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  1. #1
    Moderator MichaelColey's Avatar
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    New Customer Bounties
    When talking with merchants about the goals of their affiliate programs, one of the most frequently mentioned goals is acquisition of new customers. With that in mind, it's surprising that hardly any affiliate programs compensate affiliates for new customers. When the affiliate's compensation and the merchant's goals are aligned, it's a win-win situation. Affiliates will be more motivated to get the word out about your store, and those affiliates that produce new customers will be properly rewarded.

    When determining how much you can afford for a new customer bounty, it helps if you have a handle on customer acquisition costs in other channels and the lifetime value of your customer. I've seen New Customer Bounties all over the board. Drugstore.com pays $3. eBay pays $25 to $35 (plus 50-75% of revenue generated!) depending on volume. Many others pay in the $5 to $10 range. The more competitive you can be, the better.

    The only catch you need to be aware of is incentivized sites. If you allow affiliates to incentivize your offer (especially if your payout is high), the quality of new customers from those incentivized affiliates could be very low. It's not a problem when you're paying a straight percent of sales because your margins and commissions should be set so that every sale is profitable, but New Customer Bounties are usually structured so that you take a loss on a new customer but make it up over the life of the customer.

    Let's look at an example. Let's assume that you have a 30% profit margin and are paying a 10% commission, your average order is $50, and your average customer purchases $200 worth of products per year. Let's look at the impact of a $25 New Customer Bounty. For average orders from existing customers, you'll pay an affiliate $5 (and make $10) on a $50 order. For average orders from new customers, you'll pay an affiliate $30 (and lose $15) on a $50 order. You'll only need one more average sale to that customer to break even. If the customer is an average customer, after 5 years you will have made $270 on that initial $30 investment.

    If you give your affiliates the tools to attract new customer (like new customer coupons), they can really ramp up your customer acquisition for you!
    Michael Coley
    Amazing-Bargains.com
     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

  2. #2
    Newbie Greg T's Avatar
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    Bounty Commission
    Hi Michael,

    Thanks for the post. Quick question: outside of Ebay and Drugstore, do you have any examples of merchants using this cost structure?

    I am a retailer of sporting goods and looking at giving my affiliates the choice of normal commission payout with cookie duration or a higher one-time, bounty commission. Do you know of any retailers currently doing this?

    Thanks
    Greg

  3. #3
    Affiliate Manager MINDsprinter's Avatar
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    What about simply paying a higher commission for the first sale from a new customer? Say, pay 30 or 40% on that first sale instead of 10. That way, incentivized sites are much less of a problem.
    Jason Rosenbaum
    Affiliate Manager
    MINDsprinting

  4. #4
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    Both CPL and CPS makes sense whether you are a retailer or subscription service like Netflix (CPL makes more sense here). I think differentiating percent of commissions paid based on first or repeat customer is a win-win for all.

  5. #5
    Newbie Greg T's Avatar
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    MINDsprinter & Redtagdeals,
    Thanks for the feedback.

    I agree with you both. I see it as a win win. I am looking for more cost structure options for affiliates.

    Do either of you know any straight retailers that are currently doing this?

    Thanks again.

  6. #6
    Affiliate Manager Alan Hamilton's Avatar
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    I would really enjoy some personal discussion on this one in Miami.
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  7. #7
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    Yes, some retailers does it. One store that does it thecompanystore dot com

  8. #8
    Moderator MichaelColey's Avatar
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    I would highly recommend a fixed dollar amount new customer bounty rather than a higher percentage on the first sale. The merchant could really lose out if it's a huge first sale (and likewise the affiliate would lose out if the first order was small), while the fixed dollar amount new customer bounty should more accurately reflect (a small portion of) the lifetime value of a customer. Also, affiliates would likely perceive the two rates as being a "lower commission for repeat customers", while a new customer bounty would be perceived as a "bonus for new customers".

    I wouldn't recommend an "either or" situation like Greg was proposing. Affiliates should be compensated for both. If anything, I would think a new customer bounty should replace a long cookie duration. 30 days should be more than sufficient for most merchants.

    Thinking about this more, I think a new customer bounty makes more sense for larger, existing merchants (like eBay and Drugstore.com). With small merchants, just about every customer is a new customer so merchants don't need to do anything special to get new customers.
    Michael Coley
    Amazing-Bargains.com
     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

  9. #9
    Affiliate Manager Alan Hamilton's Avatar
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    Quote Originally Posted by MichaelColey
    Thinking about this more, I think a new customer bounty makes more sense for larger, existing merchants (like eBay and Drugstore.com). With small merchants, just about every customer is a new customer so merchants don't need to do anything special to get new customers.
    I agree with the above....

