Your affiliate program isn’t profitable?
But I thought affiliate marketing programs were supposed to be easy, passive income channels for DTC ecommerce brands and merchants. It is commission-only compensation. Partners do the work for you. What gives? How come your affiliate program isn’t profitable?
Of course, if you are an affiliate manage, you know this isn’t the case. But it doesn’t change the problem you may be having. If your affiliate program isn’t profitable, or at least it isn’t driving the profitability you were expecting, here are 6 areas you should check.
1) Paying Two (or more) Commissions for 1 Order
A lot of affiliate tracking tools allow multiple affiliates to claim credit for a single order.
You read that right. Yeah. I know. I agree. WTF?!
Cynicism aside, I can certainly appreciate that crediting all of the affiliates driving an order serves as a way to credit all of the contributions made throughout a users purchase journey. Every one of your affiliates will be happy.
But let’s take a step back to when you designed your affiliate offers. Likely, you picked a commission rate using your margins and paying 1 affiliate, say 15%, for driving that order. Paying two affiliates for a single order could mean 30% of the revenue is being paid out to affiliates. Oh, and maybe a coupon code is also in the mix, so your AOV [average order value] is also lower and your margins are shrinking.
Ouch.
If your affiliate program isn’t driving the profitability you expected, make sure you are only paying 1 commission per order. You can do this by downloading your conversions, orders and commissions data. Slice and dice things in a pivot table and you should be able to spot multiple payouts made on a single order. Eliminate this and you’ve boosted profitability without sacrificing volume. Cha-ching.
If you are splitting commissions, make sure you have caps in place! Otherwise your margins can be quickly eaten and your affiliate program isn’t profitable.
If Refersion is powering your affiliate program, you don’t have to worry about this. Refersion will only credit a single affiliate for an order. 1 purchase driven. 1 commission paid. Splitting commissions works when you are paying all of your affiliates the same, but the growing programs we analyzed have a diverse mix of affiliates and partners (bloggers, rewards sites, influencers, listicles and more) that are being paid different rates.
2) Paying for Returning Customers Like Their New
Driving a customer is expensive. Ryan Howard taught Michael Scott as much in season 2, episode 4 of The Office.
A new customer is a hard won victory. Affiliates that operate near the top of the funnel to generate customer interest and an ultimate purchase should be well compensated. It’s demand gen and customer acquisition all in one effort.
Compared to most browser extensions, coupon sites, and rewards sites, these upper funnel affiliates often demand a much higher commission rate. That works really well, but paying these affiliates as handsomely on a customer’s repeat purchases can hurt your affiliate program’s profitability and may account for some of the ROI concerns you’ve noticed. But why?
Most ecommerce brands expect to drive customer LTV and repeat purchases from channels they invest in, like transactional emails, ongoing SMS and email marketing, rewards offers, and more. While crediting affiliates for repeat orders acts as a strong incentive to drive the right kind of traffic, paying the same commission rates for those return orders can significantly impact the profit driven by these subsequent orders if you weren’t building that into your plan.
Put another way, if you wouldn’t want to pay the same non-branded CPA for every purchase a customer makes with your business through Google Shopping, you probably want to consider making the same distinction with your affiliates. Otherwise, your affiliate program isn’t profitable…or at least as profitable as you want.
Easily specify within your affiliate tool’s offer configuration exactly how you would like to treat these repeat purchases and you will likely see gains in your affiliate marketing ROI without hurting the overall volume.
3) Paying Multiple Commissions from Different Networks on a Single Order
This is different than the first, so don’t miss this.
Say you are leveraging Refersion since you can easily track and pay any affiliate and influencer, no network required, for your affiliate and micro influencer efforts. You also leverage Phia to get in front of their mobile app users. Plus, you’re running TikTok Shop and dabbling in a high-risk, high-reward mega-influencer partnership from your discovery efforts. All of these partnerships are built around your well-defined ICP. Let’s call her Annie.
The rise of private networks. Mobile apps with a bench of high impact influencers. The general proliferation of affiliate promotion methods and channels. All of these make it easy to put your brand here, there and everywhere. The challenge, though, is users don’t stay in our clearly defined operational silos. Annie is going to see and interact with a number of these partner integrations, muddying up credit, double paying commissions and hurting the profitability of her order.
As an ecommerce brand, you’ll lose all of your hair if you stress out over a single order. But, running a similar conversion, affiliate and offer report as in tip 1, you’ll be able to see if the different tools are all distributing commissions to affiliates more times than is ideal. This could be one significant reason your affiliate program isn’t profitable.
Simplifying your partnerships by consolidating your networks can reduce overpayments on commissions. Refersion, for example, enables brands to pull those relationships they have with specific affiliates, influencers, and publishers into your program, be given a link/code, and tracked all together. A close partnership with your affiliate will actually make that link migration really easy.
