Affiliate Marketing

How to set competitive commission rates to attract top affiliates?

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Understanding Affiliate Commission Structures

let’s talk about commission structuring and this is one of the most common questions I get uh how much do you pay your Affiliates well the answer is it depends it depends on a lot of things and I’m going to take you through the process that we take our clients through and that we suggest that you go through when determining your commission you know this is one of the most important things that you can do in building an affiliate program is is paying the right commission and so this may seem like a drawn out process

Determining Affiliate Commissions: A Short Process

this whole thing honestly takes 5 to 20 minutes on the front and this is all a part of designing your program this is the first phase that we take people through when they’re you know they’re new students in our program for example the five phases of a seven figure launch we take them through this designing the program we go through this with every client as well unless they’re you know really established and have a commission that is pretty much set in stone they’ve already kind of gone through this

Understanding Product Pricing and Commission

When determining product pricing, you naturally begin by considering the overall price. Typically, the lower the price of a product, the higher the associated commission percentage is likely to be. It’s difficult to sustain a 10% commission on an inexpensive product.

The next step is to deduct your incremental costs. These are the costs that fluctuate based on the number of units involved. For instance, you might need to hire a new customer service representative for every 200 signups or a community manager for your forum every 400 people. These costs factor into the overall profitability of your product.

Understanding Fixed and Incremental Costs

Money that you have to pay upfront, like the cost of creating educational materials or setting up a system, represents fixed costs. These costs are the same whether you sign up one person or 10,000 people. Your time is also a fixed cost.

What Are Incremental Costs?

Incremental costs are expenses that increase as your business expands. Credit card processing fees are an example of incremental costs.

Calculating Time as a Cost

Subtract the time you invested upfront (creating the course, etc.) from the equation. Instead, consider the time commitment you offer each new customer. If you promise everyone a one-hour coaching call, what’s the value of that hour? You don’t have to charge your full hourly consulting rate, but factor this time as a cost into your pricing model.

Affiliate Program Considerations

$1,000 an hour if it’s you know at the 10- hour level for Consulting and and one-on-one coaching that’s I’m not going to put that at a $1,000 value if you get an hour of my time you know for buying my course because you might only pay $1,000 for the course well what am I going to do pay no commissions at that point so you’ll see where I’m going with this you subtract your time you decide what you want to make you might say you know honestly I don’t even want Affiliates if I don’t make at least $100 per course

Considering Market Rates for Affiliate Commissions

Great, that’s good to know you know that that’s something you need to decide on and then you take a look at the market the market is not the end all Beall but you cannot be at a 10% commission if the Market’s averaging 50 and you probably shouldn’t be at a 50 if the Market’s averaging 10 I think you’re throwing away money at that point and so you know I say uh as long as you’re playing in the same ballpark you know 10% is not the same ballpark as 50% and it’s it’s kind of like a

The Five Guys Analogy for Affiliate Commissions

Cheeseburger, you know, um Five Guys makes a pretty good if you don’t know Five Guys you don’t know cheeseburgers you know part me for the example but uh Five Guys makes a pretty good cheeseburger but it’s it’s it’s not you know it’s not like the the gourmet burger that I might get at a place that charges 13 or 14 bucks I can’t think of one of those near here there’s one in Nashville that I used to go to but I can’t think of one here that charges 13 or 14 bucks although I’m sure you know.

Understanding Pricing in a Competitive Market

There’s a difference in quality that often corresponds to price. You can get a steak for 10 bucks, but you’re not getting the same juicy filet that you get for 30 to 50 bucks at a place like Ruth’s Chris or Stony River. It’s just not going to happen. You got to be playing in the same ballpark.

Calculating the True Cost of Your Product or Service

Here’s an example: you have a $9.97 price and it costs you $200. Let’s say you’ve got credit card processing fees, you need one customer service rep or two, a community manager. Maybe you have a physical product that literally costs you $200 or 150 bucks plus other expenses. Maybe you need to pay a shipping person. These are all things to keep in mind. If you’re going to do 1 hour per customer, value that time. Say you value your time at 400 bucks. You need to seriously consider all these factors in your pricing.

Calculating Commission Rates for Digital Products

  • Value your product at $400. You may go a little lower. If your desired profit is a minimum of $200, we’ve already taken off $800, leaving us with $197. The average market commission is 20% on $500. After researching five competitors, you see that they charge anywhere from 10 to 30%, so you’re playing in the same ballpark. Here’s your calculation: 997 – 200 – 400 – 200 leaves you with $197. We’ll round that commission percentage to 20%.
  • We’re not going to charge an unusual commission like 19.7%. That’s how we arrive at the commission rate. If the example were a $1,000 product (instead of $997), your costs are $100, and you’re okay with making a few hundred dollars per unit without investing much time, then yes, you can pay 40%. But again, I would look at the market average. If it’s 30%, consider going a bit higher at 40%. We can afford it because we don’t have many fixed costs.
  • Most of us selling digital products have fixed costs like credit card processing and maybe a customer service person for every 500 to 1,000 customers. These costs are pretty low – not much in the way of incremental costs. I should clarify that we may have a lot of fixed costs overall, but not many additional expenses per sale.

Understanding EPC and its Importance in Affiliate Marketing

  • incremental costs now one last note in all of this guys uh what really matters is EPC earnings per click now again you got to be playing in the same ballpark commission wise as everybody else because perceptually when when you say um we’re paying a 20% Commission on a $500 product and everybody else is paying a 30 or 40 50% Commission on on a $500 to $1,000 product you’re not in the same ballpark and so you don’t even get a chance to show EPC but that’s earnings per click.
  • EPC so you might pay let’s let’s let’s use an example here let’s use the the ,000 product at a 50% commission that’s a $500 commission well if I convert at say 2% uh 2% and that and I send a th000 clicks then I should get or let’s say we’ll go with 100 clicks I want to make this easy on myself here I send 100 clicks times $500 commission I make $11,000 divided by 100 clicks and I should have had this on the screen but I don’t that’s $10 EPC that’s really good.
  • let’s say I only offer a 30% Commission on a $1,000 product but I convert it 6% so I’m at 30% so I send a 100 clicks or $30 30% commission sorry which would be $300 per sale but I’m at 6% so I’m going to go 6 * 300 that’s 1800 divided by um divided by the 100 clicks I’m at an $18 EPC which is considerably better than $10 so that’s what really matters as EPC but that shows you again how to design your commission structure.
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