Affiliate marketing is a popular strategy that businesses use to promote their products and services online.
It involves partnering with affiliates who promote your products on their websites, social media channels, or other platforms.
In exchange, the affiliates receive a commission for every sale or lead generated through their efforts.
When it comes to setting up an affiliate program, you have various commission structures to choose from.
Each structure has its advantages and disadvantages, and it’s crucial to understand them before deciding which one to use.
In this article, you’ll discover the different commission models that you can offer to affiliates in order to make it more attractive for affiliates to join your program and promote your products to their audience.
Commission Models
Cost-per-Click (CPC)
With this commission structure, affiliates earn a commission whenever someone clicks on an affiliate link that leads to your website.
CPC is often used for advertising campaigns and paid search campaigns.
It’s a good option for businesses that want to increase brand awareness and drive traffic to their website.
Advantages:
- Affiliates can earn commissions even if the visitors don’t make a purchase.
- CPC can be a cost-effective way to drive traffic to a website.
Disadvantages:
- Affiliates may generate low-quality traffic to earn more commissions.
- Businesses may need to pay for advertising fees to generate clicks.
Cost-per-Action (CPA)
CPA is a commission model that rewards affiliates for actions such as making a sale, filling out a form, or generating a free lead (i.e. download a free guide, register for a webinar).
This model is popular with businesses that want to track the performance of their affiliates accurately.
Advantages:
- Businesses can easily track the performance of their affiliates.
- Affiliates are motivated to produce quality leads that convert to sales.
Disadvantages:
- CPA commissions are usually lower than those of other models.
- CPA may lead to high rejection rates, as customers may abandon the sign-up process midway.
Revenue Sharing
This model involves splitting the revenue generated from sales between your business and the affiliate.
For example, if you made a $100 in revenue from a sale, you may decide to split the revenue between your business and the affiliate.
Many companies in the software and service industries use this model.
Advantages:
- Affiliates can earn higher commissions with this model.
- Affiliates are incentivized to promote products they believe in as their earnings depend on the revenue generated.
Disadvantages:
- Revenue sharing can be difficult to set up and manage.
- It may lead to issues related to trust and transparency between the business and the affiliates.
Tiered Commissions
Tiered commissions involve offering different commission rates based on the performance of the affiliate.
For example, you may offer a 5% commission for the first 10 sales and increase it to 7% for sales 11-20.
This model is popular with businesses that want to increase the motivation of their top-performing affiliates.
Advantages:
- Businesses can reward their top-performing affiliates.
- Affiliates are motivated to increase their performance to earn higher commissions.
Disadvantages:
- Setting up tiered commissions can be complicated.
- It can be challenging to incentivize affiliates who are not part of the highest commission tiers.
Choosing the Right Commission Model
The commission structure that you choose should depend on your marketing goals, product type, and target audience.
For example, businesses with a long customer journey may prefer the revenue-sharing model to encourage repeat purchases.
The following table shows which commission structures work best for different types of products and services:
| Product Type | Commission Model |
| Low-Cost Products | CPA or CPC |
| High-Cost Products | Revenue Sharing |
| Subscription-Based Products | Tiered Commissions |
| Services | Revenue Sharing or CPA |
Offering the right commission structure can lead to a successful affiliate marketing strategy.
By understanding the different commission models available, you can offer a competitive incentive to drive traffic and sales.
As you set up a commission structure, keep in mind the products and services you offer and the types of affiliates you want to attract to create a fair and transparent affiliate program.
