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  1. #1
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    Free Shipping or Higher Commissions: Which is a better motivator?
    I have a certain margin percentage which i can use for promotion. Two obvious ways of using it are to offer:

    1. Free shipping; or
    2. larger affiliate payouts?

    Has anyone found if either of these two encourage affiliates to promote your site "harder". The idea behind free shipping is that more people will buy the products - removed the sales barrier - do higher volume. And larger payouts - well, you make more money with each sale.

    Being a new program, I dont want to get in a situation where i need to go back on promises, like i have read about zappos (and also like zappos, I dont have a pile of VC dollars to burn through in an attempt to build sales

    Any thoughts?

    Josh

  2. #2
    Grandma broke her coccyx! Uncle Rico's Avatar
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    I see free shipping as a consumer promotion and larger payouts as an affiliate promotion.

    Therefore, the larger payout may be better at getting affiliates to promote.

  3. #3
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    having said that, if you lower the barriers to buying, you decrease the likelihood that a customer referred by an affiliate will not buy - ie increased conversions. No?

  4. #4
    Affiliate Manager Howard Gottlieb's Avatar
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    A little of both would be nice.
    I would rather live my life as if there is a God and die
    to find out there isn't, than live my life as if there
    isn't and die to find out there is.

  5. #5
    Moderator MichaelColey's Avatar
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    As long as you have a competitive commission already, I would personally see free shipping as a better promotion. Free shipping increases consumer interest and conversions, both of which increase the bottom line for affiliates.

    How does your commission rate compare with the best commission rates in your niche? How do your shipping charges compare with the lowest shipping charges in your niche? How do your prices compare with the lowest prices in your niche? Which area is your biggest weakness?
    Michael Coley
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  6. #6
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    our regular shipping is 9.99 flat rate.

    At this point, I'm not looking to get into competing on price as I sell a somewhat niche product and dont have a lot of overhead to support so I dont need a whole lot compared to a larger company.

    Right now our base commission is 10% and i dont think I want to do too much playing around with it. I have seen complaints about companies that lower their payouts when they realize they have been paying out too much in commissions - i would rather stay consistent with the base, offer a good bonus scheme and invest in ways to improve conversion. When i read about companies that have huge commissions, my mind automatically start to think that the product is either overpriced to begin with or of low quality/value or that the affiliate scheme is not sustainable. I could be way off base.

    My biggest weakness is being a small merchant and the constraints that come with it

  7. #7
    Moderator MichaelColey's Avatar
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    Just took a look at your site. The questions I asked before were more generic, to help point any other merchants with a similar question in the right direction.

    How about offering free shipping with a $75 order? That could help increase average order size and shouldn't have as big of an impact on your profit margin. That would leave some room for bonuses and other promotions as well.
    Michael Coley
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  8. #8
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    I personally would choose a higher commision rate...
    That would motivate me harder

  9. #9
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    i have been toying with running a variety of shipping promotions, some without a minimum order and some with. Part of me wants to make the experience of buying from me like walking into a real store (as consumers often forget the cost of time, gas and parking when going to a store - I have had customers drive across the city and pay for parking to avoid paying 10 bucks for shipping).

    I am well aware that die hard net/mail order buyers are used to paying for shipping, but my goal with the promotions is to drive affiliate traffic. I just dont want to be experimenting to the point where consumer start to become skeptical of the value of the offering (I walk in to my local gas station and I see 2 bottles of gatorade on sale for the cost of a little more than one regular bottle and I immediate question the non-sale price as being grossly inflated - that may be my finance/marketing mind talking rather than my consumer mind)

  10. #10
    Not that fat. ReallyBigGuy's Avatar
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    It depends on what you're selling. If, like you said, it's a niche product that people want/need, then you probably won't lose sales because of the shipping fee... So give higher commission instead.
    If your product has a lot of competition, then price for the consumer is key, so the shipping would be the better offer.

