How to Create Your Affiliate Commission Rates Strategy

If you’re looking to create or improve your affiliate marketing program in 2023, it starts with a solid plan for your affiliate commission rates.

Affiliate marketing is a powerful tool in the world of online business, where you reward affiliates for each customer they bring in through their dedicated marketing efforts. The cornerstone of this system is the commission rate, a pivotal element that not only motivates affiliates but also shapes the success of your affiliate program.

So in this beginner-friendly article, we’re going to get into the strategy. All so you can come up with the best affiliate commission rate strategy for your business.

We’ll cover:

• What affiliate commission rates are.
• The different types of affiliate commission rates.
• Affiliate commission rate strategy and factors to consider.
• How to set your commission rates in an affiliate marketing program.

By the end of this guide, you’ll have a clear understanding of how to create a robust affiliate commission rates strategy that benefits both your business and your affiliates. No matter if you’re a small business, startup, or established business owner, this guide is for you.

What are affiliate commission rates?

In the world of affiliate marketing, the term ‘affiliate commission rates’ refers to the specific percentage or fixed amount that an affiliate earns, or has as a payout, from each sale they generate.

It’s the slice of the pie that affiliates get for promoting your products or services and making a successful sale.

Here’s why these rates are so crucial:

• Earnings: The commission rate directly determines how much your affiliate partners earn from each sale. If you set a rate of 10%, an affiliate will earn $10 for every $100 sale they make.
• Motivation: The potential for earnings, driven by the commission rate, motivates affiliates to promote more actively. Higher rates can lead to more enthusiastic and dedicated affiliates.
• Competition: Your commission rates can make your affiliate program more or less attractive compared to others. If your rates are competitive, you’ll be more likely to attract and retain top-performing affiliates.

In essence, your affiliate commission rates are the backbone of your affiliate program. They’re the key factor that drives affiliate behavior and shapes the success of your program. So, it’s crucial to set these rates thoughtfully and strategically.

But while this explains affiliate commission rates in a nutshell, it doesn’t go into much detail. So let’s explore the different types of affiliate commission rates next.

The different types of affiliate commission rates

Let’s dive into the different types of affiliate commission rates. Understanding these can help you decide which structure fits best with your business model and can motivate your affiliates the most.

Flat rate commissions

Flat rate commissions are like a straightforward deal for affiliates. With this structure, affiliates earn a fixed base rate amount (say $10) for each sale they refer, regardless of the product’s price.

Why is this beneficial?

• Simple and straightforward: Flat rate commissions are easy to understand, which can be a big motivator for affiliates. They know exactly how much they’ll earn for each sale.
• Consistent earnings: This structure ensures consistent earnings for affiliates, regardless of the product’s price.

Businesses that would benefit from this model

Flat rate commissions can be a good fit for businesses with a single product or a small range of products with similar prices. This could include businesses selling online courses, eBooks, or physical products with a fixed price.

Here are a few examples of flat rate commission structures for these businesses:

• Online courses: An online course provider could offer a flat commission of $50 for each course sold. This means an affiliate would earn $50 for each user they refer, regardless of the course price.
• ebooks: An ebook retailer could offer a flat commission of $5 for each ebook sold. This means an affiliate would earn $5 for each user they refer, regardless of the ebook price.
• Physical products: A business selling a physical product for $100 could offer a flat commission of $10 for each product sold. This means an affiliate would earn $10 for each user they refer, regardless of any discounts or promotions on the product price.

Percentage-based commissions

Percentage-based commissions work like a profit-sharing plan with affiliates. In this model, affiliates earn a specific percentage of the total value of each sale they refer. The higher the sale amount, the more commission they earn.

Why is this beneficial?

• An incentive to maximize sales: Since the commission is a percentage of the sale value, affiliates are motivated to not just make more sales, but also to promote higher-priced items or upsells. The more the customer spends, the more the affiliate earns.
• Straightforward and low-risk: Affiliates know they will earn a certain percentage of each sale, which simplifies their earnings calculation. This model is also low-risk for businesses because the commission is only paid out when a sale is made. Businesses don’t have to worry about paying out commissions unless they’re also making a profit.
• Proportional rewards: This structure ensures that the affiliates’ earnings are directly proportional to the sales they generate. It’s a fair system where the affiliates’ efforts are rewarded.

