Are You Overpaying Affiliates? How Generous Programs Can Hurt Conversions (and How to Fix It)

The very thing that’s supposed to make your program attractive, high commissions, might be killing your conversions.

Affiliate programs are already an uphill battle, with an average conversion rate set neatly between 0.5% and 3%. This means for every 200 clicks, you’re lucky to get one or two sales. Handing out oversized commissions on top of that doesn’t fix the problem; it quietly eats away at your margins and makes your program harder to sustain.

The secret is to make sure your program is attractive and competitive enough so that affiliates keep using it. This is one of those problems that doesn’t get solved if you throw money at it. A high commission rate is attractive, but there’s a point where it becomes detrimental to your program’s long-term health.

In this piece, you’ll learn why overpaying affiliates backfires and how to strike the balance that keeps both your partners and your bottom line happy.

Is My Affiliate Program Too Generous?

Even though it seems counterintuitive, being too liberal with the commission rate can be one of the reasons why you struggle to make affiliate marketing work. 

It doesn’t matter how many new people find your brand and products via affiliates if the commissions are eating away at your profit per sale. 

Say your product’s selling price is $100 per item, with a 30% profit margin. You get $30 in profit per sale, which is not bad. But, if you set your affiliate commission at 40% because you want to be competitive, you’re paying affiliates $40 every time they drive a sale. Congratulations! You just lost $10 on a successful conversion.

Multiply that across hundreds of affiliate-driven sales. Suddenly, what looks like growth is actually a hole in your balance sheet.

Wouldn’t a higher commission rate make my affiliate program stand out?

You’d think, but the Internet doesn’t work that way. A commission rate that’s “too good to be true” can attract shady affiliates who may resort to unethical promotion methods, such as spamming, misleading adverts, brand bidding, and even fraud.

Here are a few high-profile affiliate fraud cases that show you how deep some people can go when there’s a chance to make a lot of money:

• Andrew Chiu and Allen J. Chiu –  These two brothers got famous for defrauding Nordstrom of $1.4+ million in commissions. They did this by exploiting an error in Nordstrom’s ordering system that registered fake sales. 
• eBay vs. Shawn Hogan and Brian Dunning – Shawn Hogan and Brian Dunning received a combined $35 million in commissions from eBay in an elaborate cookie-stuffing scheme. This is when affiliates secretly drop tracking cookies on a user’s browser without their consent. Later on, if that user buys something from the merchant, the affiliate wrongfully earns commission.
• Alexander Zhukov, the King of Fraud – From about 2014 to 2016, he ran one of the most notorious digital ad and affiliate fraud schemes in history. He and his team used bot farms to generate fake page views. These bots visited spoofed versions of legitimate sites and watched video ads that no human ever saw.

According to a recent report, over 22% of digital ad spend (around $84 billion) was lost to fraud in 2023. But it’s not just about the money; bad affiliate tactics damage your brand reputation, attract low-quality traffic, and may result in a wave of chargebacks. 

Ok, so what’s a good commission rate? 

It depends on the industry, type of product, and overall costs. In general, most products are divided into two categories:

• Physical products – The high overhead costs make high commission rates unsustainable. Rates typically range between 2% and 12%, with outdoor gear at the higher end and electronics at the lower end (2-4%). General e-commerce and consumer goods range between 5% and 12% rates.
• Digital products – Products such as web hosting, templates, plugins, podcasts, online courses, or webinars have lower production and storage costs, which is why commission rates are higher (20% to 80%). Also, recurring commissions are common, especially for products like SaaS (15-30%), financial services (20-40%), or health and wellness products (7-50%).

Setting commission rates too high isn’t your only risk; you’ll also run into trouble if you go too low. The key is finding the sweet spot for your niche and audience. So, what’s a smart starting point? Your top competitors, of course!

Learn from Your Competitors

The best way to make sure you’re neither too generous nor too stingy is to check your competitors’ affiliate programs. There’s no need to set a 30% commission rate if similar brands are paying 8–10%.

Let’s take the example of the SaaS affiliate program designed by Intermedia, a company operating in the realm of unified communications as a service (UCaaS). They have a Partner Program that includes three types of partners: resellers, advisors, and service providers.

The average affiliate commission rate for SaaS products ranges from 20% to 25%, with 30% being the absolute maximum. Yet, Intermedia didn’t go for the 30% rate. Instead, each partnership management model has its own unique terms and benefits. For instance, advisors get a one-time spiff of $25 and a monthly recurring commission of up to 20%. 

How to Find the Right Balance

You want your products or services to create value for your customers, right? The same is true about your affiliate program. It should offer support, incentives, and commission rates that work for you and your affiliates.

The Commission Structure

Once you get an idea of the best commission range for your niche, it’s time to decide on the commission structure you want to follow.

For beginners, we recommend one of three options:

• A unique rate for every sale (say 20%)
• A tiered system that rewards the best performers
• Segmentation, where you encourage specific affiliates to join.