Bonus, if you have an established bench of relationships, consolidating will also save you a lot of time managing your programs.
4) You’re Overindexed on Coupon Sites
Nickelodeon’s Skeeter said it best for merchants that are all in on coupon sites: “Look at all those zeros.”
As noted in Greg Hoffman’s book Think Like an Affiliate Manager, coupon sites have a place in every brands affiliate program. Why? Because users are conditioned by brands to look for coupons.
Excluding coupons and offers is going to cost you on Conversion rate. You can’t leave a blank spot for “Discount Code” in the checkout and not expect people to look. But you should also be pragmatic about how much of your affiliate program is invested in these bottom of the funnel partners.
If more than 25% of affiliate driven sales are from coupon sites, you should do some investigating. If more than 40% of affiliate driven sales are from coupon sites, your affiliate marketing profitability is suffering.
5) You’ve Crediting Discount Codes in Perpetuity
“We haven’t worked with that influencer in years.”
I just heard that when speaking with a customer. But this same affiliate was reaping the dividends of a leaked coupon code that credited them with sales. Why? It’s a combination of point 4 around coupon code sites and the perpetuity of content you publishers and partners put out.
Actively reviewing what offers are performing is an essential way to catch this profitability leak. If you’ve spotted a partner that is routinely driving revenue but not creating content, it is likely that the discount code you offered them has been leaked onto a coupon hub and customers are using it. Using smart links that embed the discount in the link, rather than assigning a code, is a great way to ensure this isn’t even an option.
If the channels you are leveraging need a code because it drives a higher response or the content format doesn’t allow for links, there are some practical steps you should take.
- Establish a cadence for refreshing offers and codes for affiliates. Changing offers can be tricky but it is a way to both incentivize your partners to drive stronger performance during peak periods and to manage how long legacy program terms are on the web. For the most successful brands, their affiliate program evolves over time with the business. This keeps things close.
- Provide affiliates with a distinct, dedicated code. This is 101, but can be missed by brands and merchants that are on limited plans or on limited time. Each affiliate and partner you are working with should be given a unique discount code just like you would assign them a unique link. This makes spotting code redemption leakage easier.
- Limit the time duration of your coupon codes to months, seasons, etc. Time-related promotions work better than perpetual promotions. Why? You need to give customers a reason to buy today. By developing a cadence for offers and promotions (and subsequently) codes, you can ensure you are keeping your active partners engaged and providing motivation for users to take action now versus later.
One important note when it comes to discount codes. While tools like Refersion make it simple to generate codes tied to affiliates and offers, discontinuing discount codes requires logging into your ecommerce platform directly. For example, after updating and offer and discount code for the holidays in your affiliate program, log into shopify and ensure the code is disabled. If you forget this step, coupon code leaks can still happen, and your affiliate program isn’t profitable because the discount is lowering your AOV and margin.
6) You’re Paying Affiliates for Subscriptions in Perpetuity
This is a little different that returning customers because, in this case, you’re entire business model is built on recurring revenue.
Incentivizing your affiliates to drive the right quality customer is the only way to make a subscription business work. A lot of programs do this by paying commissions on revenue, forever. There are also a lot of programs that see their program flail because affiliates aren’t incentivizing quality and they drive too many 1-and-done customers.
The first thing to know is if you’re affiliate program isn’t profitable or the ROI is lower than desired, you need to make sure you baked in how you will incentivize recurring subscriptions. This keeps your top line growing. Next, payments.
Paying affiliates for driving subscriptions is essential, but to improve profitability, consider these options:
- Don’t want to pay forever? That’s fine. Set a number of renewals your affiliate will get credit for to improve your program profitability. If that customer continues to renew after that final payout, you are eliminating the acquisition costs for that revenue! Instant margin and no volume sacrifice.
- Want to make perpetual payouts work? You certainly can. In order to improve profitability for your affiliate program, lower the percentage you are offering for each customer and emphasize in the offer that the average customer stays for X period of time. That will underline your partners potential without having to overpay just to get their attention.
Conclusion
Profitability abounds for affiliate marketing campaigns, but it takes active management. If you understand how you have modeled out success, you should be able to spot where things are going sideways. Here is a final checklist of actions to consider:
- Establish how affiliate impacts your overall business, not just in a silo. To do this, analyze store revenue overall, as well as other channels and sources alongside the traffic and visibility driven by partners. This will highlight relationships in play in your marketing mix.
- Regularly review which affiliates and offers are driving the most on the topline when it comes to conversions, then dive into their costs. This is where you will make the fastest impact on ROI.
- Create tiers of partnerships since they aren’t created equally. Some partners may drag on measurable ROI but are also an investment in brand. Others may drive great margins but be a nightmare to work with. Then optimize the tiers
- Make changes, then measure performance to make sure you are having the desired result. Short term, ROI gains will appear. Your bigger concern is the longer term impact on the business top line. Over-optimization can happen.
