Are you interested in starting an affiliate marketing business, but have no idea what commission model to choose? There are multiple models to choose from and they all have their strengths and weaknesses. In this article, we’ll share the basics of each commission model so you can set up your affiliate marketing business the right way.
In 2020 alone, the affiliate marketing industry increased by 10%. Therefore, there’s a lot of opportunity with this type of business model. Choosing the right commission structure ensures that you understand the payment terms and how to best grow the business for the highest revenue streams.
PPC (Pay Per Click) is a commission model where users are rewarded for getting visitors to click a referral link. The advantage of this is that it’s far easier to get people to click on a link instead of generating a sale or filling out a form.
However, the drawback of this model is that you will typically receive a much lower commission than most other models. This means that you’ll need to generate a lot of clicks to get the same amount of money as getting a sale with others.
This type of strategy relies on generating a large amount of traffic – especially if the conversion rate is low for each click. The amount of money that you make also varies based on your industry. Markets like finance and lawyers will lead to more money per click compared to others.
The PPL (Pay Per Lead) commission model means you’ll need to generate leads in order to receive a reward. Here’s the type of actions users must take for you to receive a reward:
- Free trial: you’ll need to get users to sign up for a free trial in order to get a commission. Many online companies offer free trials nowadays, so it’s not hard to find one offering a commission. Usually, the quality of the free trial offers will determine the conversion rate of getting sign ups.
- Email sign up: some companies may reward you for each new email subscriber you generate. That’s because companies want to grow their email lists in order to get more sales.
- Survey: get people to fill out a survey and you will receive a commission. The length of the survey plays a role on how many people will end up getting to the end. Also, you need to ensure that the right kind of traffic fills out the surveys.
3. Revenue Sharing
The revenue sharing model allows users to receive a commission on other purchases the lead makes. Therefore, if you generate loyal customers that buy a lot of products and services, then you’ll get a large commission.
There’s no predicting how much money a specific lead will spend with a company. However, you can increase your chances by ensuring you get high-quality traffic. Pre-selling the leads will help get them in the right mood to buy. This can include educational videos or the advantages of buying the products.
This type of commission model is applied when you generate purchases with a subscription. It means that you can receive a large amount of money per lead if they stay around with the subscription for years. However, it ends up being a game of averages.
For some products, the average number of billing cycles a person stays for might be 3 while for others it could be 12. As with many affiliate marketing models, it all depends on the quality of the company and the nature of the products.
5. Two-Tier Commission
This type of affiliate marketing commission model provides a reward for generating new sales and for subsequent sales the same buyer makes. This is great for affiliates that want to get sales for taking the time to get more leads and also for attracting buyers that turn out to be loyal customers.
However, you need to understand the details of the two-tier commission model to ensure that both tiers are rewarded fairly. Hence, you can compare the reward structures of different companies to find the best one for your business.
The PPS (Pay Per Sale) model, as the name suggests, relies on the affiliate getting money by generating a sale. Amazon is one of the biggest companies offering this type of commission model. However, this type of model offers low commissions with physical products. That’s because some physical products have low profit margins.
On the other hand, you can get much higher commission percentages when promoting digital products. Some vendors even offer 100%, which means you get all the money from the sale. The vendor understands that they will get more affiliates using this strategy, and they can get bigger purchases on the backend.
7. Multi-Level Marketing
The multi-level marketing commission model allows you to make money from the sales you generate and those generated by other affiliates you attract. Therefore, you must develop the skills to get other affiliates to join the program.
The top affiliates earning the most money with multi-level marketing must acquire hundreds of others. That’s because many affiliates may not generate much sales, while others may make a lot more. Hence, you must get lucky since you cannot predict who follows through with the business and who won’t.
To conclude, there are many commission models you can use to start an affiliate marketing business. Make sure to select a commission model that you feel is fair and rewards the effort you put into the world.
Also, consider trying out every commission model to learn what they include from first-hand experience. This means you can have a comprehensive affiliate marketing business that can grow through different types of traffic.