A Complete Guide for SaaS Affiliate Commissions
There’s several reasons why an affiliate program is great for your SaaS business. But you may be wondering how much you need to spend to make it happen.
There’s a lot of questions that come along with commissions for SaaS affiliate programs…
How much do you pay affiliates?
How often do you pay?
Even, how do I know when to pay them?
Unfortunately, there’s really no black & white, set-in-stone industry standard to follow. But there are a few things you can do to formulate a commission structure that can attract high quality affiliates, as well as fit your overall business strategy.
1. Calculate your business costs and earnings
Begin by calculating your profit margin so you know what you can afford. Your profit margin is the starting point.
Then, there’s a few more calculations that will guide your program’s commission structure. Here’s what else you need to consider:
Cost per acquisition (CPA)
Cost per acquisition (CPA) is how much it costs to bring in new customers. CPA measures your marketing effort’s return on investment. This gives an idea of how much is spent on acquiring new customers, and compares the effectiveness of different marketing channels.
Customer lifetime value (LTV)
Customer lifetime value (LTV) is how much a customer will spend on your business over time. This shows how much you’ll gain from an affiliate’s promotion, and is an important factor for how you allocate resources and budgets (in this case, the commission for affiliates).
Operational Cost is how much it costs to run your affiliate program. Generally, this is only the cost of an affiliate tracking software - but can also include optional items like promotional materials or program management.
2. Set your commission structure
After you have this foundation, it’s time to start setting the parameters of your program. We’ve broken down the different factors involved here:
Decide what you’ll be rewarding affiliates for. What you choose a “conversion” to be depends on what you would like to achieve with your affiliate program.
For most programs, the end goal is to increase sales. But, conversion goals can vary for SaaS businesses.
For example, a SaaS business may see conversions as trial sign ups, and they will expect a certain number of these sign ups to become paying customers. In this case, they would pay affiliates for leads, or when trials signs up converts into a completed payment.
Pay per clicks: Pay affiliates for any traffic they send to your site. This brings in potential customers to your site and helps brand exposure, but it does not guarantee they’ll become paying customers and it’s harder to see your ROI (return on investment).
Pay per leads: Pay affiliates for any type of contact they generate from interested customers - including contact forms, site sign ups, email lists etc. It’s likely this will bring in more quality traffic that could potentially become paying customers; however, just like clicks, it does not ensure a sale.
Pay per sale: Pay affiliates for referred customers that complete a purchase with payment. For e-commerce businesses a sale is typically the immediate purchase of a product; for SaaS businesses it is buying a subscription with recurring payments.
Paying for sales is the most common method, and one of the reasons affiliate marketing is cost-effective.
For Free Trials: If your SaaS business offers a free trial, it’s likely you’ll want to track this journey. With Tapfiliate’s Customers functionality, track from when a customer signs up for the trial until they become paying customers. When the customer enters a paid subscription, the conversion will be attributed to the affiliate.
How much an affiliate will be compensated for a conversion.
To determine which commission rate to use, consider both your product/service and target audience. Some combinations work well with fixed rates, while others require using a percentage based rate.
Fixed Rate: A set amount per conversion.
Percentage of Sale: A percentage of the conversion sale.
Commission frequency is how often an affiliate get paid. This will likely be determined by conversion type, whether it be immediate purchases or subscriptions.
The calculations we previously mentioned will be very useful in determining a commission frequency that fits your budget and appeals to affiliates.
One-time commissions: Reward affiliates for a sale made by the customer they referred. This is usually the default commission type for programs, especially for e-commerce.
Recurring commissions: Commissions will be rewarded each time a referred customer pays a subscription fees. The recurring commission could be on weekly, monthly or yearly basis, depending on how subscriptions are paid.
Recurring commissions are great for SaaS and subscription-box affiliate programs.
Recurring commissions can have a cap, if so chosen. A cap will create a limit for how many conversions are attributed to an affiliate. The limit can be a set number of conversions attributed to an affiliate, or a set amount time these conversions are attributed to an affiliate.
