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  1. #1
    Member ntjock's Avatar
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    Commission / Margin and four other evil objects in the universe
    This is the new thread that was originally under "new to sas" and sort of spiraled off topic. I've moved it here to be fair to the original poster.

    As promised, I'll also delve into alot more detail about the logo apparel market and apparel in general.

    Market Facts (per industry associations).
    1- $16 Billion dollar promotional market. $5Billion or so of which is apparel. (30%).
    2- There are roughly 20,000 promotional products companies in the market. 18,500 don't do squat. (less then $100K/yr). The other 1500 make up 80% of the market.
    My Observations:
    3- This intersects with retail primarily in the t-shirt, sweatshirt, and activewear markets. There is a substantial amount of crossover.
    4- Consumers buy for themselves (retail) or for a organization (quasi-retail).


    Okay.. I was gonna do this long diatribe... but I thought.. .is that really important? No.

    The reality is that we are in a *very* very competitive market. To win the deals as they get larger, you have to get cheaper. The economies of scale work that we already get and count on the best prices for products in the market. The only thing that really changes is the amount of margin we sell on. As customers buy in increasing quantities there are more people who are willing to work for less to get the order. That means that we have to outservice and outperform them to get their orders. It also means margins go down.

    Our original flat rate commission program had a problem in that it could cause us to break even or lose money on a large order. We looked at capping the exposure but frankly thought it was a lousy solution. After talking to SAS we realized that we could pass them the commission as we booked a sale. So I programmed it to do that and to do it in a way that prevented us from losing money while still sharing commission.

    The fact of the matter remains that small orders are very profitable. In fact the most profitable thing out there is a 2 t-shirt order. That's for us or anyone else. What we compete with is folks who drop ship everything and work on a 7 or 10% margin. We buy about the same volume they do, and so we know approximately what their costs are. At the other end of the scale you have PSOs (professional sales organizations) who can lock up your really big orders.

    My philosophy has been to develop something that makes good money and accomodates the opportunities when you can catch a whale.

    I reviewed our order stats when I made the commission set. 99.3% of orders are below $250. .7% aren't. So that means that .7% of the time we would deal with a smaller commission. I'm really fond of the saying "something is better then nothing, and nothing from nothing is nothing.". That about sums it up. Ask too much and you lose the sale. So, it's better to sell at a profit, and split what's there then it is to not sell at all.

    That said, I've also looked at our competition's program. They run a flat 8% program tier 1 only. They've asked me to do their work in the past and I know what they pay, so I know they can share more then 8%.

    So back to us, we're a heck of alot more sophisticated with 60,000 skus and the ability to create a data feed at the sku and the style level. We also have plans to grow the sku base substantially. My largest supplier has 18,000 skus in house. They are the largest at this in the industry.

    From where I see it, it's very frustrating for people to get their panties tied up in cute little orgami shapes over the fact that we're paying a higher commission on small orders. You could really read this in reverse and say we pay a 7% commission with a bounty on small orders.

    So there, we're back to the half-full vs. half-empty argument. Is it a declining commission? or a flat commission with a bounty on small orders? You tell me what you'd rather have it labeled as and I can adjust the label.

    I do know we'll have some bumps as we get the kinks worked out. It would be nice if SAS had some data on what successful affiliate programs are like. It would be nicer if they shared that data to get merchants running.

  2. #2
    Internet Cowboy
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    Thumbs down Sell more...get less. Now at an affiliate program near you!!!!
    Quote Originally Posted by ntjock
    It would be nice if SAS had some data on what successful affiliate programs are like. It would be nicer if they shared that data to get merchants running.
    Successful affiliate programs don't have a representative who claims to be a professional saying things like
    Quote Originally Posted by ntjock
    From where I see it, it's very frustrating for people to get their panties tied up in cute little orgami shapes over the fact that we're paying a higher commission on small orders.
    or
    I'm gonna throw a dart and say someone's being greedy and it aint me.
    from this post
    Successful affiliate programs do not have bulk discounts that vary by 50% (on average) from highest to lowest, yet their commission percentage varies by 350% from highest to lowest.
    Successful affiliate programs reward those who bring in large sales, not penalize them.
    Successful affiliate programs have people running them who are a little bit, OK a LOT, more professional than you are.

    For anyone wondering, this is the commission scale this program pays, based on the amount of the individual sale:
    Sales up to $199 - 25%
    $200 - $499 - 20%
    $500 - $999 - 15%
    $1000 - $2499 - 10%
    $2500 + - 7%

    Does this sound fair to anyone or is it just me? I could very well be wrong, but I see this as headed in the wrong direction to motivate affiliates to sell.
    Last edited by UncleScooter; October 12th, 2005 at 08:11 PM.


