How to set an affiliate commission rate you can keep paying

I used to think platforms that took a big commission were simply greedy. I was confidently wrong. I had only counted the surface costs, the servers and the software, and not the real one, which is what it costs to find each customer in the first place.

An affiliate commission is that cost, seen from the other side. You are not tipping someone for a favour. You are paying for a customer you did not have to find yourself, so the rate should come from what that customer is worth to you and what you already pay to win one elsewhere. What a competitor advertises comes last. If you have not started the program yet, how to start an affiliate program covers the decisions that come before the rate.

A caveat before the method. I run iTutorOnline, which has its own affiliate program and is listed in this directory on exactly the same terms as everyone else. So I am not neutral about affiliate programs. I would still rather you set a rate you can keep than one that looks good for a quarter.

Start from what a customer is worth

Work out what one new customer brings you, after the costs of serving them:

• One-off products: the average order value times your gross margin, minus what refunds and returns usually cost you.
• Subscriptions: the monthly price times your margin, times the number of months a typical customer stays. That is the lifetime value, and it is the number recurring commissions are built on.
• Services and leads: the share of leads that become paying clients, times what a client is worth.

This is your ceiling. Pay more than this per customer and every affiliate sale loses money, however good it looks in the dashboard.

Compare it with what you already pay

If you run paid ads, you already know roughly what a new customer costs you there. That number is a useful reference, with one important difference: ads cost money per click whether or not anyone buys, and an affiliate commission is only paid when someone does. An affiliate rate somewhat below your ad cost per customer is usually comfortable. One far below it rarely attracts anyone serious.

Pick the commission type that matches how you earn

• Percentage of the sale suits stores with varied basket sizes, because the commission scales with the order.
• A fixed amount suits a set-price product or a sign-up you value, and makes earnings easy for affiliates to predict.
• Recurring suits subscriptions, and lines up your interests with the affiliate's: you both earn more from customers who stay. Cap the months if your margins cannot carry a lifetime share.
• Per lead suits long sales cycles where the sale happens weeks later, out of the affiliate's sight.

Commission types goes through each in more detail, including the maths affiliates use to compare them.

Set the rest of the terms, not just the rate

Affiliates compare whole programs, not headline rates. Three other terms decide whether a good rate actually gets promoted:

• Cookie window. Match it to how long your customers take to decide. A 7-day window on software with a 30-day trial tells experienced affiliates that most of their work will go unpaid. The cookie window guide explains why.
• Approval period. Hold commissions about as long as your refund window, no longer. Holding them for months beyond it reads as distrust.
• Payout terms. A reasonable minimum, a regular schedule, and payment methods that do not eat small payouts in fees. Pay on time, every time. See payout terms for what they look at.

Avoid the rate you will have to cut

The worst commission is a generous one you cut six months later. Affiliates who built pages and emails around your old rate do not see a "pricing update". They see a program that changed the deal after they did the work, and some of them quietly remove the links.

So start at a rate your numbers carry today. Raising a rate later is easy and welcome. Cutting one is the fastest way to lose the affiliates you most wanted to keep.

Check what similar programs publish

Once you have a number from your own economics, look at what comparable programs offer, mostly to make sure yours is not invisible next to them. Browse your category in this directory, where every rate, cookie window and payout term shown links to the page it was read from.

Then put it where affiliates can find it

Write the terms on a public page on your own site, in plain sentences: the rate, what counts as a sale, the cookie window, the approval period, the schedule, the minimum and the methods. That page is what affiliates, and directories like this one, read. If your program is already in the directory, you can claim the listing from its page for free and correct anything we got wrong.