Last week I shared my answer to a common question that many people getting into online product marketing ask: “Should I offer a money-back guarantee?” Today I want to tackle two others:
“Should I start an affiliate program to promote my product?” If so, “how much should I pay affiliates as a commission?”
I had this conversation only yesterday with one blogger who was launching his first ebook. He had decided to set up an affiliate program but was unsure about what percentage to pay. He were leaning towards 10% commissions, mainly because he didn’t want to eat into his profit margins too much. I’ll share the response I gave that blogger here.
But first, let’s take a step back to look at some pros and cons of affiliate programs.
Why an affiliate program could be worthwhile for your product
The main reason that you should consider an affiliate program for your product is simply that it will increase the potential reach that you will have as you promote your product.
Whether your blog is big or small, there’s always room to increase your reach and have your offer seen by more people. Pretty much every topic has other blogs, sites, forums, and individuals interacting on social media. To set up an affiliate program increases the incentive that these sites and individuals have to promote your product.
Of course, not everyone will be motivated by an affiliate commission (some bloggers don’t use them at all), but you will find that some are definitely moved by them and those people could open up a considerably larger audience for you.
Another benefit of affiliate programs is that they help to grow your own list of customers. This benefits you in the here and now with the product you’re promoting at present, but also offers potential for future products.
A new customer that comes in from an affiliate promotion today can turn into a life-long customer if you develop a relationship with them. A $10 sale from an ebook could end up leading to five more $10 sales in the coming year—or it could end up generating a $200 sale if you launch larger products down the track.
Why you might not want to start an affiliate program
I think it’s important to note that having an affiliate program isn’t always the best option for everyone. There are some costs to consider along with the opportunities they open up.
- Decreased profit: Let’s start with the most obvious cost—affiliate programs eat into your profit margin. When someone recommends your product they do bring in new business, but you share the benefit of that business with them. A $20 ebook sale effectively becomes a $10 sale if you share a 50% commission. For some bloggers this is a stumbling block, and not something that they want to do (I’ll speak more about it below).
- Time: One of the big hidden costs of an affiliate program is the time that it can take to manage. I’ve not found it to be a huge time commitment, but there are some extra logistical tasks that you might find yourself doing when you introduce affiliates into your strategy. These include paying them (depending upon the system you use), providing them with sales material, motivating them, helping those who have limited technical knowledge to set up links, and so on. You will find that some affiliates need a bit more hand-holding than others—and some can be quite high maintenance!
- Loss of control: Another hidden cost of affiliate programs is that you lose a little control over the way your product is promoted. Not everyone will promote it in the same way you do. I can think of a number of times when this has been a problem—particularly when affiliates have used hype and built products up to be better than they actually are in order to get sales. In doing so they created false expectations in buyers that the owner of the product had to then manage.
How much should you to pay affiliates?
This is one of the most common questions I’ve been asked on this topic, but of course there are no real wrong or right answers. You’ll want to consider a number of factors:
- Price of product: As someone who promotes a variety of products through affiliate programs, I know that it’s not just the percentage commission that I look at, but also the price of the product. For example, 50% of a $5 product is certainly not as attractive as 50% of a $100 product. There may not be a lot you can do about this, but it’ll be a factor for those considering promoting your product.
- Size of the untapped market: If you’re just starting out and don’t yet have much of an audience of your own, you might want to consider a higher commission in order to give an incentive to affiliates to work for you to get things going. However, if you have a large audience of people who trust you already, you might not be as reliant upon affiliates to help you make your product successful.
- Future product releases: Some people use affiliate programs more as lead generators than anything else. I know of a number of people who actually offer affiliates 100% of sales to give them a big incentive to promote the product. The hope is that, while the affiliate is the only person to make money from the initial promotion, the sales will generate a list of buyers to which the product owner can promote future products.
- Tiered commissions: One strategy that some product producers use is to offer bigger affiliates a higher percentage than smaller affiliates. In this way, they increase the incentive for those who have larger audiences.
- Physical vs virtual products (and other overheads): Many information products offer affiliates 40-50% commissions. This is in part because there are limited overheads on virtual products. To sell a $20 ebook only really costs me a few cents for hosting and bandwidth, and a small amount in PayPal and shopping cart fees (after the cost of design and so on). On the other hand, a physical product will have a much smaller profit margin. I have one friend who has an online camera store, and he’s only able to offer his affiliates 4% commissions, because his own profit margin isn’t high.
- Consider your expenses carefully: Even if you’re selling virtual products, keep all of your expenses in mind. I had an interaction with an ebook seller recently who didn’t realize what the PayPal fees would be on his $5 ebooks. He offered affiliates 60% commissions on the sale price and, once he took out PayPal fees and his design and proofreading costs, he realized he wasn’t really making more than a few cents per ebook.
