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?