The affiliate channel has always been seen as cost effective, with advertisers essentially only paying a commission when an affiliate partner has generated a sale. When setting a commission structure it is important to benchmark against other online channels to ensure that it remains commercially beneficial.
With performance marketing becoming ever more sophisticated, setting commission rates should no longer be a case of a setting a base level combined with a tiered structure to reward performance. With the wealth of data that is available to advertisers, it is possible to evaluate a number of metrics and reward performance accordingly.
One Size Does Not Fit All
The key to setting a commission structure that will engage all affiliates is flexibility. The channel has significantly progressed from a 'one size fits all policy’ and continues to mature. With a wide range of performance marketing disciplines such as behavioural retargeting and mobile now sitting within the affiliate channel, commission setting has become a much more sophisticated process.
Different payment models may be required for different affiliates. For example, while some retargeting companies are happy to work to the traditional CPA model associated with the channel, others may require working to a CPC payment structure. Additionally, a hybrid of the two may be required for a compelling commission proposition – rewarding both sales and engagement through the click.
Fixed Tenancy / Hybrid CPA/CPM
For highly trafficked sites that are relevant to the product offering, a fixed tenancy cost may be utilised. These sites are not just used for acquisition purposes – but are also advantageous for branding opportunities. A hybrid model of CPM/CPA may be beneficial to reward these affiliates for both the sales that they generate as well as the increased brand exposure. Typically these are likely to be content or price comparison sites.
Additionally, the boundaries are rapidly becoming blurred in terms of classification of affiliate type. While it was once easy to group voucher code sites together as one and pay them a set commission, it is now more important to understand the value of their traffic and how it is being generated. While voucher code sites are generating traffic through natural listings within the search engines, they may also be generating traffic through PPC and also through email databases. The consumers that shop through one voucher code site may be a completely different demographic to that of another. By understanding this, the traffic of individual affiliates can be targeted effectively.
Understanding the Value of Affiliates
In order to set commission rates successfully, advertisers should try and understand the value that each individual affiliate is generating for the campaign. Advertisers will have a set of KPI’s that will determine how valuable their customers are. This could include but is not limited to; new vs. existing customer split, average order values and lifetime value of customers. By understanding the value that is derived through key affiliate partners, commission rates can be modified accordingly.
Remember Your Longtail
While this approach is a strategy that can be implemented across key, volume driving affiliates, it is not realistic to apply to your longtail affiliates. To motivate the longtail, commission rates should be competitive within the sector an advertiser operates. It is also possible to motivate the longtail affiliates by offering them bespoke rates for hitting sales targets or increasing the visibility of a campaign across their sites. This could include writing reviews on products/services that are offered.
Across key partners and the longtail (a key group of affiliates in their own right), any objectives should be reflected within the commission structure. If an advertiser sees added value in new customer sales for example, commissions can be weighted in favour of new customer sales. Similarly, if there are certain products that have higher margins, commission structures could be set to reward affiliates who are able to sell these high margin products.
Closely Monitor Your Commission Rate.
Once a commission rate has been set, it should be closely monitored. Are affiliates that were driving valuable customers to the business still doing so? Cost implications of the commission structure should be taken into account. Transparency is essential in order to successfully work with key partners. Affiliates need to understand how valuable the customers are that they are referring, so they are able to amend their promotions accordingly. Any findings that can be passed on from advertisers to affiliates will aid their future effectiveness. For example, if there are certain keywords within an advertisers PPC campaign that are driving customers with little or no value, these should be shared with any affiliates that are undertaking PPC activity. This can help them to ensure that these keywords are not used and only high quality customers are targeted.
Working closely with key affiliate partners will allow the commission rates to be tweaked effectively to ensure that they are mutually beneficial.
To summarise, flexibility and an understanding of affiliates’ traffic is a key factor in establishing an effective commission structure. A full appreciation of the finer details should ultimately result in greater engagement with affiliates and crucially an increase in branding, sales and revenue.
by Matt Swan, Client Strategist at Digital Window