Why I pay 40% commissions instead of 10%
Let me finish with my answer to the blogger who was going to offer 10% commissions on his ebooks. He was concerned that commissions would eat into his profits, and was struggling to justify why he should really pay more to someone for simply promoting his ebook when he’d done all the work to make it.
I can see where he was coming from, but my philosophy for paying higher commissions on my own products (I pay 40%) is that any new customer that an affiliate brings in is a customer I’d probably never have had otherwise. So earning 60% (or $12 on a $20 ebook) is $12 more than I’d have had in my pocket than if I hadn’t had an affiliate promoting my product.
I also take into account the fact that that person buying my ebook might also buy future products from me (both my own and affiliate promotions that I promote). They may also recommend my products to their friends and may become a regular reader of my blog (and help to increase advertising revenue). So the inital $12 profit could end up being considerably more in time.
Do you have an affiliate program for your products?
I’d love to hear from others who sell products from their blogs. Do you offer an affiliate program? Why, or why not? If you do, what commission level do you pay, and how did you come to that figure?
Getting affiliates to do a lot of the work for you is one of those tasty drawcards of the Internet marketing lifestyle, in which you seek to establish a nice passive income stream that allows you to simply sit back and relax. Overall, I think there are more benefits to having an affiliate program than not – particularly for the product creator. If you were marketing the product on your own, you only allow yourself to reach your immediate audience and unless you want to spend any extensive time or money on it then that’s about all. By allowing others to gain commissions you open up a much larger audience, and you only pay for that marketing once you generate a sale. It’s a win-win for both parties, as affiliates can sell a product without creating one themselves and earn more than if they had – so long as the commission percentage justifies their efforts in marketing it.
I have to agree most strongly with the point about sharing about 40% profits rather than simply 10%. If you didn’t offer a large commision then no one would be tempted enough to sell your product. With online products like ebooks once you have done the work everything is profit from there when you sell it. It isn’t eating into your profits it means you are getting less profits and that is not the same thing. Also you want as many people selling your product as possible so that you can get your brand out there and hopefully sell more products and make more money.
Its really difficult to earn from affiliate program for small blogger’s.
Hi Darren!
Thanks for this very comprehensive post. You point out some very important issues.
I think every online business should have an affiliate program, but I definitely think
it depends where you are in your business.
Taking into consideration many of the things you’ve noted above, I’d say one of the
most important aspects of having an affiliate program is choosing the right kind
of affiliates. I think the more selective you are about your affiliates the less you’ll
have to be worried about it’s affect on your brand, and you can also build better
relationships with your affiliates if you know them a little more.
This is a great post for sure!
I haven’t launched my own product yet but the
affiliate concept has always been in my mind.
Heck, I was thinking of creating a $7 product
and paying out 100% commissions for affiliates
just to build a large list of paying customers.
Thanks for the post,
Gabriel Johansson
I like this idea!
Hey Mike,
I see a lot of really successful people doing this, then
they lead into a higher priced backend product.
Apparently it works pretty well!
I have a product in the warcraft niche which sells at 60% commission. This is due in large part to competition which offers 75% commission. However, product quality is something people really love and that quality allows me to reduce my commission rate since affiliates know that they will make more from the reduced rate of refunds through my affiliate program than someone else’s.
Also, you can reduce time costs in the long run by creating affiliate resources which are extremely helpful for both pros and newbies alike. That’s what I try to do with my own site, and you can take a look for an example of what I’m talking about here: WoW Gold Guide
The amount to pay affiliates is a common objection many product creators have. The problem is they think they should earn more because they creates the product. In reality, the product is the easy part. Selling it is hard & it does no good to have a product without sales.
An example many people are familiar with is the George Foreman grill. George didn’t make it but was paid almost twice as much as the inventor in ongoing royalties because he could sell it. After millions of units sold I have a strong feeling the inventor had no problem with that arrangement. As a creator of goods, you shouldn’t either.
Am I right in saying that it’s the customer who pays the affiliate anyway? Well, I had a talk with a marketer before and his computation goes like this:
1. I want to earn $15 per product
2. I want affiliates to enjoy selling the product so I’ll give them 50%
3. Merchant fees would cost me about $2
3. Therefore, I should sell my product at $35.
What do you think of this?
– Mike
Seems like a logical way of working out the price. Will be using a system to manage the affiliates for you?
Earning from affiliates gets a Lot Difficult, If you don’t have a popular blog -_-
Great post Darren!
We just launched a new product and have tested the price many times and have lowered it, but we have maintained how much we offer affiliates.
We pay 52% to our affiliates via Clickbank. I think it’s harder and harder now to get affiliates excited with less than 40-50%.