  3. #3
    Lite On The Do, Heavy On The Nuts Donuts's Avatar
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    When your % commission scale slides so fast that an affiliate not only gets a lower % comm, but a lower gross commission, then you're a clown.

    Why in the world would you pay an affiliate less money for bring in a larger order.

  4. #4
    Member ntjock's Avatar
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    So rather then proving your skills at stand up comedy... what would you suggest?

    I personally didn't think a 11% flat rate commission was good.

    I also didn't think that that reducing it so it worked for 4 orders out of 100,000 was a good idea either.

    I bet in most affiliate programs you aren't working with the owner of the company either. hmmmm....

  5. #5
    Internet Cowboy
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    Quote Originally Posted by ntjock
    So rather then proving your skills at stand up comedy... what would you suggest?
    Not sure if this question is directed at me, but the very first thing I would suggest is you hire an affiliate manager who can gain and manage affiliates without being rude and insulting.
    After that, you can work the rest of the details out. But if you come right out of the shoot calling people names, you will not have any affiliates to manage. This community has many very worthy affiliate publishers as members. They can make your program, thrive or they can allow it to flounder and not grow at all.
    A very wise man recently told me to remember that web ink is forever. So I would try to be nicer if I were you.


  6. #6
    Member ntjock's Avatar
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    Oh, and by the way....

    I figure it's good to say..... I'm all ears if folks have suggestions. My point of being involved here is to improve our program... not to get into a contest of sorts.

    I felt like increasing commissions on profitable orders was a nice thing to do. When we realized we could pass the commission level we decided to crank up the commission on the tiny orders because that is what most affiliates will bring.

  7. #7
    Member ntjock's Avatar
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    Perhaps I missed your suggestion... but could you repeat it?

    I got the affiliate manager piece, but I didn't read where you said what you would change that would work for you and for us.

  8. #8
    Internet Cowboy
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    I run my business. You run yours.
    If I am to run yours too, there will be a fee involved.


  9. #9
    Member ntjock's Avatar
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    I will be a bit pointed because I really hate people who complain about a good opportunity without saying what they would fix.

    I didn't ask you to run my business. You did take the time to criticize what I thought was an overly fair deal. So I want to know what you would change ?

    I did look at the other affiliates in clothing. You've primarily got t-shirt sites that pay what amounts to a $4 or $5 per shirt sale. There are a few others.

    Most of those aren't going to ring high $$ sales.

  10. #10
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    OK fine. Let's make nice.
    In Psycology 101, they teach you that when dealing with people, there really is no reality, only perception. The perception of the terms you have set forth is that the affiliate is penalized for sending large sales. This might not be the reality, but it is the perception...which is what is important.

    Remember, you are the owner of the business so anything you put together you will think is a generous offer. If you do not think it is a generous offer, then you are intentionally trying to get over on your affiliates, which I do not think you are trying to do.

    All that being said, a flat 12-15% commission with performance incentives based on overall volume would be seen as a positive to affiliates.

    Now you will say, "Well I will break even or lose money on the big sales." OK. You have already said that 99.3% of your sales are $250 or under, so maybe you will lose on 1 in 1000 sales. Maybe an affiliate will send you a $20,000 sale that you will not make good money on. But by your own numbers, you will have gotten thousands of $250 sales by then that you DID make good money on, so 1 sale out of multiple thousands where you do not enjoy a good margin should be acceptable since you are making great margins on the rest of them.

    I would set it up at 15% with the following:
    Monthly sales over $10K get an additional 3% commission
    Monthly sales over $15K get an additional 5% commission
    Monthly sales over $20K get an additional 7% commission
    Anyone consistently selling > $20K should contact you and make a private deal with you and you should be willing to do that.

    This way, an affiliate who sends you $25,000 this month gets 22% commission. Now, 99.3% of your sales are $250 or less so this affiliate sent you 98 or more sales in which you enjoyed healthy margins and can easily afford the 22% commission. The rest of the affiliates who sent you < $10,000 get 15% and this increases your margins that much more.

    Does this make sense to you? Will you not still make out just fine knowing that the majority of the sales you get are going to be $250 or less and in the high margin area?


  11. #11
    Member ntjock's Avatar
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    Thanks for the really good, detailed post.....

    It does make sense from a reading perspective... but practically speaking I can get taken to the cleaners.

    We've been working with Amazon for a while. They generate alot of sales. They get a 15% commission for it and they pay credit card, hosting, and risk of fraud out of it.

    It works well, but it burns them to bits on big orders and we don't do *ANY* discounting other then shipping there because few people will pay full price for quantity.

    When we first started with them we got burned hard on international free shipping. We zapped that pronto plus.

    One thing we could do is split commission by order type.
    So, blank orders might get 15%
    Printing orders and embroidery orders might get 10%

    The real issue is that we can pay nice commission on retail sales. But when you start getting to wholesale stuff it becomes much harder to pay the same commission.

