Table of Contents
- What are Commission Payments?
- What are Commission Payments in Affiliate Marketing?
- Commission Structure for Affiliate Marketing
- How Does Commission Pay Work in Affiliate Marketing?
- Commission Payment Processing
- Should You Automate Commission Payments?
- How to Show Publisher Loyalty to Affiliates
- Summing It Up
Affiliate marketing now has a value of $17 billion and is used by 83% of marketers to raise brand awareness. Creating a program that incentives the right talent is only half the battle. You also need to pay these people!
And if you don’t figure out how to do that in an organized and timely fashion, your affiliates will fly the coop just as fast as they came.
Delivering on promised payouts is only the end game for affiliate marketing; a popular tactic in which ad networks, advertisers, retailers, and/or agencies pay publishers (called affiliates) to embed sponsored links or run creative ads.
Compensation for publishers (like content creators, marketers, and bloggers) often depends on the commission structure you have laid out.
So, what are commission payments and the best ways to pay affiliates? Read on…
What are Commission Payments?
Very simply put, a commission payment is a transaction made to a worker, based on a sale.
There is no hourly rate, overtime pay, minimum wage, or additional remuneration. Some people earn a commission in addition to a base salary, while others choose to work solely on a straight commission.
When a commission is earned, the worker makes a portion of that sale in income. For example, if an affiliate makes a $200 sale and the commission is 10%, then they earned $20 on that sale.
A brand can use diverse ways to determine an affiliate’s commission. Payouts can be based on how:
- Much they sell
- Often they sell
- Well they perform
This helps to drive affiliates to sell more products/services and thus make more money.
Commission-based pay is advantageous to salespeople because it gives them more control over the total amount of money they make, and doesn’t put a cap on how much income they can bring in.
What are Commission Payments in Affiliate Marketing?
When it comes to affiliate marketing programs, commission payments are the backbone of productivity. It’s an incentive that keeps your affiliates motivated, and the marketing machine rolling. When you run an affiliate program with a sales commission, it’s important your workers get paid every time they help you make a sale (via an affiliate link).
Commission payments in affiliate marketing are made to influencers, bloggers, and other publishers that refer readers through a unique link; working to increase traffic and brand recognition. Some brands may choose to pay per click, while others may see more value in paying by action (requiring lead information).
In affiliate programs, percentage commissions are the most popular, with the average rate ranging between 5-30%. If you sell a variety of products/services, percentage commissions may motivate affiliates to promote items that lead to a higher average order value.
Commission Structure for Affiliate Marketing
When it comes to the different ways to pay an affiliate, here are the most popular commission structures:
- Revenue Share Model: The publisher gets a share of the revenue from sales that stem from the publisher’s site.
- Pay per Action: The publisher receives payment after a visitor completes a specific action. Payment of commissions by the action include:
- Pay-per-click (PPC) or Cost-per-click (CPC): Compensation is based on the number of clicks from a publisher’s site to the merchant’s website.
- Pay-per-acquisition (PPA): The payment rate is based on a specific action, such as when a new visitor signs up for a merchant’s newsletter or makes a purchase through an affiliate link.
- Cost-per-lead (CPL): Publishers receive payment for the contact information of a genuinely interested prospect. The merchant or sales team will reach out to the prospect.
- Pay-per-impression (PPI): Payment is based on the number of times a website visitor views the ad.
However, running a successful affiliate program is more than just a compensation model or payout terms. Publisher loyalty plays a huge role, a factor heavily influenced by regular commission payments.
How Does Commission Pay Work in Affiliate Marketing?
Placing a value on referral marketing can get tricky and setting the appropriate commission rate is a balancing act. You need to choose a percentage that’s big enough to attract top talent, but not too big that you can’t pay people consistently.
When your payout is low, it can be hard to recruit affiliates. They are apt to go with a competitor’s offer that’s better. Subsequently, if your commission plan has payouts that are too high, it will eat into your revenue.
Understanding the perfect affiliate commission conditions, and setting the right rate, takes work. Here are a few steps to follow to set a competitive, yet sustainable, commission amount that works for everyone:
#1) Choose the Type of Commission Payment
99% of the time, affiliates will be looking for a cash payment, but every now and then, store credit and other forms of payment will work. So, the first step is to determine the type of payment you will be giving out.
Next, decide whether you want to pay percentage commissions or a flat rate. Are you looking at a percentage of the total sales an affiliate makes, or is there a dollar amount set aside for each sale?
If you sell a variety of products, percentage commissions will motivate affiliates to promote those that lead to a higher average order value. However, if you only sell a few specific line items, with a set price, then a fixed-amount commission may work best.
#2) Calculate the Average Customer Lifetime Value
What you can afford to pay affiliates depends on your profit margins. However, these can be difficult to determine and prone to fluctuation depending on what you sell. To simplify everything, calculate the average customer lifetime value (CLV) to guide you.
