Affiliate marketing is one of the most effective ways to grow your business. But if you’re asking yourself, “How much should I pay my affiliates?”, you’re not alone. Many digital marketers, affiliate managers, and e-commerce business owners grapple with this question—and for good reason. Striking the right balance between motivating your affiliates and maintaining profitability is critical to success.

This blog dives into the key considerations for setting up a competitive affiliate compensation plan, drawing inspiration from Dan Kennedy's famous principle, "He who can pay the most for a customer, wins." We'll explore how you can structure your payout rates, motivate your affiliates, and create a program that’s a win-win for everyone involved.

Why Paying Affiliates Well Is Crucial

Before we talk numbers, let's understand why affiliate compensation matters so much. Affiliates are an essential part of your sales funnel—they promote your products or services to audiences you might not otherwise reach. When properly incentivized, they bring in not just new customers but high-quality, long-term customers.

However, stingy payouts can lead to disengaged affiliates and minimal results. On the flip side, a well-thought-out affiliate payment structure can turn your affiliates into brand ambassadors who passionately promote your offerings. This is why it's so important to approach affiliate compensation strategically.

The Dan Kennedy Principle on Customer Acquisition

Dan Kennedy summed it up perfectly when he said, "He who can pay the most for a customer, wins." This principle applies directly to your affiliate program. Essentially, you should consider paying your affiliates the full cost of customer acquisition. Why? Because that customer wouldn’t exist in your ecosystem without the affiliate's efforts.

The catch here? To make this worthwhile, you need backend strategies to maximize the customer’s lifetime value (CLTV). Whether through additional products, services, or recurring subscriptions, the key is ensuring profitability over time.

For instance:

• If a new customer costs $100 to acquire and has a CLTV of $500, paying your affiliate the full $100 still leaves you with $400 to generate long-term profit.

• Affiliates should also earn a percentage of any backend sales they influence. This incentivizes them to bring in not just any customer, but a high-quality, high-value customer.

Now that we understand the strategy behind affiliate payouts, let's examine how much businesses are generally paying their affiliates and how you can refine your approach.

Average Affiliate Payouts by Industry

Affiliate payout rates can vary dramatically depending on your industry and business model. Here’s a breakdown of typical rates based on industry standards:

• E-commerce: 10-20% of the sale price is common for physical products. This amount may be lower if your profit margins are tight.

• Digital Products: Affiliates typically earn 30-50% commission because digital products often have higher profit margins.

• Subscription Services (SaaS): These plans often offer recurring commissions ranging from 30-50% for each monthly payment made by the referred customer.

• Membership Sites: 20-40% of the membership fee is typical, depending on the upfront value of the subscription.

• High-Ticket Sales (e.g., online courses, coaching services): Affiliates can earn 40-50% given the high price point and large profit margins.

While these benchmarks provide a general guideline, every business is unique. What works for an e-commerce brand selling skincare products won’t necessarily apply to a SaaS company offering project management tools.

How to Create an Affiliate Payment Structure

Here’s a step-by-step approach to crafting a compensation plan that works for both you and your affiliates:

1. Determine Your Customer Acquisition Cost (CAC)

How much does it currently cost you to acquire a customer? This number is crucial in assessing how much you can afford to pay affiliates. Include all costs related to marketing, advertising, and sales.

2. Calculate Your Customer Lifetime Value (CLTV)

How much will the average customer spend with your business over their entire lifecycle? This figure is your north star for affiliate payouts. Affiliates bring you customers, but the backend should ensure profitability.

For example:

• If your CAC is $100 and your CLTV is $500, you could pay your affiliates up to $200 ($100 for acquisition + additional rewards for backend sales) and still make a profit.

3. Offer Competitive Upfront Commissions

Affiliates need immediate rewards to stay motivated. Offer a generous percentage of the sale price for the initial purchase. Remember, you’re competing with other affiliate programs for their attention.

4. Provide Recurring Commission Opportunities

For subscription-based businesses, recurring commissions can be a game changer. Affiliates earn a percentage of each monthly payment, creating a passive income stream for them and securing long-term value for you. This can be the single best motivation for affiliates to stay with your program.

5. Reward Backend Sales

Affiliates should share in the success of any upsells, cross-sells, or repeat purchases made by the customers they refer. This not only boosts their earnings but also encourages them to send you high-quality leads.

6. Creating Incentives for Top Performers

Be cautious offering performance tiers for affiliates. For example, some vendors will set up something like this:

• 20% commission for affiliates sending 1-10 sales per month.

• 30% for 10-20 sales.

• 40% for 20+ sales.

Performance incentives may push affiliates to increase their efforts, however these can also deter affiliates who are unsure of their success with your products or services, or those with smaller networks.

Remember, customer acquisition is your goal, and though you want to incentivize affiliates, you don’t want to discourage them. Customer acquisition cost is paid by the affiliate when an affiliate brings you a customer. Your commission is fixed.

He may have paid $100 to acquire that one customer that you paid him a $20 commission to attain. You want him to strive to lower his costs, while providing enough incentive to keep him working on your behalf.

Educate Your Affiliates for Long-Term Success

Paying affiliates well is only part of the equation. To truly motivate them, you must emphasize the long-term benefits of your affiliate program. Show affiliates how your program can lead to robust earnings through backend commissions and recurring revenue opportunities.

For instance:

• Share case studies of affiliates who earn significant passive income through your program.

• Provide training on how to effectively market your products or services.

• Offer resources like marketing templates, product guides, and sales tips to make promoting your brand easier.

When your affiliates understand the potential for ongoing income beyond a single sale, they’re more likely to commit to your program and bring in high-quality customers.

Common Mistakes to Avoid

While setting affiliate payouts, avoid these pitfalls:

• Underpaying Affiliates: This will lead to poor-quality referrals and disengaged affiliates. Remember, “he who can pay the most for a customer, wins.”

• Failing to Track Backend Sales: If affiliates drive backend revenue but don’t earn a cut, they’ll lose motivation.

• Lack of Transparency: Affiliates value clear compensation structures. Ensure your program’s terms are straightforward and easy to understand.

• Lack of Marketing Materials: Affiliates need materials to help them best represent your products. These should include approved graphics, ad copy, email examples and other forms of marketing collateral that best represent your products and services. When you have special program launches, include material for your affiliates in their back office and notify them of the upcoming special program launches.

Final Thoughts on Affiliate Compensation

Affiliate marketing is a powerful growth strategy, but success hinges on how well you pay and support your affiliates. By focusing on Dan Kennedy’s principle—paying what it takes to win customers—and emphasizing long-term profitability, you can create a program that benefits both your business and your affiliates.

Remember, high-quality affiliates don’t just “happen.” They’re motivated by clear, competitive payouts and the promise of an ongoing, profitable partnership.

If you’re ready to take your affiliate program to the next level, start by evaluating your current payouts and CLTV. When you’re confident in your numbers and messaging, you’ll attract affiliates who can truly drive growth.

One of the best affiliate programs that we’ve had the pleasure of recommending is for The Secrets of Success. They have programs that pay 100% signup commission plus 40% long term on a subscription program with a very high retention rate.

As with most quality affiliate programs, there is no cost to sign up for the affiliate, and there are promotion resources available. The best thing of all is that this program is applicable across all niches, as it’s all about personal and professional success.

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