There may come a time when you want, or need to lower your affiliate commission rate – but how do you do it without sending your affiliates running for the hills?
Some say that best practice is to never decrease commissions – no matter what. But, there are scenarios where a change could be desirable, or even necessary. The problem is, quality affiliates aren’t always easy to find, and you might feel nervous about the risk of losing your team.
In this post, we discuss some possible scenarios, and talk about how you can decrease your affiliate commission rate without losing all of your affiliates!
Why would you decrease your affiliate commission rate?
Any business owner knows that various ups and downs come with the territory of running a business, and progress isn’t always linear. There may be times when you have to account for dips in sales, or increased marketing expenses, or even new competition.
There are a variety of reasons why you might decide to lower your affiliate commission rate, and here are just a few of them:
It’s a holiday season
Sometimes, you might find that you have less customer activity around holidays, simply due to people being busier than usual. If your sales volume decreases, you might feel the need to decrease your affiliate commission rates as well in order to stabilize your revenue.
You might also find yourself with increased marketing expenses around holidays, which means an increased cost of customer acquisition, too. Lowering your rates for affiliates can help offset this effect.
You’re running a big sale
Conversely, if you’re running a sale or shopping event and you see an increase in organic spending, it could mean there’s an opportunity to lower commission rates in order to increase your profit margin. Just remember to write this into the terms and conditions of your affiliate program to avoid any confusion!
Your costs increase, or your site is growing significantly
Got increasing costs? Or, a budget issue of some kind? Are you finding yourself paying more to manufacturers or distributors than you did before? Something has to give, if you want to keep your revenue on track.
You might reduce affiliate commissions in this case because you don’t want to pass those extra costs on to your customers – or let them creep into your profits, either!
For example, if your site becomes incredibly successful, with traffic and purchases increasing substantially, the costs of running your site could increase exponentially. You might find that you want to increase your profit margin by cutting down on affiliate commissions in order to cover the new costs.
As affiliate marketing is generally considered an expense, it’s not uncommon for site owners to reduce commission rates in order to be able to afford things like better hosting, additional functionality, scalability, etc.
The market changes
Let’s say a fierce new competitor shows up on the scene, or the market becomes particularly saturated and sales are slowing a bit. You may feel like you have to lower affiliate commission rates to adjust for these changes.
You increase your product prices
If you increase your product prices, but want your affiliate commission amount to come out the same, you may choose to lower your commission rate percentage in order to keep your store profitable.
For example, let’s say you have a $100 product, with a 20% affiliate commission rate – that means affiliates earn $20 on every sale. Now, let’s say you increase your product price to $200. You could reduce your affiliate commission rate to 10% in order to keep the commissions at $20 per sale.
Or, perhaps you decide to drop your commission rate to 12% on the $200 product. In this case, the affiliate walks away with $24 per sale – which is actually more than they were making before.
How to handle it
Once you’ve determined that a reduction in commission rate is appropriate, what should you do next? Here are a few of our suggestions:
Communicate directly with your affiliates
The first thing you’ll need to do is let your affiliates know that things are changing, and why. Emailing them directly via a dedicated, standalone email (not an affiliate newsletter) is best – and getting personal never hurts!
If you want to establish good rapport with your affiliates and maintain (potentially even strengthen) their trust in you, consider inviting them to ask questions. That way, you can clarify any confusion, and give them the opportunity to air their concerns.
Be clear and transparent
Communicating a reduction in commission rate should be done in a straightforward, but respectful manner using clear and concise language, leaving no room for confusion.
Remember that some affiliates may live on their commission earnings, so it’s really important to be accurate and forthcoming about what’s going on. Your affiliates will appreciate your transparency!
Update your affiliate terms and conditions
Your terms and conditions should reflect any changes you make, so be sure to keep them updated! You don’t want to create inconsistencies between what you tell your affiliates, and what your affiliate terms and conditions say; this can lead to skepticism about your entire program.
Avoid public announcements
Because lowering your rate can be a sensitive issue, you’ll want to avoid public posts or announcements on social media platforms, forums, or your website. If you want to communicate to multiple affiliates at once, you have a few options:
- Create a private post exclusive to your affiliates that explains the change
- Share any changes in the notice or notes section of your affiliate area or affiliate dashboard (if applicable)
- Communicate within a private Facebook or LinkedIn group for your affiliates (if you have one)
Final words of advice
- Percentage rates work best. When you consider all of these possible scenarios for reducing affiliate commissions, you can see how percentage rates can be beneficial over flat-rate commissions. That’s because with percentage rates, you simply have more flexibility to adjust as factors change and your business grows.
- Give yourself room to grow. With affiliate commission rates, it’s always better to start out low and give yourself room to grow, as opposed to starting high and having to reduce your rates later.
- Think carefully. Before setting your initial rates, factor all of the possibilities into your decision. Include all important details in your affiliate program policy / terms and conditions, especially if you think your rate might change.
Now, let’s hear from you. Have you decreased affiliate commissions for your own affiliate program? Why and how did you do it? Leave a comment below!