Businesses that would benefit from this model

Percentage-based commissions can be a great fit for businesses with a wide range of products with varying prices. This could include ecommerce stores, software companies, or service-based businesses.

Here are a few examples of percentage-based commission structures for these businesses:

• Ecommerce stores: An ecommerce store could offer a 10% commission on all sales. This means an affiliate would earn $10 for every $100 sale they refer.
• Software companies: A software company could offer a 20% commission on all sales. This means an affiliate would earn $20 for every $100 sale they refer.
• Service-based businesses: A service-based business could offer a 30% commission on all sales. This means an affiliate would earn $30 for every $100 sale they refer.

Recurring commissions

Recurring commissions are like the gift that keeps on giving for affiliates. With this structure, affiliates earn a commission not just on the initial sale but for every payment a customer makes over the lifetime of their subscription or recurring purchase.

Why is this beneficial?

• Steady income: Recurring commissions mean regular earnings for affiliates. It’s like having a steady paycheck, which can be a big motivator for them to keep promoting your products.
• Quality referrals: This structure encourages affiliates to seek out long-term customers, which means you get referrals who are more likely to stick around.

Businesses that would benefit from this model

Recurring commissions are a perfect match for businesses with subscription-based models. This could include software-as-a-service (SaaS) companies, membership websites, or subscription box services.

Here are a few examples of recurring commission structures for these businesses:

• Software-as-a-service (SaaS): A SaaS company offering a project management tool at $50/month could set a recurring commission rate of 20%. This means an affiliate would earn $10/month for each user they refer, for as long as the user keeps their subscription. This rate is attractive for affiliates while still leaving a healthy profit margin for the company.
• Membership websites: A fitness website with a monthly membership fee of $30 might offer a recurring commission rate of 30%. In this case, an affiliate would earn $9/month for each member they refer. This rate is high enough to motivate affiliates but still allows the business to retain most of the membership fee.
• Subscription box services: A beauty box subscription service priced at $40/month could offer a recurring commission rate of 15%. Affiliates would earn $6/month for each subscriber they refer. Given the likely product costs involved in the box, this rate balances affiliate incentive with business profitability.

The recurring nature of these businesses aligns well with the recurring commission structure, providing a win-win situation for both the business and the affiliate.

Lifetime commissions

Lifetime commissions are like a long-term investment for affiliates. This structure means that affiliates don’t just earn a commission on the first sale, but on all future purchases made by the customers they’ve referred.

Why is this beneficial?

• Long-term rewards: Lifetime commissions reward affiliates for the total value of the customers they bring in, not just a one-off sale. It’s a way of saying “thank you” for bringing in a customer who keeps coming back.
• Brand loyalty: This structure motivates affiliates to consistently promote your brand and maintain a positive relationship with their audience. After all, the more the customer buys, the more the affiliate earns.

Businesses that would benefit from this model

Lifetime commissions can be a great fit for businesses with customers who make frequent repeat purchases. This could include ecommerce stores, digital product platforms, or online course providers.

Here are a few examples of lifetime commission structures for these businesses:

• Ecommerce stores: An online clothing store could offer a 10% lifetime commission. So, if an affiliate refers a customer who spends $200 now and $300 six months later, they would earn $20 from the first purchase and $30 from the second one.
• Digital product platforms: A platform selling digital assets like stock photos could offer a 20% lifetime commission. If an affiliate refers a customer who spends $50 every month, they would earn $10 each month, adding up to $120 in a year.
• Online course providers: An online course platform could offer a 30% lifetime commission. If an affiliate refers a customer who buys a $100 course now and a $200 course later, they would earn $30 from the first purchase and $60 from the second one.

Multi-level commissions

Multi-level commissions, sometimes known as MLM or tiered commissions, are like building a mini-marketing network within your affiliate program.

