Now, that you’ve decided you want an affiliate program and how you’re going to pay your affiliates (pay-per-sale, pay-per-lead or pay-per-click) there are some other things you need to think about regarding getting your affiliates paid for their efforts.

Let’s get real for a minute.

You want to  make the most attractive affiliate program possible and make sure there’s plenty of profit left over for you.  That balance is important and you want to make the right decision from the beginning.

However, you also want to be fair to your affiliates.  They will give you a far further reach than you would have on your own.

Typically, for a digital product (report, ebook, audio, video, pdf, etc) you should pay between 50-75%  and I would even say that in certain instances you should even pay 100% (think list-building).

If you’re offering affiliate commissions on a service (Virtual Assistant, Graphics, Web Design, etc.) then think about how much you’ll actually make after the commission (referral fee) has been paid and if that’s enough for your work (don’t undervalue yourself!)  Also, think about the fact that you may outsource some of the project.  Is there enough in your budget to pay the affiliate, the people you outsource to and yourself?  Price your services accordingly.

You definitely don’t want to discover you’re paying too much and then take away from what you’re paying affiliates and alienate them. If you aren’t 100% sure of your numbers, err on the side of caution and start by paying your affiliates less. It’s easier to give them a raise, which will likely be well-received, than a pay cut.

Having said that, I’d aim for somewhere between 10-20% commissions on a service based business.

How Much Should You Pay Your Affiliates?

To determine how much you’ll pay, you’ll want to start by looking at your own numbers. But first, let me explain some important terminology. And please, if some of this seems too complicated, just read it through and take some time to absorb it. It will be old-hat terminology to you in no time.

Cookies

Most affiliate programs are regulated by cookies or some other similar technology.

This simply means that a referred visitor from one computer (your affiliate) is tracked and if that same visitor returns later to buy something, the referring affiliate will get credit for that sale.

In many affiliate program systems, you can set how long a cookie lasts.

Some affiliate programs don’t offer any type of cookies and unless, you have an amazing conversion rate (i.e. a lot of your visitors end up buying your product), I wouldn’t recommend this as most experienced affiliates will look for programs with a fair cookie system.

Some affiliate programs use 30-day cookies, 3 month cookies or even lifetime cookies. The decision is up to you. As a standard, I use lifetime cookies as selling point to affiliates. After all, most people don’t buy on their first visit to your website. If an affiliate refers someone to my mailing list and that person buys months later, I think it’s fair that affiliate gets credit.

Another thing to consider about cookies is whether the last referring affiliate or the first referring affiliate gets the sale. Let me give you an example. If Jenny Affiliate recommends your product today to a first-time visitor, she is the first referrer. If Johnny Affiliate send the same visitor to your site three months later and the visitor buys your product, Johnny Affiliate is the last referrer.

In my opinion, the only fair way to do this is to give credit to the last referrer for a couple of reasons:

o    It is most likely that the last referrer who really clinched the sale for you as they were the last person to tell your customer about your product.
o    Some affiliates may want to give incentives such a free ebooks, etc. for buying through their link. A last-in system helps assure that the sale gets credited to the affiliate offering the bonus.
o    Unfortunately, there unscrupulous affiliates out there who insert cookies into computers through spyware without the computer user knowing. Although this doesn’t completely get rid of the problem, allowing the last referrer to get the sale, will usually guarantee the referral was made by a more honest, hard-working affiliate.  You may never come across an affiliate using spyware in your program, but it is a problem to be aware of.

As an affiliate program owner, you need to decide who will get the credit for the sale – the first or the last. In some affiliate systems, this is already predetermined, so you will need to choose a system that allows you the option you want.

•    Lifetime Customers: A lifetime customer simply means that once the affiliate refers a customer, they will continue to receive commissions on any other products that customer purchases. Lifetime customers can be used with or without lifetime cookies.

Not many affiliate systems offer this type of option, but here are some things to consider:

o    If you offer lifetime customers, that means newer affiliates that recommend a certain product to your existing customer will not get credit for the sale. Let’s say Affiliate Johnny now has a lifetime customer with you and you release a new product. Affiliate Johnny doesn’t bother to promote your product, but Affiliate Jenny does and the customer Johnny originally referred, buys the new product through Jenny’s link. Is it fair that Johnny continues to get paid when Jenny did the hard work?

o    Many affiliates will work for you at first, but then they stop being active. Should they continue to receive commissions? This is also an issue with lifetime cookies. If you choose this type of situation, you may want to have a system in place in your program that doesn’t allow lifetime sales for affiliates who are not actively promoting your program.

o    This option can inspire loyalty in your affiliates, particularly if you only offer lifetime commissions to active affiliates.