    It sounds like we might be better off to offer a base commission and a bounty of sorts on certain types of orders.

    For example:
    8% base commission.
    No Tier 2

    A premium commission on decoration orders:
    Screenprinting orders would get a 2% commission bump (10% net)
    Embroidery orders might get a 5% commission bump (13% net)

    Does that work better?

  12. #12
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    IN a nutshell, pay as much flat as you can afford and still remain profitable and happy. Reward those who achieve with commission bumps, bonuses or something to incent them to work to sell your goods.
    Remember, what you pay affiliates should be equal to or greater than the cost of your own marketing effort. Affiliate sales do not happen as a result of your marketing efforts, they happen as a result of the affiliate's marketing efforts.
    If you have a 10% PPC budget, you should start your base commission calculations at 10%. If you have an additional 4% print budget and also a 3% budget for promotional giveaways and freebies, then your base commission should be 17% at least.
    These are just numbers I am throwing around. I realize these are not your numbers.

    Many affiliates spend a lot of money promoting merchants, but only if it is profitable for them. From the affiliate perspective, we must remain profitable with a much smaller gross margin that the merchant has. This can be done, but it requires a sharp eye, experience and the balls to put your money on the line.

    Look long and hard at your numbers and put together something that pays a good base with incentives. Don't worry if XYZ competitor has a larger base commission than you do. If your program is put together correctly and affiliates have incentive to push your products, the EPC numbers will speak for themselves.

    My best merchant in the apparel category pays 7% less commission than others who sell the very same stuff. This merchant converts a twice the rate of the others and therefore makes me a lot more money than those who appear to offer a better deal.

    I am off to watch a movie with my girlfriend now. If you have any more questions, feel free to email me. You have my address.

    Ciao


  13. #13
    Member ntjock's Avatar
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    Quote Originally Posted by UncleScooter
    IN a nutshell, pay as much flat as you can afford and still remain profitable and happy.If you have a 10% PPC budget, you should start your base commission calculations at 10%. If you have an additional 4% print budget and also a 3% budget for promotional giveaways and freebies, then your base commission should be 17% at least.
    These are just numbers I am throwing around. I realize these are not your numbers.
    This is really golden. Note to SAS - This should be in your merchant info. It's about the best summary I've seen.

    Great reply, thanks. Seriously, your other comments are on target and this gives me some direction to go on.

    Lesson Learned: What I thought was a good deal comes across as "screw you" of the century. OOPS.

    That *certainly* was not the intent. The intent was to share more where we could.

    How would this sound:
    8% base commission on all sales.

    Instead of doing bonuses, I could do commission bounties.
    Screenprinting +2%
    Photo Transfer +3%
    Embroidery +5%
    Small order (less then $50) +7%

    I could make the bounties combinable. It's nearly impossible to order embroidery on a single item for less then $60, unless you choose a $2 t-shirt. That said, if you ordered 36 t-shirts with a screenprint on the back and a embroidered logo in the front you could get a 8%+2%+5% (net 15%).

    This would still achieve my goal of paying more on 1 and 2 piece orders. For example, say you offer a 3x section. And your customer goes and buys 2 Beefy-T's for $10 each. Well, your commission would be on $20 in sales. So we'd pay 8% plus the 7% small order bounty which makes it (15%). Which makes it a $3 commission. Liveable for us, and a better deal for affiliates who do send small orders.

    Does that sound more attractive? Again, I'm not intending to be mean, or rude. I genuinely want to put together a win-win deal.

    Btw, I'm not sure if I have your email. If I do you'll have to email me back.

  14. #14
    Life is Supposed to be Fun! Rexanne's Avatar
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    Quote Originally Posted by UncleScooter
    A very wise man recently told me to remember that web ink is forever.
    Thanks for sharing that bit of wisdom, Unc! Makes a whole lotta sense.
    Peace,

    Rexanne

    Rexanne.com
    Loving Everyone's Child Creates Magic


  15. #15
    Member ntjock's Avatar
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    Scooter brought some really good points out and I've incorporated them into our program. I basically tossed the old commission structure that nobody liked and rolled out what is described above. The changes were posted to SAS followed by the code changes to support it. Barring new information I don't plan to change it.

    I think it still gives a boost for small orders and an incentive for larger ones.
    It also places an emphasis on selling decoration which is something we want.

    We sent our draft data feed up to SAS tonite and it should get accepted. It will contain 1240 styles that we offer. All of our images are hosted on a dedicated image server which helps ensure fast loading. We are capable of posting a sku level data feed with data for all 60K skus. SAS indicated that they didn't think most affiliates would want that. So for those that do, contact us directly and we can work with you to get you the parts you need.

