The world of affiliate commissioning is changing rapidly as program leaders align their efforts to broader brand objectives. Years ago, most affiliate programs offered a single commission rate for all partners and transaction sizes. That helped maximize online growth but did not help deliver more specific goals.
While single commission rate programs haven’t disappeared, they are becoming fewer in number. Today’s objectives-driven affiliate leader offers commission structures that align partner compensation with larger business goals like profitability, cross-selling, and upselling. Like any channel, your affiliate programs should have program parameters that align efforts to overall brand goals. When there is misalignment, you cannot advocate for increased investment because your work doesn’t align with the business's larger goals.
Fortunately, technology has come a long way since the days of single commission programs for all products in an assortment. This two-part guide outlines 15 affiliate commissioning strategies to achieve many of the most common brand business goals.
Maximizing Topline Growth
There are lots of potential commissioning models to consider for this use case. But the simplest commission model often works best. Many affiliate leaders are compensated and bonuses based on the total revenue credited to the channel.
Flat percentage commissioning incents partners to maximize total revenue for a program. This grows topline revenue using a single and easy-to-use structure with which any partner can participate.
Maximizing the Number of Transactions
While far less common than a topline revenue goal, companies may want to drive more total purchases to increase penetration.
A flat fee commission structure, like $10 per sale, is a good bet and very simple to execute when your goal is to maximize total transaction counts.
Maximizing Sales to New Customers
Most brands spend most of their marketing investments to attract new users. Sometimes senior execs discount the value of our channel for this goal out of a belief that commissioning cannot be limited or skewed to new customers. They are, of course, incorrect.
New customers-only offers incent partners to drive net-new prospects to your site. By offering a commission that is valid only for new-to-file customers, you align your commission payments to partners that maximize sales to net-new buyers. This model is wonderfully simple, but partners may struggle to earn enough if you don’t provide data on the existing customer base. Without such information, driving net-new-prospects is a crapshoot for the partner. Some partners may lose interest in supporting your program if the new customer commission isn’t enough to ensure a strong and steady revenue stream. The model can also be frustrating to existing customers who see your new customer program and think, ‘wait a minute, why don’t I get the discount?’
Different commission rates for new versus existing customers ensure partners make a good return by offering some commission for every sale but a higher commission for new partners.
Both of these strategies are most effective for partners with sophisticated data platforms to optimize for new customer acquisition. When a partner can skew your program delivery to desired audience groups, the value of these strategies is magnified.
Maximizing Incremental Revenue
Many companies want to ensure that sales through our channel are incremental for the business. To commission based on incrementality, brands must first analyze which classes of partners or individual partners drive net-new dollars. Incrementality typically comes from new customer purchases or higher than average AOVs.
To successfully offer different commission rates based on incrementality, it pays to be transparent with your partners so they understand the disparities. Otherwise, they may deemphasize or drop your programs because they think they are unfairly penalized.
Partner-Class and Partner-Level Commissioning can enable you to set specific commission values based on the average incrementality they drive. For example, some companies offer higher commission rates for content partners than for classic affiliate types like deals, cashback, and coupons. Partner-level commission rates must be based on objective quantitative analysis that accurately measures incrementality.
Increasing Average Gross Margins
Many companies want to increase profitability as well as their top-line revenue. Some affiliate platforms and networks can now assign hundreds or thousands of different commission rates based on the products sold.
Margin-based commissioning assigns rates for items, brands, or categories based on their gross margin. OTAS first popularized this strategy in the travel business, where the margins for hotel rooms tend to be much higher than for transportation products like airline tickets. But now many retailers are employing this approach to incentivize partners to sell more of their high-margin goods. The most common practice is to set a commission rate by category. More sophisticated programs assign commissions based on brand- or even item-level gross margins. Not every network can accommodate item-level commissioning, but most can accommodate some variation in commissioning by category.
The key with margin-based commissioning is to find a granularity appropriate for your ability to manage it. Most teams are not big enough to support hundreds or thousands of commission rates for different items, but they can dramatically enhance profitability with category-level commissioning.