In this structure, affiliates earn not just from their own sales, but also from the sales made by other affiliates they’ve referred. It’s like getting a bonus for bringing a superstar player onto the team.

Example: Let’s say you offer a 5% second-tier commission. An affiliate who refers another affiliate would earn their regular commission on their own sales, plus 5% of the sales made by the affiliate they referred. It’s like getting a thank-you bonus every time their referred affiliate makes a sale.

Why is this beneficial?

• Team building: Multi-level commissions encourage affiliates to recruit other high-performing new affiliates, expanding your program’s reach and potentially boosting overall sales. Customer acquisition just got cheaper.
• Great for marketing strategy: By using multi-level commissions, affiliates are encouraged to contact their affiliates to encourage them to take part in marketing campaigns. Essentially, they take some of the hard work off your hands.
• Extra income: This structure provides an additional passive income stream for affiliates, which can be a strong incentive for them to stay active and engaged in your program.

Businesses that would benefit from this model

Multi-level commissions can work wonders for businesses with a broad and diverse range of products or those operating in highly competitive markets.

This could include large ecommerce platforms, comprehensive digital marketing tools, or any business that can leverage a wide network of affiliates promoting their products.

Let’s look at a few examples of how multi-level commission structures could work for these businesses:

• Large ecommerce platforms: An ecommerce platform with a wide range of products could offer a 5% second-tier commission. So, if an affiliate refers another affiliate who then makes a sale of $200, the referring affiliate would earn an additional $10 (5% of $200) on top of their own sales commissions.
• Digital marketing tools: A company selling a suite of digital marketing tools could offer a 10% second-tier commission. If an affiliate refers another affiliate who sells a $100/month subscription, the referring affiliate will earn an additional $10/month for each subscription sold by their referred affiliate.
• Businesses with wide affiliate networks: Any business that benefits from a broad network of affiliates, such as a software company, could offer a 7% second-tier commission. If an affiliate refers another affiliate who sells a $300 software license, the referring affiliate will earn an additional $21 (7% of $300) for that sale.

Affiliate commission rates strategy and factors to consider

When setting your affiliate commission rates, there are several key factors to consider. Let’s delve into each of these factors in more detail.

Profit margins

Profit margins are a crucial factor to consider when setting your commission rates. You need to ensure that the commission rate allows for a healthy profit margin after costs. 

This is especially important when dealing with multi-level commissions, where you’ll be paying commissions on multiple levels. Balancing the need to incentivize your affiliates with the need to maintain profitability for your business is key.

Affiliate performance

The performance and sales potential of your affiliates should also be a key consideration. If your affiliates are high performers and are likely to bring in high-performing second-tier affiliates, a higher commission rate might be justified. 

This is particularly relevant when dealing with lifetime and recurring commissions, where the performance of your affiliates can have a long-term impact on your revenue.

Product price

The price of your product can also influence the commission rate. If your product is high-priced, a lower flat rate might still be attractive to affiliates. On the other hand, if your product is low-priced, you might need to offer a higher flat rate to attract affiliates. 

This is relevant for both flat rate and percentage-based commissions, as the product price can directly influence the commission amount.

Competitor rates

It’s also beneficial to check out the commission rates offered by similar businesses in your niche. Aim to offer a competitive rate to attract and retain quality affiliates. If your commission rates are significantly lower than your competitors, you might struggle to attract and retain affiliates. 

This is particularly important when dealing with multi-level commissions, where affiliates might be attracted to programs that offer higher commission rates on multiple levels.

Average order value

If your customers typically spend a lot, you might be able to afford a higher commission rate. This is particularly relevant for percentage-based commissions, where the commission amount is directly related to the order value. 

A higher average order value can justify a higher commission rate, as the total commission amount will still represent a reasonable proportion of the order value.

Customer lifetime value (CLV)

If your customers typically make many purchases over time, you might be able to offer a higher commission rate. This is especially relevant for lifetime and recurring commissions, where the total commission amount is spread over multiple purchases. 

