AOVs on the retailer’s site. E.g. you could provide 6% on transactions between £1 – £49, 8% on transactions £50 – £69, and 10% on transactions over £70. This is particularly valuable for cashback sites, where it can provide an incentive for customers to spend more on site as the rates are visible to the customer.
Pros:
Encourages performance: The tiered structure motivates affiliates to work harder and achieve higher sales in order to unlock higher commission rates. This can lead to a more competitive, high-performing affiliate base.
Increased customer conversion: When the rates are visible to the customer, e.g, on cashback sites, higher AOV rates can act as an incentive to customers to convert vs. another brand, and with a higher order value.
Cons:
Risk of disengagement: If affiliates feel the tiers are too high or difficult to reach, they may become demotivated or frustrated, potentially leading to lack of effort in promoting your brand.
Best for:
Businesses that want to incentivise growth and reward high-performing affiliates.
Companies that want to create a competitive and goal-oriented affiliate program.
Cashback sites, where the rates can be promoted to customers.
Recurring Commission (Subscription Model)
With a recurring commission structure, affiliates earn a percentage or flat-rate commission on every payment made by a customer they referred, for the entire duration of the customer’s subscription. This is most suited to subscription-based services.
Pros:
Long-term revenue: Affiliates have a strong incentive to acquire quality customers who will stay subscribed for months or even years, resulting in long-term recurring commissions.
Attractive to affiliates: Affiliates are drawn to recurring commissions because they can earn a passive income over time. This model can help attract high-quality affiliates who are looking for sustainable earnings.
Scalability: If your business operates on a subscription model. A recurring commission structure allows you to scale your affiliate program with the growth of your customer base.
Cons:
Delayed results: Publishers won’t see the immediate impact of their sales, which can be challenging if they are looking for quick returns.
Dependence on retention: The success of this structure is heavily dependent on customer retention. Affiliates may earn less than expected, if there is a high customer turnover, leading to potential dissatisfaction.
Best for:
Businesses with subscription-based models, like SaaS products, online services, or membership platforms.
Companies that want to establish long-term partnerships with affiliates.
Customer Type Commissioning
Customer type commissioning provides different rates for different customer types. The most common split is new vs. existing customers, where new customer orders receive higher commission. This again, can help encourage purchases on cashback sites where the customer receives the payment. And can also encourage voucher sites to push more new customer offers which can lead to an increase in customer databases for retailers.
Pros:
Increase in overall long term revenue: for business who have high lifetime value customers, it can increase new customer numbers, which can in turn increase overall revenue in the long run.
Cons:
Tricky to implement: It can be hard for some publishers to push certain customers through their site and can cause disgruntlement with the programme and what is being rewarded.
Performance-Based Bonuses and Incentives
In addition to a standard commission structure, there is also the option to provide performance-based bonuses or incentives. These could include bonuses for reaching certain revenue targets, or rewards for top-performing affiliates in terms of clicks or sales.
Pros:
Increased motivation: Performance bonuses encourage affiliates to go the extra mile. Increasing the likelihood of them promoting your products more aggressively and pushing outside of booked exposure.
Flexibility: You can tailor incentives to suit specific business goals, such as promoting new products, targeting a particular geographic region, or hitting quarterly sales targets.
Creates excitement: Bonuses and incentives can create a sense of excitement around your affiliate program. Fostering a sense of healthy competition among affiliates.
Cons:
Costly: Depending on the size of the bonuses and how often they are paid out. Performance incentives can be costly for your business if not properly managed.
Best for:
Businesses that want to drive specific behaviours, such as launching new products or hitting certain programme targets.
Companies that want to keep affiliates engaged with additional rewards on top of regular commissions.
Choosing the Best Commission Structure
The “best” commission structure for your affiliate program depends on several factors, such as business goals, industry and desired affiliate and customer type. Deciding on your commission structure should be an element of your programme that is carefully considered in order to yield the best results, remain profitable and keep affiliates engaged.
For more information on this story, or for support with your Affiliate Marketing. Get in touch with our Awin preferred partners Affiliate team. Send us an email to team@modo25.com
