Affiliate marketing is based on a win-win model in which an affiliate receives a commission in exchange for promoting a product or service. But how do these commissions work? What are the different remuneration models? And above all, how can you structure them effectively to optimize your profitability? Discover our complete guide to affiliate commissions. Specialized inaffiliate marketing, Casaneo tells you everything you need to know to optimize your commissions.
Our experts can help you set up your commissions to optimize your performance.
Complete guide to affiliate commissions: how they work
As mentioned above, commission is the remuneration an affiliate receives when they generate a sale, lead or click via an affiliate link. As a performance-based remuneration model, affiliate commission optimizes return on investment.
Unlike traditional advertising, where costs are fixed, here every euro spent is directly linked to a measurable result.
Affiliate commission models: how to choose?
In affiliate marketing, there are several compensation models, each with its own validation procedures. The choice of model depends on a number of factors, including :
- Type of product or service ;
- Campaign objective;
- The conversion tunnel stage.
Cost-per-click (CPC)
CPC is a model where the affiliate is paid every time a user clicks on affiliate links that redirect them to the advertisers’ site. This model is recommended if you want to work with price comparison sites. It’s aimed at visitors at the beginning of the conversion tunnel. The aim here is to drive traffic to the advertiser’s site.
Cost per lead (CPL)
CPL pays the affiliate when a user fills in a form or leaves their contact details (registration, quote request, free trial, etc.). This model does not require a massive volume of traffic, but rather targeted traffic. Adapted to the B2B sector, this type of remuneration generates quality traffic. As far as the conversion tunnel is concerned, the user is in the advanced interest phase. You still need to convert the lead into a customer.
CPA allows the affiliate to earn commission only when a specific action is performed, usually a purchase. The commission is often a percentage of the sale amount. At this point, the user has completed the purchase. All you have to do is retain your new customer.
Find the model that best suits your budget with Casaneo.
The different types of affiliate commission
Apart from the models, you also need to define your affiliates’ remuneration structure. The 3 most common models are percentage rates, tiered rates and fixed rates. Let’s take a closer look at their advantages and disadvantages, and how to make the right choice.
Percentage rates: a flexible and attractive model
The percentage commission model is the most commonly used in affiliate marketing. It involves paying a fixed percentage of the amount of each sale made by an affiliate.
Advantages:
- Simple to understand and set up;
- Suitable for selling high value-added products;
- Encourages affiliates to promote more expensive items to earn money.
Disadvantages:
- Can be disadvantageous if you sell low-margin products;
- Less attractive to new affiliates if commissions are too low.
The percentage rate is recommended for online stores that offer premium or high-value products.
Fixed rates: a predictable commission
With a fixed commission, the affiliate receives a fixed amount for each sale, regardless of the price of the product sold.
The benefits:
- Predictable and easy to budget;
- Suitable for selling low-priced products;
- Keeps acquisition costs stable, even during promotions and discounts.
Disadvantages:
- Unattractive for publishers who cannot benefit from the rise in product prices;
- Less incentive for affiliate partners to promote more expensive products.
Tiered rates: an incentive strategy
The tiered commission model is based on a progressive system: the more sales an affiliate makes, the higher the commission percentage.
Advantages:
- Encourages affiliates to generate more sales;
- Rewards top-performing affiliates;
- Optimizes affiliate strategy by encouraging higher sales volume.
Disadvantages:
- More complex to manage ;
- Can lead to imbalances if bearings are poorly defined.
How do you choose the right type of commission?
The choice of commission type depends on several factors, such as :
- The value of your products. If your products have a high price tag, a percentage commission is often more attractive.
- Your profit margin. A fixed rate can help control your costs if your margin is reduced.
- Your marketing objective. If you want to motivate affiliates to sell more, a tiered system is ideal.
- The profile of your affiliates. Content creators often prefer a percentage rate. Price comparison sites, on the other hand, may be more attracted by a fixed rate.
