It’s a tough sell, but sometimes there’s no other way. Between a reeling economy, increasing expenses, and emerging competitors, there is often inadequate profit derived from making a sale. In cases like these where something has to give, decreasing your affiliate commission rate may be a necessary step in opening up additional margins for revenue.
Of course, affiliates derive a good portion — if not all — of their income from their commissions, so lowering the amount that they make off of your product will likely be unwelcome news. Here’s how to decrease your affiliate commission rates without losing one of your greatest marketing assets.
Reasons for Lowering Your Affiliate Commission Rate
Before we go into how to decrease your affiliate commission rate, it’s essential to know that doing so is a significant step. If affiliates become too upset because their commission rates have been cut, they may stop promoting your product — or even promote for a competitor. A productive affiliate is a terrible asset to lose, so think long and hard about reducing their rates.
There are legitimate reasons for decreasing your affiliate commission rate. A few of them include:
- A struggling economy. Affiliates are business-minded too, so the realities of economic downturns are not lost on them. If a recession or depression is crippling your company, you will likely have no choice but to lower your affiliates’ rate.
- Increased expenses. From rising overhead to production costs, your business will inevitably need to restructure its budget occasionally. Affiliate marketing programs are considered an expense. If nothing else can be cut, they may be a place where companies can tighten their belt.
- Price changes. If you plan on raising the price of a product, an affiliate’s profit from their current commission rate will increase too. If the amount they’ll make off of your commission is unnecessarily high, reducing their rates may be appropriate.
- Seasons and events. While seasonality often causes customers to be more eager to buy, a business may slow down for some at certain times of the year. When changing seasons cause your business to slow down, reducing your affiliates’ commission rates could open enough revenue to endure the drought.
- Success. A successful product may cause you to incur increased traffic-related and marketing expenses, which can weigh your revenue structure down. This is a good problem to have, but it may mean that your affiliate commission rates should be reduced.
Tips for Affiliate Managers on How to Decrease rates
Now that you understand why your affiliate commission rates may need to drop, you can take the proper approach to inform affiliates that their percentages may fall. Here’s how to decrease your affiliate’s commission rate without losing them altogether.
Communication is a critical part of breaking bad news to anyone. It should come as no surprise that openly stating the reasons for lowering your affiliate commission rates will help them accept the change.
If your production or importing costs have gone up, tell them that’s the reason. If the economy is struggling, let them know that’s why you need to conserve. As business professionals themselves, your affiliates will likely understand these fluctuations and will be more receptive to the news if they understand why it’s happening.
No one likes to receive bad news from an impersonal source, so corresponding with your affiliates through the closest medium possible will help soften the blow.
Avoid using generic mass emails and send individualized messages if possible. Other means of contact could be affiliate-specific social media groups like Facebook or Linkedin, but do not use public forums where affiliates may find out from another source before they hear it from you.
To keep your affiliate marketing program credible, be sure to update any changes in affiliate commission rate terms. That way, new affiliates won’t be put off by finding out that the conditions were not what they were expecting.
Offset the Loss
Even if you decrease your affiliate commission rate, there are multiple ways of making it up to your affiliates. Here are a few ideas:
- Give a net gain. Like we said earlier, it may be appropriate to lower your affiliates’ rates if the price of your product changes. For instance, if a product was once sold at $20 with a 25% commission rate and the price was being raised to $40, an affiliate’s commission rate could be cut in half, and they would still break even. Moreover, if their commission rate were only lowered to 20%, they would still be gaining a three-dollar profit — a rate cut some affiliates would gladly accept.
- Products and incentives. Freebies make everyone happy. Giveaways could be an excellent way to make up for the losses your affiliates may be taking. By giving away additional products or providing added incentives for milestones reached, your affiliate may tolerate the rate cut more willingly.
- Cut proportionately. Some affiliates bring your company more business than others and should be treated accordingly. Cutting your affiliates’ commission rates uniformly may drive away your best ones, so consider reducing the rates of your best ones less than your minor ones. This can also incentivize greater sales efforts from minor affiliates but has the potential to backfire if too many small ones walk away. Weigh your options carefully.
Use some of these strategies, and your affiliates may not feel like they’re losing out at all.
Tread Lightly When Lowering Affiliate Commission Rates
Not only do your affiliates make their living off of your commission rate, but an affiliate system is also one of your company’s greatest low-cost, high-return marketing assets. That makes reducing your affiliate commission rates a risky decision. By communicating with affiliates clearly and offsetting the loss, this can be done while still retaining affiliates.
At LeadDyno, we understand the value of an affiliate marketing program that can adapt to the company’s needs. Our affiliate commission software enables you to set and adjust affiliate commission rates, manage payments, interact with affiliates, and more.