This commentary questions conventional thinking in affiliate marketing. Real-world -affiliate experience has shaken my firmly-set beliefs on this subject that I gained from 6 years on the “other side”.
It’s interesting to me that I had not ever heard this argument before recently, never mind participate in it. It just seems so obvious when I say it out loud, “Affiliates need predictable compensation”.
I’m not talking about getting paid on time (which is also important). I’m talking about performance incentives or compensation tiers. For example, I may receive 10% commission for up to $1000 in sales. If I exceed $1000, my commission is raised to 20%. That’s a simple example and the arrangements can be more complex with multiple tiers and other sorts of bonuses added in as well.
The reason performance tiers exist in the first place is fundamental. It’s an incentive for affiliates to drive more traffic and more business to a single merchant. It makes sense from the perspective that if an affiliate has command over a certain quantity of traffic and can choose to send it to more than one competing merchant, incentives to send more to one merchant will help ensure that happens.
There’s an ever-growing class of affiliates who don’t have the enormous web-property that attracts endless traffic, or have a lock on the top spot for certain keywords in search engines.
These affiliates vie for free natural search engine placement, but are at the mercy of the ever changing search engine algorithms. In a single day, traffic can be cut by 90%. Because of the unpredictability of the search engines, they have turned to paying for traffic, most commonly in the form of paid contextual advertisements such as Google Adwords and Yahoo’s Sponsored listings (Overture). Other search engines are launching new similar services as well. Ask Jeeves has recently launched sponsored listings and MSN is finishing up their own offering.
When your traffic is free, it doesn’t really matter what commissions you’re receiving. It’s pretty much all profit (discounting hosting fees, and other overhead costs.) Tiered commission is fine here because there is profit at the lowest tier, and reaching a higher tier is a nice bonus. In that environment, my only question is, “Where am I going to receive the highest payout for my traffic and maximize my profit?”
But when you start paying for traffic, the economics change dramatically, and another question is added, “Am I going to lose my shirt testing this merchant?” I don’t know if, in any given month, I’ll be able to achieve the higher tiers. Therefore, I’m forced to plan my media purchases at the lower-tier commissions. In many cases, the higher tiers provide significant increase in commissions and if I knew I was to receive the higher commissions, I could plan my spending on that level and drive much better traffic. But if I spend based on top-tier commissions and fall short (even by a penny), I’ll lose money.
Traffic can be so expensive that it is impossible profit at all on the lower commission tiers. In in these cases, it is simply too risky to test a program. Consider this: Performance incentives are actually acting as disincentives.
Performance tiers are designed for a world of free traffic and pre-existing traffic where publishers have a choice over what they do with their visitors. Enlightened affiliate managers understand this and will work with affiliates to overcome these issues on a case-by-case basis. Others remain firm on their compensation policies and forego any opportunity to work with a powerful group of affiliate marketers.