    That said, I wonder why a (non gargantuan) merchant would offer an added bounty on top of commissions for new customers when the purpose of an affiliate program is to promote new online sales in exchange for a commission.

    There are different types of bounties, which vary by industry and merchant mindset as well, such as repeat purchases for consummables versus one time buys.

    With absolutely no intention of plugging AmeriTrust, I'll use our program as an example of my thinking on this. We've structured a bounty of a different nature, and for those who think about the long term recurring income side of marketing, it is a long term recurring bounty by design. The "bounty" we built into the program is that the affiliate gets full commission every time a new customer (referred by the affiliate) refills their medication for as long as that customer is ordering refills. In some cases that can be 3 - 6 times a year for many years.

    Because medications are a regular refill item, and because refill dollar amounts are generally double the dollar amount of 1st time orders, it adds up to a substantial "bounty" over the course of the customer relationship. As an individual merchant, that is the value I chose to assign to new business created by an affiliate. Others think differently.

    But returning to the idea of adding a bounty on top of commissions, it seems unrealistic for most small merchants to add a bounty as just about every customer an affiliate generates is new, and that is why the affiliate program is being offered. If I am missing something on this, I'm welcome enlightenment.
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  10. #10
    Lite On The Do, Heavy On The Nuts Donuts's Avatar
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    Alan, MC's saying you merchants might pay their affs a new customer bounty upfront for some protion of lifetime value and you're saying you do it over the lifetime (with each refill / reorder). As an affiliate, I can tell you which is more compelling to me. I know you and trust you, because we're friends - but if I didn't, I'd wonder about the lifetime deal you offer. An example - I've worked for a satellite tv merchant for years and built up a lot of second tier affs (they signed up under me), the merchant's program has grown, but the owners recently decided to do away with 2nd tiers. In your world of lifetime bonuses, as an aff, I have to buy into the thought of repeat orders - they may or may not come - they may or may not track - the program can change later, etc... So I'm just saying, experienced affs question lifetime offers, because there's time risks in there that we've all experienced. I understand how lucrative lifetime comms can be, but they can also be promises broken. If your competitors offered upfront new customer bonuses and you offered them spread out, I bet many would pick the "pay me now" deal - there's a lot of uncertainty, and in this case, I don't just mean your niche.

    It may not make sense for every merchant, as MC said - but I'd say it's worth experimenting with especially if the % of new customers within your aff channel is lower than your other channels. If you're a super freak about statistics, I'd also suggest that it's a worthwhile exercise to learn the percentages for your top affs as well (careful how you measure things, all is not as it may seem!).

    MC made some other very important and compelling points in his posts in this thread, make sure you completely grasp them all before going down this road.

  11. #11
    Newbie Greg T's Avatar
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    MC, et al:
    Great feedback. I appreciate the thoughts.

    MC, you advised against either/or. To make sure I get your drift, you mean that compensation should be paid out on all orders no matter what, however, you can adjust the structure to pay out a bounty on the acquisition of a customer and a lower commission on subsequent purchases from said customer.

    For example (and using simple numbers) if you normally pay out 10% with a 90 day cookie, you can adjust the structure to a bounty of $20 for the first order, and then say 5% for subsequent orders and a reduced cookie of 30 days. Do I have your idea right here?

    Thanks
    Greg

  12. #12
    Moderator MichaelColey's Avatar
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    If you normally pay 10% with a 90 day cookie, I would recommend keeping the 10% commissions PLUS adding a $10 new customer bounty. (I don't think $20 is really necessary--$10 should be plenty of motivation.) If you drop your commissions to 5%, that's going to be received very poorly by affiliates.

    At the same time that you add the new customer bounty, you could drop the return days from 90 to 30, but I would recommend doing an analysis first. Odds are you have a very small percent of orders in the 30-90 day window, in which case it would probably be best to leave it at 90 rather than risking the perception of being affiliate unfriendly by lowering the return days. If you do lower it, I would recommend going no lower than 30 days, communicating it in conjunction with the addition of the new customer bounty, and offering to allow any affiliate remain under the old structure (10%, 90 days, no new customer bounty) if they prefer.
    Michael Coley
    Amazing-Bargains.com
     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

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