Save on rates, lose out on sales?

[David Tan]

For simplicity, lets just say considering all other factors unchanged:-

Merchant's margin is 40%
5% Commission rate for affiliates
100 affiliates generates 100 sales

That means that merchant generated (40-5) x 100 = 3500% revenue.

IF

Increasing Commission rate by 1%, averagely...
Increases affiliates to 120
and generates 120 sales (average 1 sale per affiliate).

Then the revenue would be (40-6) x 120 = 4080% revenue. Thats an additional of 4080-3500= 580%.
An increase of 16.6% in program performance.

Ofcourse, it's never such exact math in the real world but just to illustrate a point that in certain conditions, giving a measly 2% rather than 10% commission rate isn't saving you 8% in revenue per sale. It's costing you 100s or 1000s% in total revenue. Ofcourse, give too much and you'll also arrive at a loss.

So study, or test run your commission rates well to find a optimum range that works best for your program.

PS: Go low enough and you can also find that no affiliate want to sign up with you.