How to Determine Your Influencer and Affiliate Commission Rates
If you’ve decided to delve into the dynamic world of affiliate marketing or influencer marketing, then you’re making a business-savvy decision.
Before you even start your first advertising campaign, choosing your commission rates is the first hurdle you will face. That is, how much commission you will pay your affiliates or influencers per sale (or per lead) for their marketing efforts.
Not paying enough can discourage people from joining your affiliate or influencer program, but paying too much can impact your profits. You need to find a sweet spot somewhere in between and ensure that your commission structure is sustainable for your business in the long run.
This article will cover why it’s vital to choose competitive rates and provide a step-by-step method to determine the correct commission rates for your business.
Why your brand needs competitive commission rates
Whether you are working with commission-based influencers, influencers in general, or affiliates, setting a commission rate is an essential step. There are thousands of affiliate and influencer programs in the world offering various commission rates.
Before you can begin reaching out to great affiliates and influencers, you’ll need to ensure your rates are attractive enough to stand out in a sea of competition. If you stand out, you can attract influencers and affiliates who can increase your revenue and conversion rates.
Commission rates are reward-based payments that your influencers or affiliates receive when a sale gets completed or a specific action gets taken.
What is CPS marketing? CPS is short for cost per sale, sometimes called cost per action marketing or CPA marketing. This is when you set a commission rate percentage per sale.
CPL is short for cost per lead. This is when you set a dollar amount per verified lead.
These commission rates typically include a base rate and bonuses.
It might be tempting to set your commission rates low to try and maximize your profits. However, this won’t always work to your advantage. There are considerable benefits to providing affiliates and influencers with attractive commission rates. These include:
Attracting high-performing influencers and affiliates
Increasing conversions by giving them an incentive to perform well
Perhaps you’ll pay more per sale, but you could end up seeing more sales overall, which is better for your business in the long run.
What’s the average commission rate?
As we’ve mentioned, there are numerous affiliate and influencer programs in the world offering rates based on various factors.
This begs the question: Is there an average rate that an advertiser pays?
The simple answer is no.
Commission rates vary depending on a few factors:
Your profit margins, cost per order CPO (you can find a free cost per order calculator here), or cost per lead.
The industry - for example, an airline has a lower commission rate than a fashion retailer, simply because the airline has less profit margin.
How much wiggle room you’re prepared to give yourself for commission increases and bonuses.
With your business in mind, it’s time to follow some steps to determine your commission rate.
Steps to Determine Your Affiliate Commission Rates
Step 1: Check out the competition
The first thing you should do is get a good grasp of what your competitors are offering.
That way, you can ensure your competitive payouts stand out from others in your industry.
Check out your competitors’ websites to see if they have an influencer or affiliate program sign-up page that lists their base commission rates. If this doesn’t turn up any information, try searching for their affiliate or influencer program.
This will allow you to answer questions like:
- What commission rates do they offer?
- Is their influencer commission the same as their affiliate commission?
- What additional resources do they provide?
- How do they recruit influencers and affiliates?
Armed with this knowledge, you can use it to inform your strategy and potential commission rates. You’ll get a good idea of the standard in your industry and leverage competitors’ experience and knowledge to narrow down your possible rates.
Also, consider the market in which you’re operating. Just as your sales playbook gets tailored to your specific audience, your commission rates should reflect your sector. For instance, if you sell super niche products, you might need a higher commission rate to attract enough people.
It might also happen that there are fewer options and competition in your niche, so Influencers and affiliates are more likely to accept lower rates. If you’re operating in a highly saturated market, you may need to offer higher commission rates to keep you in the game.
Step 2: Outline your margins
Now that you’ve got an idea of the industry standard rates from your competitor analysis, you can outline your margins to get a realistic grasp on what you can afford.
Your profit margins are subject to many changing factors such as volume, overhead, and the economy in general. However, as you’re considering starting your affiliate or influencer program, it’s necessary to get some idea of what you can offer your partners. You want to set up a program that rewards participants but still makes you money, of course.
Start by outlining your operational costs. This involves calculating expenses involved in the day-to-day operation of your business. Think about:
- Program manager’s pay
- Tools you use or will need to invest in
- Returns and shipping costs
Once you’ve got a good idea of the operational costs of keeping your business running, you can calculate the amount you can afford to pay.
Another critical factor is the customer’s lifetime value (LTV). By calculating the LTV of a new customer, you can get a roundabout idea of what they mean to you in revenue.
Customer LTV is an essential metric in determining a limit on spending to acquire new customers. Calculating customer LTV gets pretty complicated. However, at a basic level, you’ll need to know:
- Average Order Value (total yearly revenue divided by the number of orders)
- Frequency of Purchase (number of yearly orders divided by number of unique customers)
- Average Retention Time (average time that a typical customer continues to purchase from your company after their initial purchase)
Once you have these numbers, pop them into this simplified equation:
Average Order Value x Frequency of Purchase x Average Retention Time = LTV
In some situations - for instance, subscription-oriented programs - it makes sense to pay higher commissions on the customer’s first payment to the company. That’s if you know that you’ll make much more from the same customer later on. Think of it as a future investment.
Remember to follow best practices to increase customer LTV such as:
- Providing high-end customer service
- Offering 24⁄7 support through a cloud PBX for small business
- Mapping the customer journey
- Personalizing customer experience
Step 3: Factor in bonuses and incentives
So, you’ve scoped out your competitors and outlined your margins. What next?
Before you reach out to potential affiliates or influencers, it’s a good idea to have an idea of incentives or bonuses you can offer to get their attention. Incentives and bonuses get paid above the base rate, and they’re an essential factor in keeping your partners motivated and happy.
You can do this for several different things, including:
- In exchange for different website or social media placements (for example, appearing in the top banner position of a popular blog, or having an item featured in a gift guide at position 1)
- Number of sales generated in a specific period (for example, 80 sales in 1 month)
- Numbers of leads reached over a month (for example, 100 generated leads qualified in September)
- Hitting set revenue markers (for example - making $10000 in sales in November)
- To sell stock that you need to clear (for example +1% commission on outlet products)
Just as referral marketing tactics often provide customers with an incentive to promote the product ($100 reward when your friend signs up!), an idea could be to provide your influencers or affiliates with a first sale bonus. You can also offer things like:
- Exclusive deals and coupon codes
- Invites to events
- Branded merchandise
- Excellent service and care
- Increased commission rates
Think about what you can offer to endear your influencer and affiliate partners to your brand and help you stay competitive beyond monetary compensation.
Tip: Group your influencers and affiliates
Another best practice is to segment your partnerships based on different criteria. For example, influencers, bloggers, or by sub-niche. Along with tracking your affiliate marketing KPIs and influencer marketing goals, segmenting offers can help you to test different types of influencers and affiliates and measure their results against one another.
Whether you’re doing pay-per-sale advertising or cost per lead, finding the best commission rates can be a difficult task when you’re just starting.
Many factors combine to inform your commission rates, including your audience, product prices, market niche, competitors, and budget. You can simplify the process of determining your rates by:
- Analyzing your competitors’ programs to become aware of industry standards
- Outlining realistic margins to work from
- Factoring in bonuses and incentives that’ll allow you to thrive and keep your affiliates happy
Your rates should be based on what works for your business, your market, and your influencers and affiliates.