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  1. #1
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    October 18th, 2012
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    Please Help: Struggling with Commission Structure for my Affiliate Program
    Hello,

    We are releasing a new site soon that has been in the works for over a year now. It's in late stage Alpha with the beta soon to be ready for release. For the past three weeks I have been reading and learning as much as I can about how to build and manage an affiliate program.

    Beyond lots of helpful blogs and internet articles, I've also read through Affiliate Program Management Hour Day which was quite helpful to gain the basics. I'm far from an expert but I feel comfortable now with the general logistics and scaling this program up.

    I am the business owner and at this stage I plan to run the affiliate program myself (in the future maybe hiring an AM). I believe that affiliates will play a big part in the growth and profitability of our company. Consequently I want to make our program awesome and one that stands out from everyone else.

    Where I am struggling, and where I was hoping to get some guidance is around commission structuring. For our core product, we will be brokering items for buyers and sellers. When an item sells, our company will receive 15% from the sold price. These are high ticket items (~$2000 up to $xxx,xxx) so commissions on a sale can be quite substantial. We also will have an upgraded account that costs lets say $50 per month.

    What I was thinking to offer our affiliates was 2 different types of commission tracking:

    1. Historical. When an affiliate refers a new client, that client becomes theirs for ___ months. I was thinking between 6 to 12 months. Whenever this client buys or sells anything (be it core or surround IP), the affiliate will receive a commission. This is especially important to me now as we are just releasing the site and I need inventory and buyers.

    2. Current (cookie). The most recent referral from an affiliate will also get paid a commission.

    My challenge here is what to do with commission stacking. In the most extreme example, I may have a scenario where I have to pay for:

    A) Historically referred buyer.
    B) Current referral on that buyer.
    C) Historically referred seller.
    D) Current referral on the seller.

    Buyer referrals are more important to me than seller referrals, but to remain competitive in the niche I assume the total stack here will amount to 50%. It's not something I'm sure I can maintain in the long-term if stacking happens a significant amount of the time.

    Could anyone make any suggestions? Alternatively could you recommend a consultant who would be willing to spend some time helping me with some focused questions?

    Thanks,
    Chris

  2. #2
    Affiliate Manager
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    February 22nd, 2012
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    Raleigh-Durham, NC
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    56
    Hi Chris,

    I am glad you have taken the time to look at the basics of Affiliate Marketing and running an Affiliate Program. There are definitely a lot of nuts and bolts.

    I want to step back and first say (in regards to your commission structure question): Simplify it. Attribution from seller to buyer on two different models is going to be a) confusing for you b) confusing for the people who are promoting and can potentially make you, the merchant-middle man, money.

    Also, just want to get more clarity: When you say, "brokering items for buyers and sellers. " Do you mean you are matching up merchants with relevant buyers to buy their product? If that is the case, your company or website in fact would be competing with affiliates (if you had them) in accomplishing the same goal: Getting certain buyers (targeted) to complete sale of items from the merchant, and get paid (like you are getting paid 15% on it).

    Perhaps I am going off into left field without some details, but I think you have to think of it like a network/ or outsourced affiliate program. You work with the sellers to come to terms on a full package agreement saying you will get X% amount (Let's say 20%) of each Sale that comes into your channel. Then, if you want to try to work with affiliates to refer buyers to those merchants you have agreements with, you would give the affiliates a % of what was agreed upon with your merchants(let's say 5%, you keep 15%).


    In terms of point of attribution-- historical vs. cookie, it should be for CPA. Affiliates care about the conversion more (this is IMHO) than keeping attribution with a certain client. More conversions equals more $$$ in their pocket. I know you are working as intermediary (and one can argue can have a buyer without a seller and vice versa) but I think working with sellers who have products, is going to be an easier attraction point then finding "at a whim" buyers.


    Let me know if this makes sense--- always willing to help out others who are starting up programs!

  3. #3
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    October 18th, 2012
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    2
    Hi Taylor,

    Thanks for the response and taking the time, it's appreciated

    I want to step back and first say (in regards to your commission structure question): Simplify it. Attribution from seller to buyer on two different models is going to be a) confusing for you b) confusing for the people who are promoting and can potentially make you, the merchant-middle man, money.
    I agree and prefer to be as simple as possible. In this case the reason I came up with this structure was after reading the comments and complaints from various affiliates that are currently in the industry. I think the historical conversions are going to be well received by them, the rest of the program would be more traditional and what's expected. It's not that complicated, I'm probably just not articulating it well enough albeit will give this some more thought if I can't simplify it wihtout losing the concept.

    Also, just want to get more clarity: When you say, "brokering items for buyers and sellers. " Do you mean you are matching up merchants with relevant buyers to buy their product? If that is the case, your company or website in fact would be competing with affiliates (if you had them) in accomplishing the same goal: Getting certain buyers (targeted) to complete sale of items from the merchant, and get paid (like you are getting paid 15% on it).
    Yah I left this intentionally a little vague as the project isn't yet released. To simplify things, no we're not just the middle person between a merchant and an affiliate. It may be easier to just forget the whole 15% bit, instead our revenue from a sale would range from $xxx to $xx,xxx range. The affiliate would get their commission cut of this.