So, let’s get back to determining your payouts. Here are the things you’ll need to consider:

•    Pay-Per-Sale: Determine your profit per product. If you have multiple products, this can get tricky, but generally speaking a single affiliate program has one set commission. You’ll find very few affiliate programs that have different commissions for individual products. Therefore, you’ll need to understand your overall profitability. If you sell information products, instead of consumer products, you’ll likely have plenty of room for profit and can pay your affiliates more.

How much you can afford to pay-per-sale will also be affected on the following factors:

o    Will you offer lifetime cookies/customers?: If you offer longer-term cookies or lifetime customers, you’ll have to take that into account in determining your profits. If future sales will require you to offer a commission, you need to ensure that you make enough profit off each sale.

If you have shorter-term cookies and don’t offer lifetime customers, you can certainly afford to make more commission on the initial sale. You may lose some profit on the first sale, but once you have a customer, you can continue to sell to them over-and-over again. So giving your affiliate more commission upfront may give him more incentive to promote your product more readily.

You may also see, on occasion, affiliate programs that offer 100% commissions to their affiliates. This is usually done for the first sale of a low-ticket information product and then the customer is offered an upsell to a more expensive product. The affiliate is not given a commission on that second sale.

There are also programs where you can offer affiliates 100% commissions, but the purchase actually goes through the affiliate’s PayPal account, so they are paid instantly.  Again, this is for information products and in this case, digital downloads only. This is an interesting concept, but you may run into problems with refund requests and customer.

I mention those interesting options of giving 100% on the first sale, not because I specifically recommend them. I also understand that you may not sell information products, but I think the existence, and popularity, of these types of affiliate programs illustrates the value in building a customer list. Satisfied customers will buy more stuff from you. If you have to give up a bit of profit in the beginning to motivate your affiliates, it might be worthwhile.

Just one thing to think about is that affiliates who are looking to promote you for the long-term might be more interested in lifetime cookies, lifetime customers and steady commissions.

In my experienced opinion, affiliates who are lured by huge commissions and payments directly into their PayPal accounts aren’t always in it for the long haul. They want to make a quick buck and move on. It’s something you’ll have to decide for yourself or try out to see how your affiliates respond.

•    Pay-Per-Lead: If you set up an affiliate program to build your mailing list, you’ll want to determine the “per subscriber” value for your list. For example, if you have a list of 10,000 subscribers, determine how much you make from your list in a year (or shorter period if you haven’t been running the list as long OR if your subscribers tend to stay on your list for a shorter period of time).

For example, if you made $18,000 last year from your 10,000 person list (and that’s more than doable. If you aren’t doing it now), that means your subscriber value per year is $1.80. If you paid your affiliates $1.00 per lead and they brought you another 10,000 new subscribers, you’d still make an ADDITIONAL $8000 profit in that year.

If you don’t really have a list yet or are really just getting started, choose a conservative amount to start with. You can always increase your pay-per-lead rate as you’re able to determine profitability. Don’t worry about the big-guys offering $20 per lead with life insurance. You can stand out by:

o    Giving great information to the people referred to you. Affiliates are always pleased when their referrals get value from their recommendations. When affiliates promote life insurance leads, all they give to their readers is a high-pressure sales pitch. Take pride in your great offer.
o    Having highly-targeted information. If you have a mailing list for parents of babies, it’s easy to find very targeted websites to join your mailing list. Your affiliates will also appreciate having such highly-targeted information to promote.
o    Having a good conversion rate. I don’t know if you’ve tried those higher paying PPL programs, but they don’t always convert very well. You can send a hundred or more visitors before you see any leads. If you offer a lower rate, but have a good conversion rate, your affiliate program can be more attractive.
o    If you combine the pay-per-lead and pay-per-sale, you’re ahead of the game. If affiliates get paid per sale IN ADDITION to pay-per-lead, it can be very attractive and the per-lead rate need not be outrageously high.

If you’re going to use pay-per-lead to promote a service-business, you’ll need to do some number crunching/estimation as well. You’ll want to look at how much your average customer spends with you and how frequently you convert prospects to leads and go from there.

•    Pay-Per-Click: If you’re going to use pay-per-click to a sales page, how much you can afford will be determined by your sales conversion rate and overall profits. If it’s to get them to sign up for more information or to get them on a mailing list, you’ll want to look at your sign up conversion and per-subscriber/lead value.

Just remember with the rising rate of click-fraud and sophisticated and automated systems dedicated to clicking links illegitimately, a pay-per-click affiliate program may not be something you want to implement. I would suggest benefiting from the click fraud detection systems (which are not fool-proof either) of Google or Yahoo and setting up a pay-per-click campaign with them. Just make sure you track your campaigns to ensure your profit grows.