Affiliate marketing is now a key part of many online businesses. It creates a win-win-win relationship between advertisers, affiliates, and publishers. And at the foundation of this relationship is the commission rate, which is the percentage of a sale or action that the affiliate earns as payment. The right commission rate is crucial for both advertisers and affiliates, willing to maximize their revenue. In this guide, we’ll explain the details of affiliate commission rates and how they affect the success of affiliate marketing campaigns.
What Are Affiliate Commissions?
Affiliate commissions are the money you earn from promoting someone else’s product. In affiliate marketing, you promote a product and get paid a commission when it sells or any other target action is achieved.
In today’s world, where getting people’s attention is very valuable, affiliate marketing connects content creators with companies looking to reach new audiences. To earn these commissions, you join an affiliate program from a company. When someone buys through your affiliate links, you earn a commission. It’s important to know the difference between an “affiliate program” and an “affiliate network.”
Affiliate programs are specific to one company’s products and are managed by the company itself. Affiliate networks, on the other hand, connect affiliates with many companies. They manage the affiliate programs and the relationships between affiliates and merchants.
CPA vs. RevShare
In affiliate marketing, CPA (Cost Per Action) and Revenue Share are two fundamental commission models. Each has its unique advantages and applications, depending on the business goals and the nature of the product or service being promoted.
CPA (Cost Per Action)
CPA is a commission model where affiliates are paid a fixed amount for each specified action completed by the referred user. Actions can include sales, sign-ups, downloads, or other predefined activities.
Advantages:
- Predictability. Advertisers know exactly how much they will pay for each action, making budgeting straightforward.
- Lower risk for advertisers. Payments are made only when the desired action is completed, ensuring that marketing spend directly correlates with performance.
- Simplified metrics. Easier to track and manage because the focus is on specific actions rather than ongoing performance.
Disadvantages:
- Limited upside for affiliates. Affiliates earn the same amount per action, regardless of the value of the customer to the business over time.
- May discourage high-quality traffic. Affiliates might focus on quantity over quality since they get paid per action without considering the long-term value of the customer.
Revenue Share
In a Revenue Share model, affiliates earn a percentage of the revenue generated from the referred customers. This can be a one-time share or recurring as long as the customer remains active.
Advantages:
- Aligned incentives. Affiliates are motivated to bring in high-quality, long-term customers since their earnings depend on the customer’s ongoing spending.
- Higher earnings potential. Affiliates can potentially earn more over time if the referred customers continue to generate revenue.
- Long-term relationships. Encourages affiliates to build long-term relationships with both the advertiser and the customers they refer.
Disadvantages:
- Unpredictable payouts. Earnings can fluctuate based on customer behavior, making it harder for affiliates to predict their income.
- Higher risk for affiliates. Affiliates bear more risk because their earnings depend on the customer’s future actions and spending.
- Complexity in tracking. Requires more sophisticated tracking and reporting systems to accurately attribute and calculate ongoing commissions.
Subtypes for CPA and RevShare
So, affiliate commission rates typically boil down to two main types: Cost Per Acquisition (CPA) and Revenue Share (RevShare). Each type has several subtypes, catering to different business models and goals. Here are some subtypes for each:
Cost Per Acquisition (CPA)
- Cost Per Sale (CPS): affiliates earn a commission for every sale made through their referral link. This is one of the most common CPA models.
- Cost Per Lead (CPL): affiliates earn a commission for every lead they generate, such as a form submission, email signup, or free trial registration.
- Cost Per Install (CPI): often used in mobile app marketing, affiliates earn a commission for every app install driven through their link.
- Cost Per Action (CPA): affiliates earn a commission for specific actions taken by the referred user, which can include registrations, downloads, or any predefined user actions.
Revenue Share (RevShare)
- Percentage of sale: Affiliates earn a percentage of the total sale amount. This is flexible and can be applied to different product price points.