If affiliates are doing the work and getting us sales, I want to reward them.
Great discussion Darren.
Krizia
The success or failure of a product launch rests to a great extent on the affiliates involved and their approach to the marketing of the product. An individual’s effort can only get him as far…but when many hands are on desk, a lot more things can be done. Thanks for sharing.
I built a product designed exclusively to help affiliates who employ email marketing, with a built-in affiliate program and a 50% payout. I thought this model was a no-brainer. Unfortunately I haven’t seen an affiliate sale yet. Of course, I haven’t been in the game that long. What’s the best way to go about finding affiliates in my niche so, as Manual says above, there will be many hands on the desk?
About three weeks ago I stared a new affiliate program to help increase the sales I’ve been getting from my RSS Service on blog engage. So far to date I’ve managed to get 16 sales from the affiliate program. So ensure the program worked I also signed up. 11 of the 16 sales are actually through me and not other affiliates.
I offer 20% recurring affiliates ales and referral sales. The price tags are 1.99, 3.99, 4.99, 9.99 and 19.99 for our memberships. Right now the hardest part of finding affiliate out side of my normal circle of blogging friends.
I made the minimum payout 25 USD which is easy o make seeing all out affiliate sales are recurring meaning as along as your referral remains a customer you will make the 25% commission every month.
I actually e-mailed you about it but haven’t heard anything back yet which I must say is rather disappointing. I think the program is great and has very competitive offers. I already have a total of 40 customers and only two have canceled n the last three months.
In the end I hope it proves to be a success. I know if I was given this type of opportunity I would be all over it as nothing else is this good in the blogosphere that I have seen.
sorry if I missed your email. I try to get back to everyone but it’s challenging. I also get pitched a lot of affiliate and Joint Ventures and as I have already got many projects going it is rare that I am able to join more I’m afraid.
Hi Darren,
When I started my affiliate program I first had a look of the commission you are offering and then I picked the same (40%). I think this is reasonable and shouldn’t be less than this. If you offer just 10% commission your potential affiliates will always find a similar product that offers way more commissions.
I also always keep in mind that most people who become an affiliate will never ever make a sale. I guess less than 5% of every affiliate won’t make a sale. This is by the way the reason that you see some ‘big players’ having a pretty high payout threshold. Even though this having such a threshold is rubbish and not necessary at all the main idea behind this is in my opinion that they count on the fact that affiliates who sell little give up at some point. As they never reach the threshold they will never get paid.
Admittedly I never had a sale through one of my affiliates. The problem for most people who become affiliates is that they think it is easy money. But it ain’t that easy. It is hard work and if you see how some people promote products you see that there is a total lack of passion. Passion is important.
I’m affiliated with a software product that I like very much (passion). I just produced the best tutorials on the planet (even before I was affiliated) and this is a total different sport. I’m not just telling about some features of the product you’ll find on every other website or white paper. I’m showing it. Help users via tutorials and even behind the scenes. I have a ctr of more than 40% and the commissions dripping in.
Make no mistake about this. I’m not talking about high amounts of money but on the other hand ad-space incomes are getting higher as well. In the end it’s a mix of several things that create results.
I could go on and on but I think you’ve got the picture.
I’ve been thinking about starting an affiliate program for my artworks. I get a lot of referred traffic from blog owners who are collectors and I would like tovreward the. As an artist it’s a no brainer, I already pay galleries 30-40% commission, why shouldn’t I offer the same to loyal collectors and fans? But i’d like to ask, how do you pick an affiliate program? Is the system itself expensive? How do we start?
I hope you dont mind me answering your questions. You can put your items in many online marketplaces like e-junkie, clickbank, plimus etc with very minimal cost. Or you install and host your own affiliate script like iDevaffiliates or Rapid Action Profits but the cost for those scripts is higher. I personally use Rapid Action Profits for my affiliate programs. I like hosting my own because I want to have control over everything.
Well, actually it is true that getting affiliates decreases the profit but the promotion and the quick distribution of your products or services will be high! Actually, I wouldn’t mind getting affiliates as long as my product is being distributed fast.
I have thousands of affiliates and I can say that recruiting affiliates is one of the best moves I made for my business. Distributing a product on your own is not an easy task especially if you are just starting out Getting hands from a lot of people will give you a huge boost. There are so many benefits of having your own army of affiliates but having them in your network of friends is my personal favorite. I even give 100% commission sometimes and I can say that its very much worth it.
I think If I have one product. I’ll allow affiliate to promote. And I’ll share 50 percent commission.
Yes you need to have volume to warrant affiliates
Affiliates are great. I have the same issues as Darren. Holding hands and helping them to get sorted can be a bit time consuming but it is worth it in the long term especially if you want access to a broader market.
