The popularity of affiliate marketing is on the rise due to its consistent efficacy as a marketing strategy. Opting for an affiliate marketing approach can lead to a substantial improvement in lead to sale conversion rates and offer numerous benefits to SaaS companies, regardless of whether they collaborate with an influencer or a review platform.
By implementing a solid affiliate marketing plan, you can achieve the kind of success that was once unimaginable. This approach can help to elevate your brand’s profile, expand your customer pool, boost revenue, and provide you with valuable knowledge about consumer habits.
As the affiliate marketing industry continues to expand rapidly, it can be difficult to navigate and fully capitalize on its advantages. The following guidelines will assist you in determining your commission structure, effectively increasing your affiliate program earnings, and establishing optimal KPIs.
Set Your Commission Structure
The affiliate marketing model is popular with companies due to its focus on conversions, allowing for payment to be made to partners based on performance, ultimately resulting in cost savings over time.
Prior to starting your venture in affiliate marketing, it is essential to establish a commission arrangement that caters to the requirements of your business as well as the gratification of your affiliates, since there exist a variety of methods to remunerate them.
Conversion Types
Determine the criteria for compensating affiliates. The definition of a “conversion” hinges on the objectives you wish to accomplish through your affiliate program. While the ultimate objective for many programs is to boost sales, conversion objectives may differ for SaaS businesses.
A case in point is a SaaS enterprise that considers sign-ups for trials as conversions and anticipates a specific number of these trial users to transform into paying patrons. Consequently, they will remunerate affiliates for leads or when a trial sign-up culminates in a successful payment.
To begin, it is necessary to select the conversion type that will determine your earnings. Essentially, you must specify the particular action that the affiliate partner must promote in order to receive compensation. In the realm of digital affiliate marketing, there exist three varieties:
Under the Pay Per Click model, marketers only receive payment if a consumer clicks on their link to access your website or product. However, since payment is based solely on clicks, this affiliate payment method cannot guarantee increased conversion rates or paying customers.
Under the Pay per Leads model, you compensate your partners for every new consumer contact they generate. These contacts may include emails, registrations, or contact forms from individuals showing interest in your product. While offering slightly improved ROI compared to PPC, this model does not assure any particular profits.
Most businesses consider pay per sale as the top choice for affiliate payment structure. With pay per sale, you compensate your partners when they successfully generate a new sale by convincing customers to make a purchase. For SaaS companies, you pay the marketer for attracting customers to paid subscriptions.
Commission Rate
Regarding commission rates, you have just two choices – either a flat amount or one that depends on a percentage. With the former, whenever a partner finishes a set task (such as 5 sales, 10 registrations, or 10 clicks), they will receive a specific payment.
When deciding on the appropriate commission rate, it is important to take into account your product or service as well as your intended audience. Certain pairings may be better suited for a set commission rate, while others may necessitate the use of a percentage-based rate.
In the second scenario, a percentage will be taken from the final sale, with the average rate ranging from 5% to 30%. There is usually a maximum limit on this percentage, where certain businesses will only receive a portion of the profits. For instance, the marketer may receive a portion of the revenue for the first three customer signups, but they will not receive any further compensation beyond that point.
Payment Frequency
Before starting your campaign, it is essential to clarify the payment frequency for your partners. This refers to how often you will pay them and should be established to avoid any confusion. The commission can either be a one-time payment or recurrent.
- One-time – paid right after a sale from a new subscription/click/lead.
- Recurring – paid right after new or renewed subscriptions. The payment timeframe will depend on how your subscription process works, whether on a weekly/monthly/yearly basis.
If desired, there is the option to set a cap on recurring commissions, which would establish a maximum number of conversions that an affiliate can be credited for. This cap may either be a fixed number of conversions or a predetermined timeframe during which the conversions can be attributed to the affiliate.
Suppose your affiliate program comes with a three-month limit on recurring commissions. In that case, if an affiliate’s referral pays for a software subscription for 12 months, the affiliate will only receive a commission for the first three months of payment. Despite the referred customer’s ongoing payments afterward, the affiliate will not receive any further commissions.
Although it makes logical sense for many companies to implement a cap, they can still entice affiliates with an attractive commission proposal.
In addition to the aforementioned payment frequencies, lifetime commissions can also be granted. With this option, marketers will receive compensation for the initial conversion and all subsequent ones. While this is an effective way for larger companies to attract affiliates from competitors, it may not be suitable for startups or smaller SaaS companies.
Commission Awards
Since many affiliates typically focus on one specific area, it is likely that your rivals will also attempt to collaborate with them. To ensure a successful SaaS affiliate campaign that can be evaluated and sustained, it is crucial to keep your partners content. Commission bonuses and tiered structures can be an effective method to achieve this.
To show your appreciation for the hard work of efficient and motivated marketers and to motivate them further to promote your business’s affiliate program, consider offering them a bonus. A possible example is rewarding all affiliates who achieve over 10 sales per month with a 10% bonus.
Moreover, you have the option of incorporating a tiered system in your affiliate program, which enables marketers to ascend the ranks and earn a greater commission as they generate greater traffic and conversions.
Calculate your Business Costs and Earnings
Start by determining your profit margin in order to establish your affordability. Your profit margin serves as the foundation. Then, there are a few other computations that will assist you in designing your program’s commission plan. The following are some additional points to take into account:
is a marketing metric that calculates the average cost incurred to acquire a single customer. CPA is a measure in marketing that estimates the mean expenditure for gaining a solitary consumer.