- Recurring commissions: affiliates earn a percentage of the sale amount on a recurring basis, typically used for subscription services where affiliates earn as long as the customer remains subscribed.
- Tiered commissions: affiliates earn different commission rates based on their performance or the volume of sales they generate. Higher performance can unlock higher commission percentages.
- Lifetime value (LTV) share: affiliates earn a commission based on the lifetime value of the customer they referred, not just the initial purchase.
Additional Considerations
- Bonuses: extra incentives provided for reaching certain targets, like sales milestones or high-performance periods.
- Fixed-rate bonuses: one-time bonuses given when an affiliate reaches specific performance goals, such as a set number of sales within a particular timeframe.
- Tiered payouts: a structure where affiliates can move up to higher commission rates based on the volume of sales or leads they generate over time.
- Time-based bonuses: temporary increases in commission rates during promotional periods or slower sales months to boost activity.
Knowing commission rates is important for all advertisers. Affiliates can maximize their revenue by choosing the rate that fits their competencies like a glove. Merchants, on the other hand, can shift the affiliates’ focus with the right payout model, e.g., RevShare is the best choice for maximizing customer LTV.
What Affects Average Affiliate Commission Rates?
1. Profit Margins
The primary factor affecting your affiliate commission is the profit margin from selling products. For example, if the merchant’s profit margin is 20%, offering a 30% commission would be impractical since there will be a loss.
Return rates, fees, and advertising costs influence one’s profit margin. The factors are numerous, so be wary of suspiciously high commission rates, as there will be the risk of shaving involved.
How is the profit margin for an affiliate program calculated? The average LTV is measured first, which tells how much the client brings money over their lifecycle. Then, the average cost of acquiring a new client is subtracted from the customer LTV. For the commission rate to be high, the difference is to be positive and high as well.
2. Costs of Acquiring New Customers
Let’s elaborate on the average cost of acquiring new customers — another key factor affecting the commission rate amount.
This cost is based on all the marketing channels used, including the ones not related to affiliate marketing. It doesn’t mean that active marketing from the merchant will shrink your payouts — quite the opposite. But for the commission to grow, the marketing efforts are to be efficient and successful.
3. Promotions and Discounts
Payout rates are affected by special offers of all kinds. Merchants, who ignore these costs, can lose money. Normally, all the discounts, free samples, 1+1 offers, and free shipping are to be included into the cost of acquiring new customers.
4. The Industry
Commission rates can vary significantly by industry:
- Physical products: 5–20%
- Digital products: 20–50% or more
- Subscription services: 20–50%
- Financial/hosting services: flat fees or combination, varying from $50 to $200+ per referral or a portion of the initial purchase
- Travel and luxury: 2–10%
- Fashion and beauty: 5–20%
- Health and fitness: 5–30%
- Insurance: varies by category; Health (5% – 40%), life (20% – 100%), home ($30 – $150 per policy), auto ($25 – $200 per policy), travel (10% – 50%)
In these broad industries, niche-specific programs may offer above-average commission rates.
5. Product Price
When setting affiliate commission rates, companies often consider the product price. As a rule of thumb, lower-priced products have higher commission rates, while higher-priced products have lower rates.
6. The Company’s Value in Affiliate Marketing
The final factor is how much value a company has on affiliate marketing. Some companies offer low commissions on low-priced items, undervaluing the work affiliates do.
In contrast, companies that value their affiliates provide higher commission rates, benefiting both parties.
What Is Shaving In Affiliate Marketing?
During your affiliate marketing journey, you may come across the term “affiliate shaving” or “scrubbing.” But what does this mean?
Affiliate shaving or scrubbing occurs when advertisers remove leads or commissions from your affiliate payouts, reducing your earnings. Nowadays, respectable affiliate networks refrain from shaving as the forums can spread out the negative word about the company, scaring away the potential affiliates.
How to Spot (and Avoid) Scrubbing in Affiliate Marketing
It’s good that we know what it is, but it’s even better when we know how to see such a scam from far away.
