Electronic Commerce Affiliate Business Models and Commissions

Types of E-Commerce Business Models

As you know, there are a number of different types of e-commerce business models.  There is Customer to Customer,  Customer to Business, Business to Business and Business to Customer.  And each has different characteristics  associated with the model such as drop-shipping, wholesaling and warehousing, white labeling, subscription based and so on.  But the one thing each affiliate program must include to acquire, well affiliates, is some kind of commission, finders fee or bounty payment provision.

Commissions

For sake of simplicity, lets call this portion of an e-commerce business model the commission rate. Before launching an affiliate program, the primary merchant should establish their default commission structures. This is the base commission rate that will apply to all standard affiliates. They may customize terms for individual affiliates, but your base commission rate dictates how affiliates that do not have negotiated terms are paid.  These are the terms most affiliates are paid their commission.  Affiliate marketing is one of the most cost efficient marketing channels, provided that margins are properly managed. There are four points to consider when determining your ideal commission structure.

Is It A New or Existing Customer

Normally new customers have more value than existing customers.  As you know, this is because new customers will add new customers to your customer base and that’s a very good thing.  And it normally takes more time, effort and naturally cost to acquire a new customer because you have to build that credibility and trust. Since new customers are more valuable over time, it is logical that a merchant may pay a premium for an affiliate who attracts a new customer. For example, perhaps the entire merchant site is in English, with no exposure to the Hispanic market.  An affiliate may translate the copy into Spanish and target that market, thus bringing new customers to you. Translating text is expensive and time consuming. So increased commissions for those new customers would help offset the affiliate’s initial investment.

Products Are Often Priced With Different Profit Margins

If  an e-commerce site has many products, the margins will vary. Some sites may elect to create a commission structure that varies among products or even product categories.  This kind of arrangement may be considered more fair by the participating affiliates, but managing the structure and communicating the pros and cons to the affiliates may be challenging.

Lead Generation

Some electronic commerce sites offer their affiliates payment for leads.  This is a bit different form the traditional retail based business.  Some merchants are willing to pay their affiliates to simply have a potential customer ask for a cost quote for a building repair, insurance policy, cleaning service, tec.  In this case, the merchant is hoping that the customer lead provided by an affiliate will result in a sale.  Often, businesses realize they will make a sale if they are successful in generating enough customer traffic to at least inquire about their product of service. However, this kind of payment system may result in more work for the merchant.  It is possible an untrustworthy affiliate may generate leads by simply getting disinterested buyers to fill our a form on a lead sheet, but actually the lead has no intention of making a purchase.  To implement a fraud detection program to monitor the affiliate may be cost prohibitive.

Incentives for Sales Volume

Some merchants are willing to increase the volume of their commission to hit promote new products, target slow moving, inventory or even to hit sales goals.  In this case, an affiliate may be in line for a bonus, or higher commission target on key products, or sales events.  Again good planing by the merchant and a clear understanding by the affiliate is important to make this kind of arrangement work.

Affiliate Equality  

So, those are the various approaches used to compensate affiliates that are typically used in today’s market.  From a typical business point of view, they are pretty understandable.  The merchant wants to sell their product with the highest margin and lowest commission so he can use affiliate labor to maximize his profit.   Believe me, I get it.  But that is not what my business model is based on.  One of the business opportunities I want to engage those people trying keep up with their bills, obtain extra income to pay for child care, health insurance or maybe build a small nest egg for retirement is to be an affiliate for my e-commerce site at http://WindInOurSales.com. While it just simply a typical e-commerce site that you can  be an affiliate for, this one has a couple of differences, such as:

  1. All profits coming to the site are split evenly 50/50 between the site owner (that’s me) and an affiliate who joins.
  2. This site allows customization of which items are to be promoted on the site, set prices and create special sales events.  All of these will be detrmined by the team of affiliates.  I will have one vote like everyone else.
  3. The site allows adding any items  to the site that are not in the merchants inventory.  For example, if you have a special item, or a supply of items you think can sell well on the site, all sales of that item you introduce will result in a majority of the profit (70%) to be earned by the affiliate who introduced the item.

There are more advantages that I could share with potential affiliates, but let me take just a moment to explain why I want to conduct business  this way.  To be brief, I believe that most Americans have been taught to work for an employer and that if you work hard and are loyal then good things will happen.  I’m not saying that is not true, but I do know that there is an income inequality problem in our country and its getting worse.  If more employers shared their profit with more employees, maybe we could begin to mitigate this growing problem.  All I know is I want people to be treated fairly and realize there is an alternative to just working for someone else.  I’m not saying your should quite tomorrow or ever, but I am asking to look at an alternative that may help you financially by looking into a business opportunity that is projected to grow rapidly in the future.

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