Re: Is 50% commission to much to offer?

From: Georg Birgmann <g.birgmann_at_netway.at>
Date: Tue 26 Sep 2000 19:52:08 -0500

NEVEN PRASNIKAR <artplus_at_artplus.hr> WROTE:
> My company is about to launch some advertising
> specialties line of product based on software
> productivity tools. We're going to offer some
> customized and cobranded software products through
> affiliate network and were thinking about 50/50 revenue
> split with our affiliates...

Dear Neven Prasnikar,

Let me introduce myself: I_m 27 years old, and in the
management consulting business since six years. The
small company I work for has specialized in consulting
medium sized technology companies, and I_m responsible
for off- and online marketing issues in our consulting
program.

It_s all a matter of explanation: If You simply say
"You_ll get 50% of our sales" other webmasters (like
myself) maybe become a little cautious and will doubt
the honesty of Your affiliate tracking methods.

BUT: If You explain to them, that Your profit margin is
high enough, so that You still profit, even if You pay
out 50% to them, trust in the affiliate program might
increase a bit.

However, I do not know what software You sell (will
look at Your website later today!), but if You can
afford to pay affiliates 50%, it looks like Your
profit margin is incredible, and therefor: Don_t You
think You could do something about Your pricing
policy? Lowering Your product price may have some
effect on sales numbers!

Another effect of lowering commissions: If You pay 50%,
a potential affiliate might think "He/she_s still
earning money, the product is too expensive and will
not sell!". If You only pay 30%, more people will
consider Your affiliate program (that_s paradoxical,
but true)

Do You provide trial versions of Your software? I have
never bought a piece of software online, without being
enabled to try it for free! Offer a trial version! So
You have to guarantee, that customers referred by an
affiliate, who sign up for a trial version, will earn
the affiliate the commission even if the purchase is a
month later.

If You do all this (trial version, maybe lowering the
price, giving commissions even after trial) You might
find enough affiliates, even if You only pay out 30%
or so.

Calculation:

Let_s suppose Your product is $ 100. Now You (want to)
pay 50% commissions - so let_s suppose Your gross
profit is $ 75, Your cost of $ 25 representing 75% and
25% respectively. That means earnings of 25$ on Your
side, for every $100 spent by a person referred.

If You lower the price to $ 80, and offer 30%
commission, the result is the following:

Total: $ 80
Cost: $ 25 (same as above)
Gross profit: $ 55
Commission for affiliate: 30% = $ 24
Earnings on Your side: $ 31

You see, $ 24 per lead is a pretty high, so finding
affiliates should not be too difficult, and 30% is
more reasonable percentage. If You lower Your price by
10% and offer a trial version, Your sales should go up
automatically. Although You lower the price You earn
more on each and every referred customer.

Best wishes,

G.B.





Received on Tue Sep 26 2000 - 19:52:08 CDT