For example, your affiliate program is set up with recurring commissions with a three month cap. If an affiliate refers a customer who pays for a software subscription for a year, then the affiliate gets a commission for only the first three paying months. After this period, the affiliate will no longer get a commission even if the referred customer continues to pay for the software.
Using a cap makes sense for a lot of businesses, but still provides affiliates with an enticing commission offer.
Lifetime commissions: Affiliates receive a commission for both the initial conversion, as well as all subsequent conversions from a client they referred to your website.
Using lifetime commissions can make a program very attractive, especially when working with top-tier affiliates and influencers.
Additional ways to set up commission structures
There’s few more ways you can set up your program, including commission tiers and bonuses.
Reward different rates for different sale amounts. This means an affiliate’s commission amount increases with the more conversions they have. Commission tiers are a great way to motivate affiliates to actively and continuously promote your brand.
- 10% on each of the first 10 conversions
- 15% on conversions up to 50
- 20% on conversions up to 100
- 30% on each conversion beyond 100
Be sure to calculate the increased commission costs into the overall commission structure beforehand so you don’t offer rates that the business cannot afford.
If you are using Tapfiliate, you will find commission structures under affiliate groups.
Use bonuses to reward your affiliates if they reach a certain amount of conversions or met a conversion amount goal.
With Tapfiliate, bonuses can be customized with commission rates, bonus periods (intervals of time) and target goals.
For example, if an affiliate reaches 5 or more conversions, they will get an extra 5%. If the affiliate drives 7 conversions, 5% would be added to all 7 conversions until the bonus period is over.
Bonuses are another effective way to encourage affiliates to promote more. But again, be sure to calculate these costs into your commission budget beforehand.
3. Things to consider
As with any other marketing strategy, it’s important to look at what your competitors are doing. Do research on the other programs in your niche, review their offers and terms & conditions. This gives you an idea about what they are offering and how you can make your program stand out to quality affiliates over the other programs.
Keep a spreadsheet of the top competition with their commission rates and any additional program offerings. This will allow you to clearly see how each program stacks up against one another, as well as any gaps and opportunities there may be. Update this spreadsheet periodically to stay current with what your competition is offering and see if any trends are emerging.
Please note, although it is important to monitor the competition, we advise not to make decisions based completely off of this information. If competitors raise their commission, it may be tempting to raise yours too. However, raised commissions may not fit into your budget, and you’d risk going negative just to keep up.
Room to grow
As you set up your program’s commission structure, it may be very tempting to offer the highest commission possible within your margin. However, setting the highest commission from the start is strongly cautioned against.
Advice from Affiliate Manager Taylor Barr of UpFoundry:
If you offer the highest commission you can offer, you restrict the following:
The ability to raise your commissions for all affiliates if you see the channel working for your business.
The ability to raise your commissions per individual affiliate if they send/refer you quality customers.
The ability to lower commissions. Yes – that is right. You CAN lower commissions but the problem is: when you lower a commission rate in your program, it sends a negative signal that the company isn’t doing well or they don’t trust their affiliates (And human nature, overall, doesn’t favor loss aversion one bit.).
Giving yourself room to grow also gives you room to restructure. As we mentioned, competition may change and new trends may emerge - allow your program the room to adjust and adapt to changing circumstances.
Using the suggested metrics & calculations, evaluate your program annually to see where there are opportunities to offer more and rethink any incentives that didn’t payoff.
Finally, keep it simple
As you can see, there’s several intertwined factors for setting a commission structure. It can be complicated and complex.
But for your affiliates, it’s best to try and keep it as simple as possible.
Be upfront when it comes to your commission structure, and clearly communicate this in your program’s terms and conditions. This will lessen the time needed for affiliate management and avoid affiliates being disappointed with the outcome.
As we said, there’s no perfect science to setting up your program’s commission structure. However, taking into consideration these factors your can set up a program that is financially sound and motivates top affiliates to promote your business.