How to set commission rates your margins can carry

Brands usually set affiliate rates by copying a competitor. That works until the competitor’s margins turn out to be different from yours. Start from your own numbers, then check against the market.

Start with what a customer is worth

Three numbers decide everything: your average first order, your gross margin, and the most you are willing to spend to win a new customer. That last figure, your target acquisition cost, should already exist for paid search and social; affiliates are one more channel competing for it.

A worked example

A store with a $120 average order and a 60% gross margin earns $72 gross profit on a first order. It is willing to spend $30 to acquire a customer. On a network that charges a fee equal to 20% of the commission, the maximum rate is:

$30 ÷ ($120 × 1.2) = 20.8%

Setting the base rate at about 80% of that, roughly 16.7%, leaves room for bonuses and top-partner tiers. If the store’s network instead charges a fee on sale value, as Awin’s entry plan does at 3.5%, subtract that first: $30 minus $4.20 leaves $25.80, a maximum rate of 21.5%.

The commission planner runs this with your figures.

Percentage or fixed bounty?

• Percentages suit stores with varied baskets. They scale with order value, so partners are rewarded for sending bigger orders.
• Fixed bounties suit subscriptions and lead generation, where a customer’s value is known in advance. They are easy for partners to understand and compare.
• Hybrids, a bounty plus a small recurring share, reward partners who send customers that stay. Several hosting and software programs in our directory use them.

Check against the market

Partners compare programs. Published terms in our directory give a sense of what software buyers’ publishers expect: recurring rates between 15% and 60%, often limited to 12 months, and bounties from about $50 to several hundred dollars for hosting and business software. Retail marketplaces sit far lower; Amazon Associates pays between 0% and 20% depending on category. If your rate is well below your category, expect to recruit only the partners nobody else wants.

Pay different partners differently

• Content and creator partners who create demand deserve your best rates.
• Coupon, cashback and loyalty sites often capture customers who were already buying. Many brands pay them less, or offer exclusive codes instead of open rates.
• New customers are worth more than returning ones; a separate, higher new-customer rate focuses partners on growth.

Review every quarter

Compare affiliate customers with other channels on refund rate, repeat purchases and twelve-month value. If affiliate customers are better, you can afford more. If they are worse, fix the partner mix before you cut the rate.