Starting an affiliate marketing program is a fantastic way to generate new sales. Creating a program is an excellent choice if you run a Shopify store and want more business.
Affiliate marketing is an affordable, low-risk way to promote your products.
It involves paying ‘affiliates’ who generate sales for you through their affiliate link. The model involves paying affiliates every time they land a sale through their link.
You’re probably wondering, “How much should I pay affiliates?”
In general – you should calculate your commissions by percentage. On average, an affiliate commission rate will hover between 5 – 30%. If you only sell a few niche products – a fixed-rate commission can work for you.
Read on to learn how to calculate commission rates and why affiliate marketing is worth it.
Select a Commission Type for Your Affiliates
As stated before – there are two main types of cash commissions – fixed-rate and percentage. There are other forms of commissions, such as discounts and store credit. Yet, a cash payment will provide the most incentive for an affiliate.
The question here is whether you want affiliates to earn a percentage of each sale they make – or if you want to pay them a fixed amount every time.
The most common type is the percentage model. It works well for medium to large-sized online businesses. Fixed rates work better if you have a very small operation only selling a few items.
Let’s say that you only sell three items related to hiking. They’re relatively inexpensive – so you choose a fixed-rate commission of $4 per sale. Another example would be selling an extensive range of beauty care products. In this case, a percentage commission rate would work better.
Check Out Competitor’s Rates
The chances are high that your direct competitors already have an affiliate program. If not – then look to your indirect competitors. Once you find a competing company with affiliates, check out what they pay them. Do they use a fixed rate or a percentage model?
It’s imperative to gauge the competition to make more attractive offers. That way – you will encourage more affiliates to promote your products instead of competitors.
In addition to the rates – pay attention to a few other factors. Namely, do they offer any special bonuses or other incentives? Are they using a tiered system, or is it even? The more information that you can gather here – the better.
Remember, the goal is to win over more affiliates than your competitors. While that doesn’t mean that you have to go crazy with high affiliate commissions – you should try to outdo them whenever possible.
Calculate Your Average Customer Lifetime Value
To correctly calculate how much you can afford to pay affiliates, you need to consider your margins. Yet, that proves difficult due to fluctuations. Instead of working based on your margins – try using your customer lifetime value to guide you.
Your customer lifetime value is how much money a particular customer brings in versus how much you spent to gain their business. If you have fantastic brand loyalty – your customers will stick with you longer.
When you know your customer lifetime value (CLV), you can determine how much you can afford to pay affiliates. Here’s the formula for calculating it for your business:
- Your average CLV will equal the average annual profit earned from a customer, multiplied by the average number of years they’ve been with you, minus the cost of acquiring them.
To calculate this, you need to answer a few questions first. How much do you spend to bring in a new customer? How many customers are you able to retain after one year? Roughly how much revenue does each customer bring into your business?
Once you have your CLV – your affiliate rate should be well beneath it. If you make it equal to your CLV, you won’t profit and will break even. If your commissions exceed your CLV, you’re going to lose money.
If you have stronger brand loyalty – you’ll be able to pay affiliates more than if not. But remember, your commissions cannot exceed how much it costs to acquire new customers.
Determine if You’ll Offer Additional Bonuses
By now – you should have a good idea of what to charge your affiliates. But that’s only one piece of the affiliate marketing puzzle. Many programs offer special bonuses and rewards for their top-earning affiliates.
Doing so will provide further incentive for your affiliates to generate more sales. Here are a few ideas you can use for bonuses:
- Set specific revenue goals for your affiliates to meet. Whenever they do – reward them with a valuable gift or commission bonus.
- Create rewards for ‘streaks.’ If an affiliate makes consistent sales during a quarter – they receive a bonus or meaningful gift.
- Create a tiered structure where affiliates with higher sales earn more.
Download LeadDyno for Exceptional Affiliate Marketing Features
If you want to launch and grow an affiliate program with ease, we highly recommend LeadDyno. It’s an app available on the Shopify App Store with unique features. You can track the performance of your affiliates in one place, create bonuses, and more.
What’s even better is that you can try out LeadDyno risk-free for 30 days. That’s enough time to get an affiliate program up and running to see if it works for you.
Here’s a look at some of LeadDyno’s most impressive features:
- An intuitive interface that’s easy to pick up and use.
- Automated emails for affiliates and customers.
- In-depth analytical tools for creating successful campaigns.
- Seamless communication and engagement with your affiliates.
- Amazing customer support that’s there for you around the clock
To try out Lead Dyno follow this link here.
Closing Thoughts: How Much Should I Pay My Affiliates?
Affiliate programs are highly effective – especially when you charge reasonable commission rates. It’s imperative to calculate your CLV to determine the proper commission rates. Charge too much, and you’ll lose money – while not charging enough won’t attract quality affiliates. It’s a delicate balancing act that’s made far more accessible with the help of LeadDyno. Its intuitive interface and helpful tools make starting and tracking an affiliate program a breeze. To see our full guide on how to start an affiliate program on Shopify visit this link.
For more great content to help you develop your Shopify strategies, check out the rest of the merchant posts on the site. If you want to see a list of our top recommended Shopify apps visit this link here.