I pay 30% commission and about 10 % of sales would be via affs. I also do affiliate sales and they are growing. Love it, multiplier effect, brilliant!
I launched a time management ebook in October and decided to split sales with affiliates 50/50. As a smallish blogger, I knew affiliates would drive my sales so I’ve made a point of making it worth their while to promote my product. In the first 3 months I had over $17,000 in gross sales which was huge for me. There’s *no way* I would have ever come close to that on my own, so even though I made less per sale, overall, I know I came out ahead.
I’ve also tried to create a bit of a “club” mentality for my affiliates, as in “become an affiliate with Amy and you get cool extra stuff”. I’ve done giveaways among them and even bumped up affiliate commission to 60% for one sale as a thank you.
Of course, even 100% commission can’t make up for a poor product, so creating something worthwhile and high-value is key, but I think having affiliates and offering them a good chunk of the sale is a win for everyone.
We do have an affiliate program and have found some major hurdles in it this year. We are looking into ways to take more control of our affiliate program, and then may be able to up our payouts again. Right now, they are fairly low – 5%.
However, we’ve found a major enemy: coupon code sites! Coupon code sites publish any manner of random coupon codes that are rarely legitimate. They don’t care because they are an affiliate, so whether or not the code works, they get a commission on the customer’s purchase.
This biggest problem for us with this, when we started tracking things, was discovering that most of the coupon sites were not steering new business to our store. Our current customers were going to their sites to look for coupons, and the coupon site got a commission for giving them an invalid code. So screwed up.
So, we’ve simply edited our application process a bit to make sure we personally approve all affiliates. We no longer allow coupon code sites to be affiliates. I’ve heard some stores still allow it for the potential of new customers it could give you and simply pay those affiliates a lower commission than others.
I am an active affiliates of many products. I only promote products that I personally used and satisfy with One of the major problems that I see with affiliate marketing is that a lot of people just simply promote a product based on the commission and they themselves have never used it. Bottom line, some day if I do create my own products, I would only want to sign up affiliates that used them and believe in the value of the product.
Dont ruin all your hard work by ignoring website promotion. It is important to remember that every website aims to sell something, whether its a product, brand, or a service. It means a website needs…
Hi,
I am planning to launch an online training PLUS membership site. It is for investment banking career aspirants. The fee would be $50 per month ( includes course material, updates, forum and online mentoring).What % should I offer to affiliates, if I plan to offer them the fee till the subscriber stays on membership site?
There is certainly a lot to consider when thinking about going down the affiliate route. I have a few friends that use this method to promote their products and it has worked well for them. They have always offered a decent amount of commission and I think this is why it has been successful for them.
Excellent post, Darren.
I’ve been a affiliate marketer for many years. I prefer to call it performance marketing, as it is sometimes referred to.
One of my frustrations as an affiliate is the lack of understanding by affiliate networks or the affiliate program owners. They need to be proactive to find, motivate and retain good affiliates. If they can’t do it themselves then use an outsourced program manager.
Very interesting! Depending on the price of products and tiered commissions, I think 50% payout was a no-brainer.
Hi. Thank you very much for this brief affiliate explanantion. But I’ve got slightly different question.
I’m deciding whether to use affiliate because of possible losing control over the network of partners. I like to have the control over what is being done with my products. But I’m facing problems into getting some audience. Blogging, niche sites etc. is realy time consuming and PPC is not the way I would like to promote…
Thus I would be happies if I would have my own network of stable partners who would be motivated to sell the product. It is a web-based project management software (or i.o.w. business productivity suite).
My friend recommended me to join some affiliate sites but I got lost when I logged in and wanted to find some reasonable partner.
Please – could anyone help me or explain me how to search for affiliates?
Thanks a lot, Dusan.
Sorry, again.
There is probably one key point differentiating selling my product (web-based software service) from the “mainstream”. It is being paid monthly, by subscriptions, there is no one-time price…
Thanks, Dusan.
I think you have missed an important reason NOT to use an affiliate program and that is if you already have a good web presence on a niche product. For example we sell radio controlled models and already appear on page 1 of google for most radio control related keywords. We joined affiliate window for a year but it was a disaster because instead of increasing sales, sales stayed the same but then we had to give away a percentage for most of those sales. The reason is that we would have got those sales anyway. Say someone searches for “radio controlled helicopters”, they will not just buy from the first site they look at, they will look at a few then buy. So let’s say we are number 3 on google for that term but then one of your affiliates is number 6. They may click on that link as well as yours but then that affiliate will get the commission. But you would have got that sale anyway! Another reason is cheats, if someone searches for your company by company name then of course they want to buy from you anyway but some affiliates will optimize for your company name. This is not driving new traffic to your site but you still have to pay commission.