How much commission should I be offering my affiliates?
This question is asked every time we work with a new brand, and the answer always comes down to the data. What industry do you work in? Do you have a subscription or purely eCommerce based model? Do you know the affiliate personally or are you looking to source new affiliates? – and 100 more like this, but in this guide we’ll explain how our partners set their commissions.
If you don’t fancy reading this, just book a call with one of the team and we’d be more than happy to talk you through our theories. You can book a call below.
There's no one-size fits all approach
Whilst we try to give an overview of what a specific industry offers in commission, it’s really down to the brand and the individual managing the affiliate relationship. For example, most businesses rely on transferring the cost per acquisition data from another form of paid media such as Google Shopping to the affiliate space. In the Google Shopping space, a 10-20% CPA (cost per acquisition) is pretty normal and can be used in the affiliate sphere – but it’s totally down to:
- The price of the product
- The volume of sales for that product
- Your margin / profit on that product
- Whether it’s direct to consumer or business to business
- The speed of affiliate sales
- Who your core affiliates will be when selling the product (social, publisher, Youtuber or voucher code)
Set a baseline amount you're happy with (the most popular)
The most popular for a reason: set a flat amount against every product you’re looking to sell. No fancy calculations, no exporting product feeds and filtering against price. Just simply set the baseline % which you’re happy to reward an affiliate with and that’s it. We recommend using this if you’re just getting started, as to not complicate things.
Once you’ve set the baseline figure, you can also adjust the commission percentage for every affiliate, too. For example, if one affiliate is working with you much closer to provide content, has a really highly performing website or maybe you just want to incentivise them to work with you, you can increase their commission on their profile.
One thing to note: affiliate marketing is used primarily to drive new customers, not to engage current customers. We advise having a solid post-purchase strategy in place to ensure consumers continue to repeat purchase after the first initial purchase.
The below guide will show you how much each category is offering (on average):
- Nutrition – 24%
- Coffee – 14%
- Bicycles – 5%
- Cycling apparel – 20%
- Running apparel (clothing, trainers, backpacks) – 20%
- Yoga – 20%
- Bicycle components – 9.5%
- Technology subscriptions – 100% for the first month
- Insurance companies – £40.00 per confirmed subscription
- Fitness subscriptions – 50% for the first month
- Competitions – 20%
Using your current CPA on other advertising
Use your current CPA (cost per acquisition) on other marketing tools such as META ads or Google Shopping as a benchmark. For example, if you work on a 20% ROAS (return on ad spend) with Google Shopping, then start at 20% commission with affiliates and alter the percentage based on future performance.
The below will give you an outline of the average commission rates across our network when someone uses this calculation:
- Up to £50.00 – 24% commission
- £50.00 – £100.00 – 21% commission
- £100.00 – £300.00 – 19.8% commission
- £300.00 – £1000.00 – 15% commission
- £1000.00 or more – 12.5% commission
Commission based on product price & margin
Setting affiliate commission based on product price and profit margin is a very popular way for pure eCommerce businesses to maintain control of each products CPA, but it can be very time consuming at the beginning of your onboarding. Most of the time this is reserved for retailers/brands that have a large marketing team and resources to commit time to this method.
We recommend only using this method if you have vastly different profit margins on each product and have the time, otherwise you can just set a flat commission outlined in the method above.
You’ll need to have your profit margin % to hand on every product.
- Export a full product list into a Google Sheet
- Delete any unnecessary information and retain SKU, name, profit margin (if available) and price
- Add a field/header called commission %
- Freeze the first row (your headers) and then filter by price (A-Z)
- Set a commission % next to each SKU based on your profit margin
Flat monetary value of commission
Flat monetary value is brilliant if you’re selling a product which is a variable and has no SKU, i.e insurance. Insurance companies choose flat monetary values as they become more profitable over time and understand that the cost per acquisition of a customer is incredibly high, so they must incentivise affiliates harder than any eCommerce sale.
Affiliates also understand that a subscription is more profitable than a one-off sale, so may demand a higher upfront commission instead of a recurring revenue. For that reason, you may see insurance companies offering £100.00 per subscription, but their actual subscription amount is only £60.00 per month.
Once again, to understand the amount to offer, you’ll need previous data of your CPA to set this amount. Whilst making a random guess is great, it could leave you incredibly underwhelmed with the amount of affiliates looking to work with you, or it could leave you with an un-manageable influx or requests and a very high commission bill within a few days.
So, what option should I go for?
Every option has its pros and cons, but we always recommend keeping it simple. Setting a baseline amount you’re happy with will ensure you retain a healthy profit margin, but always remember that an affiliate needs to be incentivised correctly. If you’re offering 1% and your average order value is £40.00, then an affiliate genuinely won’t bother advertising your product as they make £0.40 per sale.
We’re more than happy to guide you on this decision. Just book a call with us below and we can walk you through the options based on your products and margins on offer.