One important decision in setting up an affiliate marketing program is determining how you will structure commissions and payouts. The commission model should incentivize affiliates to drive the desired actions and be revenue-positive for the advertiser. Here are some tips on choosing a commission structure:
Evaluate business goals
First, examine what your key objectives are and what you want affiliates to accomplish. Do you want to increase brand awareness? Generate new leads? Make direct sales? The commission model should tie rewards to your goals.
Consider industry benchmarks
Research typical commission rates and structures in your industry. For example, SaaS products often pay recurring commissions for ongoing subscriptions driven by affiliates. Retail brands may pay 8-15% for completed sales. Aligning with benchmarks provides competitive compensation.
Weigh pros and cons of models
Pay-per-click, pay-per-lead, and pay-per-sale are common commission models, each with pros and cons. For example, pay-per-sale rewards the most valuable actions but pay-per-click provides upfront revenue for new affiliate partners.
Learn more : Affiliate Marketing Glossary
Factor in profit margins
Commission rates also depend on your profit margins. If profit per sale is $100, paying a $20 CPA may work. But if margins are only $20, a lower flat rate or percentage commission of 5-10% may be more sustainable.
Project impact on revenue
Estimate the incremental value generated by affiliates and set commissions so that the additional revenue exceeds payout costs. For example, if affiliates drive 100 sales per month, is 15% of that added revenue worth the acquisition investment?
Consider tiered or hybrid structures
A tiered commission model that pays higher rates for incremental sales milestones or combines flat fees and percentage commissions can incentivize growth. Offering bonuses for key performance indicators also works.
With the right affiliate commission structure aligned to your business model, both advertisers and publishers can find success. Continually optimize based on data and feedback.