Let our experts help you create an attractive and profitable program.
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THE KEYS TO MAKING THE MOST OF THIS BOOMING LEVER Download the guide!How do you set the right commission rate?
Now that you know the different models and types of commission, you need to decide on the amount or percentage you’re going to set. How do you set the right commission rate?
Calculate the customer’s average lifetime value
The commission rate should be based on customer lifetime value (CLV). This represents the average revenue a customer generates over the course of his or her relationship with your brand, minus the cost of acquisition.
The formula is as follows:
CLV = (Average annual customer profit X Average loyalty period) – Acquisition cost
Make sure your commission rate stays below the customer lifetime value to make your website profitable.
Your margins determine how much commission you can offer. If your margin is low, offer a lower rate or a hybrid model (fixed commission + bonus). For high-margin products, you can be more generous.
Analyze the rates of your competitors in the same sector. A rate that’s too low may discourage affiliates. A rate that’s too high, on the other hand, could harm your profitability.
Analyze competitors’ commission rates
Indeed, analyzing your competitors will be a great help in defining the price you will offer your collaborators. Also, study brands that target an audience similar to yours. Find at least two direct competitors with well-established affiliate programs. Compare their commission rates and payment structures.
Each sector has its own standards. Therefore, analyze every detail, such as :
- Payment method (cash or product credit) ;
- Payment triggers (sales, leads or other criteria) ;
- Bonuses for top-performing affiliates.
A flexible and motivating commission encourages affiliates to actively promote your offers.
Start with a low rate
Starting with low commission rates is a winning strategy. You can test and adjust prices according to performance. This minimizes risk.
- Use competitive market analysis to determine an initially low commission rate. This way, you stay competitive and maintain a comfortable profit margin.
- Then gradually increase the rate according to the results obtained. A gradual increase is welcomed and fosters a better relationship with your affiliates.
- Offer promotions and bonuses for your best influencers. You’ll optimize your margins while rewarding top performers.
Setting a competitive rate is important, but always start with a reasonable starting point.
Define bonuses
Your affiliate program is up and running, and a few affiliates are standing out from the crowd? Bonuses are an excellent way of motivating the best-performing affiliates. If your budget allows, you can :
- Offer gifts to affiliates who reach a certain revenue target;
- Create a “bonus series” for affiliates who reach a defined amount over a given period;
- Set up a tiered structure. The more sales an affiliate generates, the higher their commission rate.
Is your product subscription-based? A recurring commission is an excellent option. Each time a subscription is renewed, the affiliate earns a new commission.
Set up a monitoring system
To ensure the success of your affiliate program, you need an effective commission tracking system. Here are the strategies you need to adopt in order to set up a system tailored to your needs.
Affiliate cookies help you track users’ actions after they’ve clicked on a link. If you want to reward affiliates, even after several days, weeks or even months, you need to integrate them into your tracking system.
The lifetime of the cookie should correspond to the time it takes for a user to go from interest to purchase. If your sales cycle is long, make sure the cookie remains valid long enough to cover this time. If it’s too short, you risk losing sales opportunities.
Check and adjust rates periodically
Don’t leave your commission rates static. Regularly monitor market trends and adjust your commissions accordingly. If your competitors increase their offers, you may lose talented affiliates. Adding a bonus structure during slack periods is also a great way to boost sales.
Simplify your commission management with Casaneo
Affiliate marketing involves complex commission payment processes. Affiliate marketing platforms with a network of qualified affiliates are a great help. As a specialist in affiliate marketing for over 10 years, Casaneo simplifies this process for you. With Casaneo:
- Your commission management is automated. So you can pay your affiliates on time and boost their motivation.
- Every ad and every payment can be tracked from a single platform. You have access to accurate reports to help you manage expenses and improve affiliate retention.
- We also make it easy to manage relationships with your affiliates by offering smooth, high-performance affiliate programs.
Choose Casaneo and simplify the management of your affiliate commissions today!
