Affiliate marketing is now a common marketing channel to promote your products via the affiliate. As we know about Affiliate marketing, it helps drive sales more effectively. That’s why we must master Affiliate marketing if we want to boost sales for our E-commerce websites. In previous topic we have experience the first step to master Affiliate marketing by Comparison between Affiliate network and your own Affiliate program, for example Magento Affiliate plus extension. Now get ready for the next step, our topic today will be How to calculate the commission in Affiliate program.
For exploring the whole series, please read
Step 2 – How to calculate the commission in Affiliate program?
How to calculate the commission in short
Once you decided to use Affiliate program – no matter your own in-house Affiliate program or the Affiliate network, you must often answer the question How to calculate and set the commission. Actually, there are many ways to calculate it.
In short, we could follow these steps
1, Calculate the maximum commission that you can afford for your Affiliate (A). It is really necessary you must calculate all the costs involved platform costs, cost of creating creative materials, landing pages and also management costs involved with running such a program. For example, when you use Affiliate network, not only you should pay for the setup fee, but you also need to maintain the Affiliate program monthly. Consider if your profits come from Affiliate is much lower than the monthly fee you must pay for Affiliate network, you should recalculate the commission. Now take a look at your profit margin and based on all that data, start calculating possible commissions.
2, Do a thorough analysis on what extras competing programs are offering paying on the base level to ensure you’re competitive. Never let you stay far behind your competitors.
3, Decide on the amount of the maximum commission that you want to leave for bonuses, performance based stuff and private offers (C).
4, Subtract A from C and you have your base commission.
If you are a Magento user and you use Magento Affiliate plus extension, you can offer higher commission to affiliates who constantly send high and quality traffic or much sales to your website by using the useful Tier commission feature. With this kind of tier commission model, you can stimulate affiliates on to drive more sales to your E-commerce website by promoting it.
Deep research in calculating the commission
As you can see affiliate marketing can drive sales to your website, and actually you can effectively boost sales. In fact, the affiliate will try to earn as much as your net profit margin as possible. If you set the commission to be equal to the net profit margin, will you receive nothing?
The answer is no, though you should not set the commission to be too high. Even though you allow your affiliate to achieve all your net profit margin, you still receive the valuable customers. And a net profit margin can never compare with the cost to attract one new customer. Clearly when you offer so high commission, the affiliate will be more willing to drive quality sales to your website. It’s quite fair, isn’t it? This is the first thing you should remember about calculating the commission.
The second thing is about private commission. By using the Tier commission feature, you can create higher commission for the one who drive most sales to your website. So, let’s think for a moment, if you research and find out your maximum commission can be 20% of the sales, will you let the commission base at 20%? In my opinion, never do this. 20% of the sales should be given to only the affiliate driving most sales to your website. You should called it private commission, which only can be sent privately, are essentially special commission rates offered to a limited number of affiliates. That’s the reason why you never should let the base commission to be maximum.
So how you should set the base commission? First you must fully manage your Affiliate program to understand the base commission. In expert’s research, it must be 20% lower than the maximum you can offer for private commission. But sometimes 20% increase can’t be accepted by the super affiliate, so maybe you need to reduce the base commission by 50%.
Now we has go 2/5 the path to master affiliate marketing. The next phase will be How to create creatives for affiliate?