Misconception: Only High Commissions Attract Affiliates

True or False Today I am starting a series of posts (I am not planning to publish them in a consecutive manner, but new ones will be added as I come across the issues to address), and a whole new category – Affiliate Marketing Fallacies. In this rubric I will be covering the popular fallacies and misconceptions about affiliate marketing. About a year ago I recorded this video (my most popular YouTube video to date) where I addressed the misrepresentation of affiliate marketing as “possibly the absolute laziest way to make money.” I will certainly include it in the corresponding post in this new category as well.

Today we are going to look into yet another misconception about affiliate marketing.

A book by Patrick Tan entitled Success with Online Retailing: For Small Businesses, and published in 2003, has a chapter devoted to affiliate marketing (pp. 160-184). Among other things in this chapter, the author gives a definition to a super affiliate [see mine here], and speaks to the question of attracting such affiliates. Tan writes:

A super-affiliate is an Internet marketer who has made a successful living online. He is busy making money online and would not be interested in a program that pays mediocre commissions. You must offer exceptionally high commissions to attract the super-affiliates. (p. 166)

I have actually seen merchants who — being driven by (or talked into) the same thinking — were creating separate storefronts, with higher prices, to be able to afford higher than the vertical’s average commission rates. By so doing they’ve been making their offer uncompetitive, which reflected negatively both on the conversion their overall website, and on their affiliate traffic conversions in particular.

Recalling the topic I’ve discussed yesterday (but in no way supporting Amazon, as I believe they have a lot to improve in their affiliate program), the affiliate has partnered with a merchant that converted at 22%. While 20% is about an average conversion ratio (CR) for the top online retailers (see these charts), most e-tailers out there enjoy a considerably more modest CR. My personal experience with affiliate programs shows that while much depends on the vertical, solid CR generally ranges from 2% to 5%. So, speaking simplistically, if to raise your commission to the “exceptionally high” level you must raise your prices, making your conversion rate drop to 0.5% or less, you’d have to be paying your affiliates 44x times more to compete with them in the eyes of the affiliate.

It is never just about the “commissions”, but always about the payout; and payout is always contingent on the (i) commission rate, (ii) conversion ratio, and (iii) reversal rate — the three variables that should always be looked at in a bouquet, and never separately. Often, higher conversion ratio coupled with a low reversal rate make moderate commission rates more attractive than “exceptionally high” rates.

Reference: Tan, P. 2003. Success with Online Retailing: For Small Businesses. Bloomington, IN: iUniverse.

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