  16. #16
    Moderator MichaelColey's Avatar
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    Sales up to $199 - 25%
    $200 - $499 - 20%
    $500 - $999 - 15%
    $1000 - $2499 - 10%
    $2500 + - 7%
    If this commission scale models the profit margins, I think it's a good way to do it. It helps encourage affiliates to push more profitable orders. If I were in this program, I would be pushing items and price points that would put orders in the $150-$200 range. Those smaller orders would have higher conversion ratios and higher commission rates. Sure, I'd probably get a few larger orders here and there, but that wouldn't be what I was aiming for.

    Look at it this way. Many merchants pay different commission rates for different items. For instance, Overstock.com pays 3% for their low (and sometimes negative) margin media items and 7% for the high margin non-media items. Amazon.com had a $10 cap on commissions for electronics items for the longest time, because the high end electronics had a lower margin. Other merchants have even more variation. If this merchant makes high margins on small orders and low margins on large orders, this type of scale makes sense.

    Consider the alternative. What if they set their commission rates to cover all their bases. They would probably pay 7% or 8% on any size order. You would probably get less overall, because they would need to play it safe.

    My only problem with tiered commissions like this is that the total commissions would drop if you slightly surpass a tier. For instance, you would make $95 on a $475 order, but only $75 on a $500 order. I would recommend something more like this:

    Sales up to $199: 25%
    $200 - $499: $50 + 20% of everything over $200
    $500 - $999: $50 + $60 + 15% of everything over $500
    $1000 - $2499: $50 + $60 + $75 + 10% of everything over $1000
    $2500 and up: $50 + $60 + $75 + $150 + 7% of everything over $2500
    Michael Coley
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     Affiliate Tips | Merchant Best Practices | Affiliate Friendly? | Couponing | CPA Networks? | ABW Tips | Activating Affiliates
    "Education is the most powerful weapon which you can use to change the world." Nelson Mandela

  17. #17
    Member ntjock's Avatar
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    Michael,
    Your comments are great. I'm not sure SAS supports your suggestion. Although the commission setup was very good for affiliates, it was almost universally hated. We opted instead to use a simpler flat rate model. It does pay less overall, but it incentivizes specific products and offers a bounty for small orders. A bounty on small orders seems strange, but it works and it rewards affiliates who can send individual orders.

  18. #18
    ABW Ambassador Packy's Avatar
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    I'm curious as to how sales went from a possibility of 25% to a high of 15%? Maybe I am missing something

    If 99.3% of orders are below $250.00 loosing the extra 10% is a pretty good deal on your end considering only .7% of sales would be paid at the new higher commission structure. Again, maybe I am missing something?

    Here is what I personally could live with because I understand that you cut the price on larger orders which in turn cuts into profit.

    I'm not sure how many of your orders are in the second tier structure which originally was 200.00 - 499.00 but I suppose it wouldn't matter, at least on your end because that will stay the same.

    Old Structure

    Sales up to $199 - 25%
    $200 - $499 - 20%
    $500 - $999 - 15%
    $1000 - $2499 - 10%
    $2500 + - 7%

    New Structure

    00.00 - $499 - 20% (You gain 5% on Most orders)
    $500 - $2499 - 15%
    $2500 + - 12%

    I personally could live with this. Just my opinion of course. You might take a cut on the larger orders but you should be more than making up for it on the smaller orders with the 5% cut from 25% to %20%. You have the real numbers so this is just some food for thought

  19. #19
    Member ntjock's Avatar
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    There seems to be this pervasive concept that losing money on some orders is okay if you make money on other orders. While I suppose you could run a business this way, it's a really fast way out of business for a small company. Each order must be able to stand on it's own and be profitable. This gives you a greater assurance of having something left after you pay all your expenses.

    While the initial commission structure was better for the affiliates it was widely disliked. We revised it to something that has genuine incentive to grow sales and to sell services which in turn raise the order amount. At the same time we left something in there for the small orders.

    While your suggestion looks good, it still doesn't fly after you throw in 2% for SAS, 3.5% (worst case) for credit cards. SAS' effective rate is 2%. Most internet sales will be credit card. That adds a "shadow" load of 5.5% to any commission paid. Granted all of this is a cost of doing business. We can always raise prices... but the higher you raise your prices on larger orders the few of them you ever get.

    A max commission works well too, but frankly it's just a commission cap with a different name.

    For now, we want to sit tight and leave things alone for the Holiday season. I want to give folks a chance to actually do something without the ground moving out from under them. I also want to see some traffic and some sales. As a new merchant, we've put alot of time and effort into this with the faith that it will pay dividends. I'll be more inclined to revisit margin in January after we have some sales and the holidays behind us.

    I finished the last touches on the data feed for SAS this morning. Assuming they accept it we will replicate that to another site's affiliate program and to a 3rd site we are bringing online this week.

    I'm off to key new products... today's agenda mildly offensive shirts for one of our brand-focused sites.

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