Jun
Beware: Not All Affiliate Commissions Are Created Equal
Most affiliates understand affiliate marketing, it’s pretty simple. An affiliate is simply a commission-only salesperson. They get paid a percentage of the sale or a certain dollar amount per lead. (Even Wikipedia knows this!)
Sometimes there are multiple tiers of payments depending on volume, possible bonus commissions, lifetime cookies, recurring commissions, and sometimes a second level where you get paid for referring more affiliates. But those are just icing on the cake.
Today I’m just talking about standard commissions, keeping it simple. So to make sure you’re keeping up, here’s the basic summary:
An affiliate is a commission-only salesperson and gets paid a percentage of the sale when they refer a customer.
As I mentioned, that’s easy to understand. Say there is a $100 product that you are promoting and you get a nice 60% commission. For each sale you refer, that means you get paid $60. (Basic arithmetic!)
But as with most simple concepts, not everyone gets it right.
If you sign-up with a network like CJ, Linkshare, Clickbank, etc., they understand how this works. But the time to be careful is if you venture out into little niche markets with “mom and pop” type shops that have an in-house affiliate program.
These little shops and niche retailers, especially if they’re old school brick and mortar guys, might not understand the concept and value of an affiliate. Or maybe they just don’t get the concept of an affiliate program. For example, if they’re offering a 60% commission on a sale, they might be thinking of giving you 60% of their profit (not revenue) on each sale. So they might have a 10% profit margin, meaning your “60% commission” on the $100 product is a mere $6, which is 60% of their $10 profit.
Yes, it seems ludicrous that someone would advertise an affiliate commission and then tell you it’s not on the sale, but rather on their profit… But I have seen it happen. (And you thought my internet marketing scam reports were limited to just “get rich quick” ebooks!)
I think we can agree that this is a shady business practice, possibly fraud…
But it also has no basis in reality!
Why is that? Because no one would know what to expect for a commission! Calculating your earnings as a percentage of the sale is easy because you know the sale price. But you don’t have a clue what the merchant’s profit margin is! So a 10% commission from a profitable merchant could be better for you than a 75% commission from someone that makes a 2% profit on their goods.
As you can see, stating commissions as either a dollar value or a percentage of the sale is standard practice for a reason.
It just makes sense. And I even have another example which is even more realistic:
A merchant has a $100 product (something digital like an ebook) where they make a 90% profit on each sale after transaction fees and distribution expenses. For each product they sell directly, that’s $100 of revenue and $90 of profit.
But they also pay a 50% affiliate commission. So on a sale referred by an affiliate, their profit will drop, because expenses have risen to 60% (10% standard expenses plus a 50% commission.) That would create a 40% profit ($40) for the merchant on each affiliate sale.
So the profit is $50 less, but get this… the merchant still made $40 they wouldn’t have made without the affiliate! And the affiliate is happy because they get their actual $50 commission, which will pay for their advertising expenses.
So when a merchant tells you “I can’t afford to give you a commission on the sale because that will cut into my profits,” tell them “bite me, if it wasn’t for me you wouldn’t have made that sale at all!”
(And what is the variable cost of delivering another ebook, half a cent?)
Moral of the story:
Be careful if you’re promoting a product that’s not backed by a reputable seller. You might be wasting your time, money, and/or ad space.
Photo credit: ryan14072 (used car flyer) | Photo credit: vsqz (hustler with cash) | Photo credit: Sister72 (bite me)
Want a good laugh every day? Then simply subscribe to our RSS feed.
Or subscribe via email.
Related Articles:
Like this article?
Post to Del.icio.us
Share on Facebook
AIM to a friend
Click here to buy me a beer, because damn, I need to get drunk to forget how much internet marketing sucks!
Great post. Thaks for sharing.
I think the best way to start with affiliate marketing is to sign up with a network you desribed above like CJ, Clickbank ect..
With those you’re sure that you’re getting payed the commissions on sales and not on profits.
Daniel
Yeah, I’d definitely start out with a big place like CJ or maybe even PepperJam Network, as they seem to be getting great reviews for customer service (and as a new affiliate, help is a good thing!)
You can search out more exclusive or off-the-wall deals and partnerships later
I didn’t give a hand to anyother network except CJ and I am fairly happy with CJ
suggested the same to many of my frnds and they are loving it to. It is all about time before you start balancing out with money time and hardwork..
I checked out the PepperJam site and found it difficult to determine if I was qualified as a new affiliate!
I am sure I missed something!
Hey Sucker,
Nice article I could not agree more. I think half of the affiliate programs are scams anyway.
John
Every individual who had started affiliate marketing business have to look on each aspect of internet marketing to avoid internet marketing scams.
Great post. Nice blog
You can always ask your AM for higher payouts if you aren’t quite hitting your profit range….
I love Advaliant for that
Yes, it’s nice to be with a good network like that
The problem is when there is no affiliate manager and no respect for affiliates by the product owner!
It’s not just the little guys that have the problems though. EBay’s affiliate network allows a certain large affiliate to overwrite your cookie simply for the user looking at a few enlarged images. For example, I send user to eBay through my site, user views listing and sees links to view an enlarged picture of the item, upon viewing the picture user sees links pictures of other related auctions. If user clicks one of those pics just to look, but then clicks back to the original item, BAM their cookie overwrites mine and my commish is gone. Okay, I’ll end my rant now but I just wanted to say sometimes the big networks can do stupid things as well.
Yes and eBay affiliates suffer the same fate, the comiss from EPN, is a percentage of eBay’s profit and not the actual sale, so individual commissions are often seen in forms of cents and NOT dollars.
Nice post! Thanks for the heads up on another way to be scammed.I will just stay with the larger affiliate programs now.
I dont think affiliate programs are scam and all. All these days I’m making more out of it. As you all said it is better to start with networks like shareasale, cleck 2 sell etc.
Your article is excellent and last lines are true.
The great point you made - without affiliates there will be no sales at all for many of those merchants, who is not willing to share.