Improving Affiliate Program Profitability with Strategic Commission Rate Adjustments
Change in any affiliate program is to be expected. That said, major program modifications must be handled delicately, especially when it comes to adjusting or reducing affiliate commission rates. This is why, when a client informed their AP account team that a company-wide goal restructuring meant that they needed to adjust the commission rates paid to affiliates and base all of their online marketing programs on a net margin goal, the team promptly went to work assessing the impact this would have on their program goals and publishing partners.
Adjustment Aftereffects
Save 30% in commission payouts
Maximize their net margin
Maintain their Cost Per Target goal
Prevent significant declines in program performance
Calculating Consequences
"In order to help the client move forward with their new profit focus and net margin goals, we needed to create a net margin calculator so that our AP team and the client could see what net margin was looking like for the affiliate channel," said Heather Creamer, the AP manager on the client's account. "This process involved many iterations and conversations with the client to ensure that we had the right calculations in place."
Custom Net Margin Calculator Creation
"Using the net margin calculator we created, we put together a few different models for the client so they could see what impact commission changes might have on the different affiliates in their program," said Creamer. "For example, we had one model that showed both the savings and revenue loss the client might realize if. they dropped their commission rate from 15% to 10%, and then another that showed a reduction from 15% to 13%."
In addition, the account team also looked at what competitors were paying affiliates and other costs in the program that could be cleaned up or reduced. For instance, some affiliates in the program were paid $0.50 for each lead driven to one side of the client's business. However, these leads were really only used for tracking online form submissions.
Ultimately, the client decided to reduce sales commissions by 5% and lead generation commissions to $0.01 per lead.