The cost per acquisition (CPA) refers to the amount of money spent on obtaining new clients, which in turn determines the performance of your marketing strategy. It serves the purpose of monitoring the expenses allocated to attracting new customers, while also allowing for the comparison of various marketing channels’ effectiveness.
refers to the total amount of money a customer is expected to spend on a company’s products or services over the course of their relationship. The term Customer Lifetime Value (LTV) denotes the complete sum of money that a customer is predicted to expend on a business’s offerings throughout their association.
The value of a customer over the duration of their relationship with your business can be defined as Customer lifetime value or LTV. It determines the returns you can expect from an affiliate’s promotion and plays a crucial role in determining how you distribute resources and budgets, especially when it comes to affiliate commissions.
Costs incurred during the operation of a business or organization.
The expense of operating your affiliate program is referred to as operational cost. Typically, this consists solely of the cost of an affiliate tracking software; however, it may also include additional items such as promotional materials or program management, which are optional.
Additional ways to set up commission structures
Additional options for configuring your program include commission tiers and bonus structures.
The levels of commission
By implementing commission tiers, affiliates can earn higher commissions based on their sales volume. This incentivizes them to promote your brand consistently and drive more conversions. Varying commission rates based on sales amounts is an effective strategy for keeping affiliates motivated. As an illustration,
- 10% on each of the first 10 conversions
- 15% on conversions up to 50
- 20% on conversions up to 100
- 30% on each conversion beyond 100
Ensure that you include the rise in commission expenses in the overall commission framework prior to proposing rates that may exceed the business’s financial capacity. When utilizing Tapfiliate, the affiliate groups section presents commission structures.
Rewritten: Additional compensation in the form of bonuses.
Customize your bonuses for affiliate rewards based on achieving a specific conversion number or goal. Tapfiliate allows you to set commission rates, bonus intervals, and target objectives.
In the event that an affiliate achieves 5 or more conversions, they will receive an additional 5%, as a demonstration, if the affiliate generates 7 conversions, each of the 7 conversions will receive an additional 5% until the bonus timeframe concludes. Incentives are a productive means of spurring affiliates to promote more. Nevertheless, it is crucial to factor in these expenses in advance when calculating your commission budget.
Things to Consider
Competitors
To effectively market your product, it’s crucial to assess your competitors’ actions. Analyze the offers and terms and conditions of other programs within your industry to determine what they’re providing and how your program can differentiate itself to attract superior affiliates.
To have a clear comparison of each program, including their commission rates and additional program offerings, keep a spreadsheet of the leading competitors. By doing so, you can easily identify gaps and opportunities while also keeping track of emerging trends. Remember to update the spreadsheet regularly to stay informed about your competitors’ offerings.
It is crucial to keep an eye on the competition, but we recommend against solely relying on this information for decision-making. Resist the urge to increase your commission simply because a competitor has done so, as it may not be financially feasible for you and could result in a loss.
Room to Grow
While designing the commission structure for your program, you may feel tempted to provide the maximum commission feasible within your budget. However, it is highly recommended not to set the highest commission from the beginning.
Taylor Barr, the Affiliate Manager at UpFoundry, offers guidance.
Offering the maximum commission may limit your options.
If you observe that the channel is advantageous for your business, you have the capacity to increase the commissions for all affiliates.
If your affiliates refer high-quality customers to you, you can increase their commissions on a per-individual basis.
It is possible to reduce commissions, but the downside is that it may create a negative perception that the company is struggling or lacks confidence in its affiliates. This is because people tend to dislike the idea of losing something they previously had.
Providing yourself with space for development also grants you space for reorganization. As previously discussed, the competition can shift, and fresh trends can emerge – let your program have the flexibility to modify and accommodate to varying situations.
Every year, use the recommended measurements and computations to assess your program and identify areas where additional offerings can be made and reconsider any rewards that did not yield results.
Set The Right KPIs
Key performance indicators or KPIs are measurements of company/project performance that vary in form and are specific to each organization. They facilitate early identification of achievements and challenges, leading to more informed decision-making and propelling progress in a positive direction.
Our suggestion for affiliate marketing KPIs in the SaaS industry is as follows:
- YOY (year-over-year) growth
- Performance of affiliate marketer categories (content, review sites, influencers, etc.)
- Average value from sales
- Number of new partnerships and customers
- Conversion Rate (CTR)
Tracking KPIs serves the ultimate goal of implementing fresh tactics that address concerns and foster expansion. For instance, if the number of partnerships declines, it may indicate a waning interest in your program among marketers or a preference for competitors. To address this, consider promoting your affiliate program or incorporating enticing bonuses and tiers.
Initiating your SaaS affiliate program may appear perplexing at first, but after launching and building a unique dynamic, you will become accustomed to it.
It is common for beginners to make mistakes, so there is no need to fear them. Rather than considering them as setbacks, view them as chances to enhance and develop your affiliate partnerships. It is vital to creating a sound strategy and managing your budget if you want to succeed.
Side notes
The establishment of a commission structure involves numerous interrelated factors, as apparent. The process of formulating it might be challenging and intricate. However, it is advisable to make it easy and clear for your affiliates.
To streamline affiliate management and prevent affiliates from feeling let down, make sure to be transparent about your commission structure and clearly state it in your program’s terms and conditions.
As previously stated, creating the ideal commission structure for your program is not a precise science. Nevertheless, if you account for these aspects, you can establish a financially stable program that encourages exceptional affiliates to advertise your business.