A Tiered System

This system is simple: those who put in the effort to sell more earn more. The secret to a successful tiered affiliate program is to set the baseline (the commission everyone gets) at an attractive level.

If affiliates have to jump to the next tier for their efforts to be worth it, fewer people will join in the first place. 

Here’s a good example of a simple, three-tiered structure:

In this example, all affiliates start in the Bronze tier, earning 10% on every sale they make. Once they make their 26th sale in a given month, their commission rate automatically increases to 15% for all subsequent sales for the rest of that month. If they hit 51 sales, their rate increases again to 20%.

Segmentation

In this case, you set different commission rates based on specific factors. It’s a great way to attract affiliates from a specific location or based on their audience’s income, age, and so on.

Suppose a debt settlement provider operating in several US states is building an affiliate program. Based on their data, the company knows that the largest credit card debts were settled for Texans. 

To target this specific audience, they may offer a more generous commission to affiliates who generate high-quality Texas debt relief leads. To balance things out, they offer slightly reduced commissions (by 1–2%) for leads from other states. 

This way, other affiliates can (and are encouraged to) participate, but only the ones who bring in the best leads are rewarded with a higher commission rate.

Incentivize Top Promoters with Perks

Top promoters who are serious about building a business through solid affiliate marketing practices also enjoy perks. These can be anything from early access to products to customized items and exclusive deals. 

Here’s a short list of highly effective perks brands use all the time to incentivize their affiliates:

Exclusive Discounts and Deals

Do you know all those “Use my code XYZ to get a 10% discount for today’s sponsor’s service or product” offers? 

They’re part of an affiliate marketing strategy where top affiliates receive unique discount codes or special offers to share with their audience. You boost brand exposure and increase sales, and the affiliates attract more followers. Everybody wins.

Personalized Merchandise

Many brands send affiliates complimentary products or branded merchandise (like T-shirts, mugs, or tote bags) that they can keep or pass on to their audiences using engagement-boosting tools like contests, polls, or giveaways.

This can also be a way to award visual recognition to your top sellers. Let’s say you design a branded T-shirt or a tote bag for your top 10 affiliates. There are only 10 such items in the world, which will make your top sellers feel pretty special. 

And, who knows? Maybe your brand will grow as big as Amazon or Sephora, and these special tokens of appreciation will become collectibles.

Early Access to New Products or Content

Content creators constantly need new ideas and info to stay fresh and relevant. Help out your best sellers by offering early access to new products, features, or promotional content. They may use this info to create exclusive previews or reviews, which gives them a competitive edge.

Big tech brands like NVIDIA, AMD, or Ubisoft send pre-release samples to top tech YouTubers and affiliates. This is how some creators can post performance benchmarks and review videos the moment the product officially launches or as pre-launch teasers.

The same is true for major beauty brands, like Sephora, Ulta, Glossier, Tarte, and others. 

Sephora explicitly mentions “product sneak peeks” as a benefit for its affiliates:

The method is different for each brand and affiliate program, but most top sellers in the beauty market receive product sneak peeks and PR packages containing new launches weeks before they hit the general public.

Personalized Support and Recognition

If you want to take things further and make sure top earners stay loyal to the brand, you need a strategy that includes personalized support and recognition. This typically includes a dedicated account manager, custom commission structures, or exclusive creative assets for affiliates who generate a certain volume of sales.

Brands like HubSpot, Shopify, or SEMrush offer these sorts of perks. HubSpot, for instance, offers personalized assistance to high-volume affiliates to help them optimize their strategy and access exclusive creative resources.

HubSpot’s affiliate program offers a dedicated manager for the Elite tier:

For Shopify, top performers get higher-level access to the Shopify partner team for exclusive campaigns and higher bounty commissions. SEMrush, on the other hand, offers a dedicated point of contact for strategic assistance and custom deals.

Offer Resources and Tools

Any good affiliate program needs an education section where promoters can learn about products, find answers to questions, and discover useful resources that make their job easier. It also helps to have an affiliate manager and one or two people offering support.

Focus on educating your affiliates and equipping them with appropriate guides or toolkits for a more effective affiliate marketing strategy and better performance. This way, you can put the right spin on any campaign that will promote your products or services, right from the start.

Here are a few great ideas of resources and tools:

• A content playbook with email templates or social media captions to attract higher-value leads to your sales funnel. 
• An advanced keyword research tool to help optimize their landing page conversions with well-targeted keywords.
• High-quality product photos, lifestyle images, and brand logos that affiliates can use in their content.
• Short promotional videos, product demos, explainer videos, or customer testimonials that affiliates can embed in their blogs or social media.
• Talking points, like key features, benefits, and value propositions, to help promoters create their own reviews, blog posts, or social media content.
• A real-time analytics dashboard where each promoter can log in to view their performance metrics (clicks, conversions, and earnings), in real time.

Wrap Up

Money is not the only incentive you can use to attract top affiliates. Being too liberal with commission rates can do more harm than good, so devise a strategy around balance. With the right commission structure, interesting perks, and solid resources, your affiliate program has all the chances to thrive. Give it a try, find what works, and improve!