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November 6th, 2007, 12:14 PM #1
Dedicated Server - Commission Structure?
- Join Date
- January 18th, 2005
A merchant who leases "dedicated servers" has asked me for some advice on their planned new affiliate program, specifically regarding their commission structure. I'm having trouble making a strong recommendation.
As you may know, there are several "dedicated server" merchants who promise commissions of 100% or more of the first month's fees. However, most of these competitors charge higher prices to consumers, or charge large non-commissionable setup fees. One competitor promises 300% on shared hosting but no commission at all on dedicated servers. Other merchants promise high commissions but then don't allow online ordering of dedicated servers, shifting all orders "offline" with no apparent tracking back to affiliates.
The client believes that its conversion rate is higher than its competitors, and that its cancellation rate is lower than competitors (and thus anticipates a lower "reversal rate"). I've told the client that because there is no third-party measure of these data for both this company and its competitors, this argument won't sway affiliates (and as folks here on ABW know, I don't view EPC as a meaningful measure since it is so incredibly easy to manipulate).
The merchant's original plan was to pay a 40% commission on "new" server models (which have a very narrow margin) and 70% on older "legacy" servers (which have a higher margin).
I didn't like this "product differentiation" in commission levels, and I suggested that cynical affiliates would view this as no better than a flat 40% commission rate. I pointed out that none of the merchant's competitors have any "product differentiation" in their commission rates. As we explored other commission options (listed below), I expressed concern that cynical affiliates might not consider any of these options, since they don't appear to match or exceed the 100% rate promised by other merchants.
My advice was to try to offer a flat commission, and since there are multiple competitors promising a 100% commission (or more), I urged the merchant to "find a way" to match the 100% offer. However, there just doesn't seem to be enough margin to allow payment of a 100% commission on the first month's hosting fees (the merchant didn't like my suggestion of raising prices).
Here are the four options that the merchant is now considering. How would you view each of these offers from a merchant offering "dedicated servers," and which of these options is most attractive to you? Each of these would be a "one-time fee" based on the first month's server fees (excluding setup charges).
(1) A commission of 40% on "new" servers and 70% on "legacy" servers;
(2) A flat commission rate of 50% on all sales;
(3) A commission of 75% on the first $100, plus 45% of any amounts above $100; or
(4) A "minimum commission" of $75 per transaction, or 50% of the transaction amount if it's greater than $150.
A variation: Would any affiliates find it more appealing if the commission were based on the "second month's fees" since that may reflect upgrades (backup services, more memory, etc.)? This would probably be implemented by initially posting the commission based on the first month's fees, and then manually adjusting for any increase after the second month's payment is made.
My client and I would both appreciate any feedback!
November 6th, 2007, 01:25 PM #2
My opinion is: the simpler the better. Affiliates have so many programs to sort through, commissions are just one of the huge columns that we have to compare when looking at programs in the same market niche. One thing though that can be included in the hosting arena is free shared hosting for affiliates who make at least one sale/year. Shared hosting hardly costs anything and chances are those servers have been paid for time and time again. Besides that little perk, I would just stick to either a flat dollar amount or a flat percentage.
November 6th, 2007, 03:33 PM #3
Commission is important, but I believe the brand you build is far more important.
"If you build it they will come" not really, but if you truly do have the best service then more people will be apt to buy creating a bigger market and a higher demand for affiliates.
I like the idea of a recurring commission on the hosted service, which could potentially offset some of the upfront commission margins
November 6th, 2007, 03:51 PM #4
For me, the K.I.S.S. principle always works well. A flat 50% would get my vote.We did not change as we grew older; we just became more clearly ourselves.
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