Unlock Affiliate Program Profitability: A Guide To Commission Modeling

Unlock Affiliate Program Profitability: A Guide To Commission Modeling

Imagine a world where your affiliate program, when managed properly, could become a highly profitable powerhouse marketing channel. Unfortunately, all too often, we find avoidable mistakes that will erode your bottom line. Enter the sneakiest culprit: Flat Rate Commission Models.

Visualize this scenario: You’re extending a flat 10% commission to all publishers for every sale they refer to your website. Seems fairly benign, right? Not so fast. This means the publisher who swoops in at the eleventh hour with a tantalizing and in some cases, questionable offer receives the same commission as the diligent publisher who invests weeks into product testing and meticulously crafting comprehensive reviews.

Here’s where things get tricky: Your end-of-funnel publishers, who typically amass the lion’s share of revenue under a last-click attribution model, are the beneficiaries of a poorly thought-out commission model. The cost?  It’s a complete killer of profitability, and it could potentially spell disaster for your affiliate program.

So, what are the key elements to forging an affiliate program that’s both effective and optimized?  Here are five insights to consider:

Understand Your Margins and Expenses
Comprehending your profit margins and total program expenses is the foundation for creating a commission model that doesn’t lead you astray.

Know Your Commission Term Options
Your affiliate network will offer an array of commission term options: flat rate (no thanks), performance tiered, items-based, group-based, point of interaction. Dive into these options to identify the one that aligns best with your goals.

Embrace Customization
Optimize your commission terms with brand or product exclusions to maintain profitable

Tame Coupon Code Chaos
Unauthorized coupon codes can spread across the internet like wildfire eating into your profits. Tailor your commission terms to include coupon code restrictions, ensuring your not paying commission on codes not intended for affiliate promotion.

Harmonize Your Commission Structure
End-of-the-funnel publishers are an important piece to your affiliate program, however, their contribution is passive (in most cases) versus proactive with top-of-the-funnel publishers.

Level the playing field by configuring a fair commission percentage for your end-of-funnel publishers. If their new customer rates are high, give them a better rate (case-by-case basis.)  Reward your early-stage content creators with a premium, but manageable rate.

Using this formula you can typically trim a couple of percentage points from your program’s average commission rate. For an affiliate program churning out $1,000,000 in annual sales, that translates to a saving of $20,000.

Eager to turbocharge the profitability of your affiliate program?  It all starts with our complimentary program audit.  Fill out our Contact Us Form and in the Request field say “free program audit.”