What Commission Rate Should YOU Be Offering Your Affiliates?

Posted on February 29, 2008
Filed Under affiliate programs, affiliate marketing |

The big question on a marketers mind when starting an affiliate program is how much commission they should offer their affiliates. This is something that only the product owner can decide.

Before making the decision, take into account the type of product being sold and the program itself.

If offering a sales based program where affiliates earn a percentage of each sale, take a look at the costs involved in creating the product or providing the service to determine how much commission can be afforded.

Digital Products

For those selling a product with digital delivery, like an ebook or a recording of an interview, there is virtually no cost involved in the product once it is finished. In this case, a higher commission rate is probably more feasible and usually expected.

Physical Products

On the other hand, someone who is offering a tangible product, like a flyrod or a floattube, will need to do a little math in order to determine how much they can afford to offer. They will need to take into account the expenses of creating the product along with shipping the product to the customer. Once they know how much cost is involved and how much they really earn per sale, product owners can better decide how much they can afford to pay their affiliates.

Back when I first started selling on eBay I made some mistakes and had to suck up the loss until I corrected the problem with shipping cost. Fortunately I had only sold a few things before realizing I wasn’t going to be making any profit.

Pay Per Lead

If trying to grow your mailing list, take into consideration the option of implementing a pay per lead program. With this type of program, affiliates are paid for each subscriber they send the owner.

Know The Value of Your List

Those with established websites that have been tracking their sales may already know how much they are earning from their list. For example, if a mailing list has 1,500 people on it and earned $3,000 in sales through email marketing efforts, the earnings average about $2 per subscriber. This means the program could afford to pay affiliates up to $2 per lead and still break even. Of course, many affiliates may be happy to earn $1 per lead leaving the owner extra profits from your new subscribers.

For those without an established mailing list or are not sure how much they can offer affiliates, here is one option to consider. Set up a teleseminar that costs a nominal fee to register for, such as $1. This teleseminar can be on any topic associated with the product or website. For this one time, offer affiliates 100% commission (the whole dollar) for each registrant they refer. In return the product owner will be growing their own mailing list and won’t be out any profits.

Those considering what to pay their affiliates should also take a look at their competition and see what type of commission those are offering their own affiliates. Keep in mind that it is not necessary to match the commission rate. Instead, take a look at the amount of money they are offering. For instance, A $20 product with a 50% commission pays $10 and a $50 product with a 20% commission pays the same dollar amount. Since both of these products pay the same commission, the real question is figuring out which one will convert into more sales, as that is the one that will net the affiliate and the product owner more money in the long run.

If ever unsure of how much to offer, affiliate program owners should always start out a lower rate. No one likes to hear that their commission will be lowered, but if the time comes that the program can offer a higher commision, affiliates will be thrilled.