  11. #11
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    I'm loathe to compete on price.....i'd rather spend the amount that I cut prices on some sort of "motiviational" investment

    Amazon, god bless their hearts, spent billions of dollars recreating catalog shopping. Yes they are profitable now (i think 4% net income), but most of us are not in the position to build a business in the manner that they did. Not whining about it, just stating the obvious.

  12. #12
    Outsourced Program Manager Stephanie Harris's Avatar
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    I've found that consumers see the biggest value in Free Shipping offers, sometimes more so than percent off (as they can sometimes save much more with Free Shipping). We occassionally do commission incentives for affiliates but I think that is a great tool for Q4 when there is so much buying done already, that that boost in commission means big business for the affiliate. Sometimes a strict cash bonus for the affiliate who generates the largest sales in a month, can also be a great incentive. Overall though, I agree with Michael and the other guys that Free Shipping will go a long way. During regular periods in the year, this usually equals a higher check each month than a bump in percent overall.
    Stephanie Harris
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  13. #13
    Classic Rocker Mack's Avatar
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    Consider doing both. Offer your customers free shipping on larger orders, and offer your affiliates a straight up cash bonus on every fifth sale. Something like that, you get the idea.

    When you offer only the highest affiliate a bonus, that's one prize. I'm more likely to go after an incentive that I can achieve without having to beat everyone else.

  14. #14
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    As an FYI, I was informed today by a rather successful affiliate that milestone bonuses do not motivate them (and others as well) as they think it is an indication that the standard commission is below average.

    Is there one thing that affiliates can agree on?

  15. #15
    The Seal of Aproval rematt's Avatar
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    Quote Originally Posted by shoelover
    Is there one thing that affiliates can agree on?
    Yes. We all like to make money. But we all have different incentives that we prefer. Take all of the info here and come up with the incentive that you think best fits your program. If you give us the choice, we want it all.

    -rematt
    "I know that you believe you understand what you think I said, but I'm not sure you realize that what you heard is not what I meant." - Richard Nixon

  16. #16
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    well, I cant give it all to you, but I can give you some different options

  17. #17
    Member lookingfortips's Avatar
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    Like others said- BOTH!

    Higher commissions: This will obviously interest the affiliate in terms of the potential for greater earnings. It can make or break you. If your commissions are too low, they can be seen as a joke. If they are average, you better have one heck of a product or conversion rate for them to promote you over your competitors. If they kick butt, then this is obviously ideal.

    Free Shipping [And other coupons]: Although many affiliates will like this, this is going to be something the customer will love the most. However, by making your customer happy you will increase your conversion and therefore make your affiliates happy as well.

    Pretty obvious advice: Pay the best commission rate you can possibly afford and offer free shipping for purchases that meet a minimum amount. That way you will be able to afford both promotions without sacrificing the advantages for one over the other.


  18. #18
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    What's the product you are promotion?

  19. #19
    Resident Genius and Staunch Capitalist Leader's Avatar
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    Quote Originally Posted by SeymourButts
    I see free shipping as a consumer promotion and larger payouts as an affiliate promotion.

    Therefore, the larger payout may be better at getting affiliates to promote.
    I agree with this. I don't think I've ever picked a merchant for their free shipping. And as for promoting a free shipper "harder"--no. Although I do make a point to mention it in my sales spin, I don't promote them any more than I would otherwise.

    Quote Originally Posted by shoelover
    As an FYI, I was informed today by a rather successful affiliate that milestone bonuses do not motivate them (and others as well) as they think it is an indication that the standard commission is below average.
    I disagree with him/her. A well-thought-out tiered program does motivate me.

    On the other hand, a poorly-thought-out tier setup is demotivating. For example, it shouldn't take being Amazon.com in order to hit the highest tier. And there's no incentive to bother if you get something puny like 1/4% extra for selling more.

    But as long as each tier is reasonably spaced, and has a decent commission increase for putting out the effort to reach it, I like performance incentives.

    Is there one thing that affiliates can agree on?
    NO!

    But that's how it belongs. We're all entrepreneurs, with our own ideas.

  20. #20
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    well said.