Detecting affiliate scrubbing can be challenging. The most effective method is to split-test your offers across different affiliate networks. If you notice that a similar offer performs significantly better on one network than another, it may indicate that your earnings are being scrubbed.
While it’s difficult to “prove” scrubbing, you can switch to the better-performing offer and minimize any potential loss. The simplest strategy, however, is to avoid scrubbing in general.
Thus, make sure to read forums, search for reviews, and use your own tracker. Split your traffic between various affiliate networks to make sure you’re not being shaved.
At the same time, don’t jump to the conclusion and double check if you’re indeed being deceived. After all, stats discrepancies and violations of terms and conditions tend to be more common.
Commission Rate vs. Conversion Rate
The high commission rate is just a tip of the iceberg. In fact, it’s not even as important as the conversion rate, or the frequency with which users complete the target action.
This is important, as a $0.1 CPA repeated 10,000 times is better than a single conversion of $500.
Mass torts, for example, offer some of the highest commission rates. However, their target audience is very specific, limited to not just a certain GEO, but specific biography of the people.
Maximizing Affiliate Earnings
1. Diversify Your Affiliate Portfolio
By diversifying your affiliate portfolio across different programs, products, niches, and marketing channels, you can create a more flexible and profitable affiliate marketing business. This approach helps you to engage a broader audience, reduce risk, and make a profit from multiple revenue streams.
2. Negotiate Commission Rates
Negotiating commission rates is a strategic approach that can significantly enhance an affiliate’s earnings. Higher commissions mean more revenue per sale, directly boosting overall income. Even a slight increase in commission percentage can lead to significant profit.
Increased commissions also improve cash flow, allowing affiliates to reinvest in their marketing strategies. This could involve more extensive use of paid advertising, hiring content creators, or investing in SEO services. Better cash flow supports continuous growth and boosts affiliate strategies, leading to higher long-term earnings.
3. Use Advanced SEO Techniques
Advanced SEO techniques can significantly enhance your affiliate marketing efforts by improving your site’s visibility and driving more targeted traffic.
By using keyword research, creating high-quality and engaging content, optimizing on-page and technical SEO elements, and building a strong backlink profile, affiliates can enhance their website’s performance in search engine results. This improves the quality of traffic, so you can negotiate a better deal.
4. Choose The Right Program
Choosing the right affiliate program is important for maximizing your affiliate earnings. Here’s how selecting the best program can significantly impact your success:
Cookie duration
Programs with longer cookie durations offer a greater chance of earning commissions, even if the purchase is made days or weeks after the initial click. This extended tracking period is particularly beneficial for high-consideration products that require more time for customers to decide.
Reliable tracking
Accurate tracking and comprehensive reporting tools are essential. They make sure that all referrals are correctly recorded and provide insights into which strategies are working best. And if you complement their in-house solutions with your own tracker, you’ll be able to discover abnormal stats discrepancies.
Payment terms
Choosing a program with favorable payment terms guarantees regular earnings. Additionally, partnering with reliable and financially stable programs minimizes the risk of non-payment or program closure.
Lời kết
Commission rates ensure the affiliates will get the job done. Depending on their nature, merchants can influence the focus of the affiliates. Affiliates also can pick a rate that aligns with their expertise better.
Generally, there are CPA and RevShare, but the devil is in details. There are many submodels to choose from: CPI, CPS, CPL, plus RevShares can also be different.
The right model can boost your revenue, while the wrong one will either force you to adapt or get you underpaid. As a rule of thumb, CPA models are more beginner-friendly, but RevShare is the way to maximize one’s profit, especially if dealing with iGaming or subscription-based products.
It should also be noted that CPA generate income quicker, unlike RevShare, the total profit of which is harder to estimate.
Keep that in mind when picking an offer. And once the offer is picked, pay a visit to HilltopAds to ensure you get only the best traffic for your needs.
