Fixed commission rates can be beneficial to brands, yet can have detrimental consequences for affiliates.
When profit margins for products decrease, companies may need to decrease commission rates in order to maintain healthy business models and attract affiliates.
Determining what rate will best fit the business model and target market is another challenge for companies.
Companies must assess customer lifetime value (CLV) to see if a high or low commission rate is affordable and sustainable - having this data ready can help avoid issues related to fluctuations in commission rates.
The type of product will have an enormous influence on the commission rate for any business.
For instance, physical products with higher production and shipping costs require setting a higher commission rate than intangible SaaS services.
Brands must carefully consider all production and marketing costs associated with each product to calculate an accurate commission rate.
The commission rate should take into account both the product cost itself, along with production/marketing expenses as well as its profit margin for an effective profit-revenue ratio.
As well as considering these factors, brands should also carefully evaluate their promotional tactics when establishing an appropriate commission rate.
This could include incentives such as first sale bonuses, VIP commissions or recruitment bonuses offered to marketers.
If a brand uses the Cost Per Install (CPI) commission model for mobile app marketing, an affiliate will earn a fixed amount per app download on a user device. Depending on the specifics of its campaign, additional bonuses could also be offered, such as one-time sales commission or renewal bonus payments when their referred user renews.
Finally, a company must produce a flexible terms and conditions document to reflect any alterations in commission structure.
This will keep affiliates engaged by keeping them informed about any adjustments to their compensation; including details like payout timespan and payment methods; as well as seasonal discounts or promotions that might impact commission rates.