    Based on your experience, what are reasonable performance tiers. obviously this depend on the unit price and sales volume. So yes, I'm asking you to generalize

    As to what we sell/promote - we manufacture and market a line of stackable, ventilated clear storage boxes for shoes, boots purses and handbags (and whatever else you can put in a box)

  21. #21
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    let me throw one more variable into the loop.

    Would the availability of a gift/bonus product (say something with a 30 to 40 dollar retail value) with a minimum purchase of $100 increase your willingness to market a program, based on the assumption that consumers like getting a little extra when they plop down their dollars and will increase conversions?

    Ya, I'm asking a lot of question

    Thanks

  22. #22
    Moderator MichaelColey's Avatar
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    From my experience and experiments, the three most effective promotions are:

    1) Free (or even cheap) Shipping
    2) Dollar Off Coupons
    3) Short-Term Sales

    Any combination of those three is even better. The best (what I call the "promotional trifecta") is when you can offer all three. Overstock.com does very well with this. They offer $2.95 shipping every day and $1 or even free shipping from time to time. They always have several dollar off coupons to hit various price points. They're always running sales.

    The three least effective promotions are:

    1) Percent Off Coupons (My theory: people are bad at math or don't want to think.)
    2) Rebates (They're a hassle and many people know they won't send them in.)
    3) Free Products With Order (Most free products are things people don't want.)

    Don't expect much out of any of these types of promotions.

    Based on your specific store, I still think that offering free shipping with a $75 order would (by far) be the best promotion you could offer. I'm assuming that your average order size is somewhere around $40 or $50. The additional profit you make by increasing the order size an extra $30 or so should more than offset the shipping charges, plus it should help increase the conversion ratio.

    I think free shipping with any order is one of the most ineffective promotions a store could run. It will actually decrease the average order size and can turn into a huge expense. The conversion ratio will increase, but not enough to offset the negatives. If you have free shipping with any order, consumers don't give that much value. Some will see it as being worth a few bucks, perhaps, but most won't even think about it. If you only offer free shipping above a certain threshold, most will value free shipping at the shipping price that you charge for smaller orders (in your case $10).

    Affiliates like Leader might not immediately appreciate free shipping from the affiliate perspective, but they will notice the lower conversion ratio if it's not offered.

    Run an A/B test on your site. Cookie your visitors. Offer 1/4 of them free shipping on any order. Offer 1/4 of them free shipping with a $50 order. Offer 1/4 of them free shipping with a $75 order. Leave the other 1/4 with the normal shipping offer as a control group. Give it enough time to get some statistically accurate date (like 100 orders in each group). Then analyze the conversion ratios, average order sizes, and total profit from each group. That's the only way you'll know for sure.
    Michael Coley
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  23. #23
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    thanks for the feedback/input/investment of your time. People hate doing math

    As far as Overstock, from an affiliates position they may be great, but for the average small business owner, trying to emulate them or amazon is an absolute disaster in the making. I'd rather go broke not selling any product than selling to much of it at a loss...


    Funny enough, our avg sale is closer to $100, but the most common sale is lower - you would be amazed how many boxes some people buy. As far as the free product, it would be one of our existing products (i.e. no free ebook).

    What i may do is boost the basic cost of shipping and then have a threshold for free shipping at the mark you suggested. at this point I am eating a few bucks on every order as it is

    Josh

  24. #24
    Moderator MichaelColey's Avatar
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    I wouldn't boost your shipping charges, even if it costs you more than that. $10 is high already. Are you shipping from outside of the US?

    If your average order is close to $100, perhaps $99 would be a good threshold for free shipping. That would boost a good portion of those smaller orders up over $100 and might get your average order size up closer to $150.

    I can imagine that you would get some large orders. If my wife ordered boxes for all of her shoes (or purses), she would need dozens of bundles of 10 boxes.

    One other tip: You might want to offer a sampler pack that has one of each size, for a flat rate including shipping. That would let people see the quality of your product, better understand the various sizes, and would also help build your customer list. If your followup (and product) is good, you should be able to convert many of those sampler customers into much bigger customers.
    Michael Coley
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  25. #25
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    actually just in the midst of doing that as we speak....

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