If your metric of customer lifetime value is high, a higher commission rate can be justified as it will be offset by the total revenue generated by the customer over time.

So now we’ve explored the different types of affiliate commission rates and which to consider for your business. Let’s take a look at how to get them set up with the WordPress plugin SliceWP.

How to set affiliate commission rates with SliceWP

SliceWP is a powerful, user-friendly WordPress affiliate plugin that makes setting up and managing your affiliate program a breeze. Whether you’re looking to set up simple flat rate or percentage-based commissions, or you’re interested in more advanced structures like recurring, lifetime, or multi-level commissions, SliceWP has got you covered.

With the core SliceWP plugin, you can easily set up flat rate and percentage-based commissions. And with the SliceWP Pro version, you can unlock advanced features like product-based commissions, recurring commissions, lifetime commissions, and multi-level commissions. These features give you the flexibility to create an affiliate program that’s tailored to your business’s needs and goals.

Let’s go into these in a little more detail:

Percentage-based commissions

SliceWP makes it incredibly easy to set up percentage-based commissions. This feature is a part of the core SliceWP plugin, which means you don’t need to purchase any additional add-ons.

With just a few clicks, you can set a global commission rate, ensuring they are rewarded fairly for their efforts. This system is not only straightforward but also highly effective in motivating your affiliates.

Flat rate commissions

If you prefer to offer a fixed amount for each sale, SliceWP has got you covered. The flat rate commission system is simple to implement and comes with the base SliceWP plugin.

This type of commission is perfect for products with a fixed price, providing a clear and predictable income for your affiliates.

Recurring commissions

If you’re running a subscription-based business, SliceWP Pro’s recurring commissions feature is a game-changer. It allows you to reward affiliates for every recurring payment made by the customers they refer.

SliceWP allows you to set recurring commission rates globally and per affiliate. This means that you can have 3 strategies:

1. Enable recurring commissions for everyone.
2. Enable recurring commissions for just a selection of affiliates.
3. Enable recurring commissions for everyone, but offer more for a selected selection.

This provides a steady income for your affiliates and encourages them to actively promote your subscription products.

Lifetime commissions

SliceWP Pro’s Lifetime Commissions feature takes affiliate rewards up a notch. This feature allows you to reward affiliates for all future purchases made by the customers they’ve referred, not just the first one.

Lifetime commissions can be set globally throughout your whole site or per affiliate, making customizing this feature incredibly easy.

It’s a fantastic way to incentivize affiliates to bring in customers who will make repeat purchases. This feature is part of the SliceWP Pro version, and it’s a worthwhile investment for businesses that see frequent repeat purchases from their customers.

Multi-level commissions

SliceWP Pro also supports multi-level or tiered commissions. This allows affiliates to earn commissions from the sales made by other affiliates they’ve referred, effectively allowing them to build a team within your affiliate program.

This feature is part of the SliceWP Pro version, and it’s a great way to expand your affiliate program’s reach and motivate your affiliates to recruit other high-performing affiliates.

Product-based commissions

With SliceWP, you can easily assign different commission rates for different products. This feature is part of the SliceWP Pro version, which is a worthwhile investment for more advanced affiliate programs.

It allows you to incentivize the promotion of specific products, giving you more control over your sales strategy.

Get to grips with affiliate commission rates today

Understanding and strategically planning your affiliate commission rates is a crucial step in creating a successful affiliate marketing program. The right commission structure can motivate your affiliates, attract high-quality referrals, and ultimately drive growth for your business.

As we’ve explored in this guide, there are various types of affiliate commission rates. Each has its own benefits and is suited to different types of businesses and products. Your task is to determine which one aligns best with your business model and your affiliates’ motivations.

But planning your affiliate commission rates strategy is only half the battle. You also need the right tools to implement this strategy effectively. That’s where SliceWP comes in.

So why wait? Start leveraging the power of affiliate marketing today. With a well-planned affiliate commission rates strategy and a powerful tool like SliceWP, you’re well on your way to building a successful affiliate program.