A CLV equates to how much money the average customer brings you throughout their time doing business (minus the cost of acquiring that customer). The longer somebody sticks around, the higher the CLV becomes.
Having a deeper understanding of the average customer lifetime value will help a brand better determine a commission rate that’s both affordable and sustainable.
To calculate the average customer lifetime value, answer these questions:
- How much does it cost to bring in a new customer on average?
- What percentage of customers do you keep/retain each year?
- How much revenue does each customer bring in?
Average CLV = (Average annual profit earned from a customer (x) Average # of years someone has been a customer) – Initial cost of customer acquisition per customer
In order for your affiliate commission to be sustainable, it must be well below your average CLV. If it’s equal, you only break even and that’s not the reason why you’re starting an affiliate program.
#3) Analyze Competitor Commission Rates
Look at brands that attract a similar audience to yours, as they are typically competing for the same affiliates as you. Find at least 2 companies that are direct competitors with established affiliate programs. Analyze the commission rates of each program and its online real estate.
Every business vertical has a standard set of commission earnings. Keep in mind the average price of each product line and/or service helps to determine the actual payouts.
Look at how each competitor structures its affiliate commissions. Ask questions like:
- Are they paid in cash or credit toward products?
- What triggers a payout? Is it a sale, generated lead, or something else?
- Are the commissions a percentage of the sale or a set amount?
- Do they offer bonuses for top performers?
- Are there tiered affiliate commissions (higher rates for top performers)?
These insights will help you to structure your own program so that commissions are competitive enough to attract top affiliates.
#4) Start Low
Pinpoint a range of commission rates based on your competitive analysis, and start on the lower end. This will give your business room to increase commission rates later on.
No one will be upset if you boost their pay later on down the road, but if you decrease it, people will be, and it’s likely word will get around. Thus, it’s better to start off slow and work your way up to competitive commission rates.
This also gives you the freedom to test out different tiers of payouts and bonuses. Since a lower commission rate means higher profits, you’ll have more room to explore promotions and other rewards for your best affiliates.
#5) Decide on Bonuses
This is a great way to reward your top-performing affiliates. However, not every small business can afford to structure payouts with a bonus. There are a few different ways to apply bonuses. You can:
- Give gifts to affiliates that meet a certain lifetime revenue goal or fall in a certain top percentage.
- Offer a “bonus streak”. This is when an affiliate reaches a given amount during a workweek or pay period, they unlock a limited-time higher rate.
- Create a tiered structure where certain amounts of lifetime sales unlock a higher commission rate.
If the product or service is paid on a subscription basis, you can also offer affiliates a recurring commission. In this case, every time a customer renews, the affiliate gets another payout.
#6) Decide on Affiliate Conditions
Setting the rate is only part of the process. You also need to establish conditions or sales goals that affiliates need to meet, in order to be paid. Usually, a company only pays a commission check when a sale has been made through an affiliate link.
Many programs also have the condition that if a product is returned or the service is canceled within a certain time frame, the affiliate cannot keep the commission.
This makes the program low-risk because you only pay when you are sure your business has received the return on investment. However, it can also be off-putting for top talent who are used to being paid no matter what.
This is particularly the case if you have a longer sales cycle. In this instance, paying affiliates for both sales and leads may work out better for you. This helps to keep freelancers motivated as potential buyers research your product/service.
If you decide to reward affiliates for leads, make sure they are all qualified. They must fill out a form and give you their contact information after clicking an affiliate link. Set a smaller, fixed commission for the lead, and a larger rate for completed purchases.
Don’t ever reward an affiliate for clicks or impressions as that may make you vulnerable to fraud. It’s easier for unethical contractors to game this type of commission structure with a variety of affiliate fraud techniques you might not be aware of.
#7) Set up a Tracking System
How long will affiliates be eligible for a payout after someone clicks their link? Will they only earn a commission if a purchase is made that same day or is there a longer window of time?
If you want to award freelancers days, weeks, or even months after they click a link, you need to use affiliate cookies a.k.a. tracking links.
If you have a longer sales cycle, affiliate tracking links are critical. Especially if leads are doing a lot of research before buying. You need to decide on how long you want the affiliate tracking link to last and keep your settings competitive with other affiliate programs.
The cookie life should be directly representative of how long it takes somebody to buy your product/service. Anything more, you lose revenue, anything less, you lose talented affiliates.
#8) Periodically Check and Adjust the Rate
The rate you pay affiliates should never remain fixed for too long. You need to continuously check in and adjust according to market fluctuations. It may be that your competitors have raised rates, in which case, you could lose top talent for not adapting.
Changes don’t have to be permanent, either. An easy way to adjust is to identify a period of time when you can add a bonus structure, which could potentially increase sales. It’s a great way to drive more productivity during months of low activity.