    In terms of point of attribution-- historical vs. cookie, it should be for CPA.
    Agreed. I am definitely going to be running this as CPA exclusively.

    Let me know if this makes sense
    Other than it seeming overly complicated, do you see any problems with the proposed commission structure?

    One of my friends is suggesting to just go hard core for the first 1-2 years potentially taking a loss and giving the majority of value to our affiliates to gain market share. Is this something you'd recommend?

    One of the things I've read is that it's a very bad idea for an affiliate program to decrease commission structure. Conversely, I suppose I could run it as a special opening promotional period where all affiliates are aware that it's not long-term sustainable for us?

  4. #4
    Affiliate Manager
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    February 22nd, 2012
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    Raleigh-Durham, NC
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    Quote Originally Posted by internetmedia View Post

    Other than it seeming overly complicated, do you see any problems with the proposed commission structure?
    -Commissions Structures really depend on your margins, Cash flow, and Lifetime Value of the Customer (I come from a SaaS world, so LTV might not be pertinent in your situation). If you are not overpaying past margin, or not paying so much out up front for which it is lengthening your LTV (to the point of not even breaking even) -- then it should be fine. Obviously after these internal topics are taking care of, you really just need to focus on what your competitors are doing (do they have a more compelling offer to affiliates?) and what your affiliates find attractive.

    One of my friends is suggesting to just go hard core for the first 1-2 years potentially taking a loss and giving the majority of value to our affiliates to gain market share. Is this something you'd recommend?
    This is dangerous. There is a great deal of uncertainty with how your newly formed service and affiliate attraction will pan out. Also, if you were to do this strategy, how would you reel back the flywheel, if it is spinning out of control (meaning: How would you pull back from the red even if you do gain market share?). Market share concentration becomes a focus after you have a proven, traction positive site.


    One of the things I've read is that it's a very bad idea for an affiliate program to decrease commission structure. Conversely, I suppose I could run it as a special opening promotional period where all affiliates are aware that it's not long-term sustainable for us?
    I would start out the program at a healthy commission structure (what doesn't cut into your internal focus points above) and see the basic attraction. Using a commission increase later on (say 3-6 mo. after launch) as a campaign can not only active current affiliates with little performance in your program, but also attract others floating around in your vertical. Build,test, learn. That is what I say

  5. #5
    Full Member asr_guy's Avatar
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    Quote Originally Posted by internetmedia View Post
    Hello,

    We are releasing a new site soon that has been in the works for over a year now. It's in late stage Alpha with the beta soon to be ready for release. For the past three weeks I have been reading and learning as much as I can about how to build and manage an affiliate program.

    ...

    Could anyone make any suggestions? ...
    My suggestion is don't start an affiliate program - at this stage. Personally if I was looking to promote you, I wouldn't until I know that you have optimized your sales funnel and what the expected EPC is.

    Since you haven't even made 1 sale yet it's too early in my opinion. Once you get going you'll have a much better idea of where to find affiliates and what sort of deal would work for you and them.

    -Peter
    [URL=http://www.typoassassin.com/?utm_source=abestweb&utm_medium=forum&utm_content=p&utm_campaign=sig]Are these affiliates stealing from you?[/URL]

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  7. #6
    OPM/Moderator Hectic GHC's Avatar
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    My take is the same as asr_guy. Take two steps back and stop worrying about affiliate marketing. Build your site and prove that it converts. Build your brand and in the future, when you are ready to supplement those sales, then come back to affiliate marketing.

    In my world, affiliates only add up to 40% of the overall sales and that's in rare cases. The standard is 5% - 15%.

    So think of it this way, if you start with zero sales, 40% more is still zero. Affiliates need proof that they will see a return on their efforts.
    Last edited by Hectic GHC; October 24th, 2012 at 08:41 AM. Reason: added sentence
    Greg Hoffman
    Affiliate Marketing Advocate of the Year 2016; Best OPM/Agency - 2014; Best OPM/Agency, Five Years in a Row - ABestWeb.
    Visit Greg Hoffman Consulting

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  9. #7
    Affiliate Manager AffiliateWarrior's Avatar
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    I'm with Greg and ASR on this... affiliate marketing shouldn't be viewed as your path to sales, it should be viewed as your path to MORE sales. If you don't have the site live and running and converting, you're going to have a hard time getting traction on things. I'd get it live, run SEO and PPC and other targeted media buys, figure out what works for you, then give some thought into how you can bring in affiliates to reinforce your strategy, and fill in gaps where you may not be so strong.
    Wade Tonkin - Affiliate Manager - Fanatics
    NFLShop.com|Shop.NHL.com|NBAStore.com|Store.NASCAR.com
    Email wtonkin // at // Fanatics.com

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