Commission Payment Processing
Affiliate marketing has a cross-functional workflow and thus it makes commission payments a complex process. Paper checks, printing forms, manual income tax, and other time-consuming tasks are not complementary to a salary based on residual commission.
Leveraging technology like automation and self-service portals help a brand streamline the complex processes of issuing accurate commission payments to a growing affiliate network.
For example, the IRS requires that a business validate the tax ID of all payees, both domestic and international. This makes tax compliance a daunting task when paying multiple affiliates; especially on a global scale. A mass payment platform like Tipalti can automatically verify the identification and country-specific tax requirements of a payee through global databases.
Affiliate commission payments are more than just a dollar amount. A successful affiliate marketing program uses streamlined processes to build and maintain publisher relationships.
A mass payment platform empowers managers to take on challenging aspects of affiliate marketing, such as onboarding a diverse group of publishers, growing a global affiliate program, and complying with tax regulations. It ultimately empowers companies to better focus on building powerful relationships with publishers, freelancers, affiliates, and influencers.
Should You Automate Commission Payments?
Affiliate and influencer solutions like affiliate marketing platforms enable managers to track the performance of a variety of affiliate marketing campaigns. However, managing ad performance on a platform that’s separate from your mass payment provider creates a lengthy and cumbersome workflow.
That’s why a business needs a global platform with integration capabilities.
Significantly reduce workload by tracking ad performance and issuing payments in a single solution. There is a multitude of benefits to automating commission payments with affiliate software, including:
- Paying affiliates on time improves morale and boosts retention
- Automation helps manage expenses better
- Eliminates the redundant use of paper forms
- Saves time with more accurate reporting
- Cultivates a workforce that’s proactive and motivated
Does your business rely on the digital economy?
Brands should leave nothing to chance when it comes to paying partners.
How to Show Publisher Loyalty to Affiliates
Once you get your hands on an affiliate that meshes well with your brand, it’s important to make an effort to keep them. Competition can be fierce for this top talent, so make sure you are always doing something to show appreciation to these productive people. Here are a few ideas:
Offer Exclusive Deals
If all of your affiliates use the same offers for their audiences, creating exclusive deals for an affiliate goes a long way. Something that is tailor-made for their viewership, with specific bonus content. This can include things like:
- A limited version of a product/service
- Unavailable bundle pack
- Tailored content
Give them something they can offer that no one else has, and it will make the experience memorable for all parties involved.
Repository of Content
Give your affiliates access to high-quality promotional materials, so they don’t have to spend time recreating the wheel. This includes items like:
- Landing pages
- Branded graphics
- Video content
This will speed up their work tremendously as they can just choose from a repository of preapproved materials, instead of researching or developing their own.
You may also want to consider providing landing pages and other content specifically tailored to a particular affiliate if they draw in enough sales.
Giving affiliates company-branded merchandise and free products shows that you see them as an essential part of your business and team. It may not seem like much to give someone a t-shirt or coffee cup, but it might not be something any of your competitors are doing.
Sure, cash speaks loudest, but you never know when a cool t-shirt will also be appreciated. If your affiliate films video content, this is even better, as they can display it during their messaging. Creating opportunities for affiliates to promote your business and make money is a quick and easy way to foster brand loyalty.
Access to Tools
Whether your affiliates are bloggers, influencers, or artists, they all require programs to keep the train on the track. Make it easier for them to work and get things done by offering access to a variety of platforms and tools that create efficiency.
For example, if you have someone working as a social media manager, gift them with a subscription to a scheduling tool. If it’s a graphic artist, sign them up for a design program.
Praising affiliates for reaching a milestone goes a long way to boosting their confidence and drumming up motivation. If someone is doing a good job, tell them! Besides thanking affiliates, consider featuring them in a newsletter or mentioning them on social profiles. Go the extra step to show people you appreciate them.
Add some gamification to your sales goals. Give affiliates the opportunity to earn badges and titles, and compete amongst each other. It’s an excellent way to inspire people to work harder and boost productivity.
Additional ways to show loyalty include:
- Make payments on time, every time
- Provide new opportunities around every corner
- Keep lines of communication at all times
- Be open to negotiation
Summing It Up
When starting with new affiliates, create an FAQ section and be sure to include any disclaimers about your payable program. Explain all commission details, including rates, structure, conditions, and expectations to ensure everyone is on the same page.
Whenever you change any details on either side, you’ll need to update your affiliate marketing agreement to reflect that. To truly motivate people, make sure you always pay commissions on time and at a competitive rate.
Affiliate software programs that offer mass payables features, like Tipalti, are a good start to getting your program organized and everyone in the system. Then, paying large groups of affiliate commissions, whenever you need to, can be as easy as the click of a button!