The 3 Most Tried and Tested Affiliate Compensation Models

If you’re wondering how to get your affiliates to passionately promote your products and services, you should probably start by examining how you’re paying them. The affiliate compensation model you choose will impact the motivation and incentives for affiliates and there is no shortage of options to choose from.

Commissions are the carrots that you can use to attract and retain the best affiliate partners. You’ll need to make sure that these carrots are attractive enough to generate interest while still preserving your budget and allowing you to turn a profit.

There are multiple affiliate compensation models that you can choose from to achieve this balance, and there are even instances where you might want to mix several compensation models to satisfy your and your affiliates’ needs.

However, you won’t be able to make the best selection if you don’t understand all of the ins-and-outs. This article will explain how various commission structures work and provide some practical affiliate marketing tips that you can use to improve your program. Generally it is best practice to leave room for increasing commissions over time so you don't need to risk the consequences of reducing affiliate commissions.

Affiliate Compensation Model Options

Pay Per Sale (PPS)

PPS is far and away the most common affiliate compensation model for affiliate programs. This is due, in large part, to the fact that PPS is one of the easier compensation schemes to grasp. 

How PPS works

As the name suggests, you pay a commission for each sale produced by one of your affiliate referral links, which you can calculate as either a percentage or a flat dollar amount. Additionally, you’ll have to decide whether or not you’ll be offering that PPS commission as a one-time payment or an ongoing one.

For eCommerce businesses where you’re mainly selling products, dispensing one-time rewards will be the norm. For SaaS and subscription services, however, an ongoing payment system typically makes more sense. Subscription commissions don’t necessarily have to be indefinite, though, and you’re free to set term limits if that works better for your program and budget.

Why is Pay Per Sale popular?

Brands and affiliates alike love PPS for an affiliate compensation model because it’s straightforward. Beyond simplicity, though, this compensation model offers a few benefits to the brands that choose to employ it. There are four specific advantages you should keep in mind when considering PPS as an option:

• It’s flexible and scalable: Whether your brand is large, small, or in between, PPS will have a role to play that can scale as your business grows or your need diminishes.
• It can help boost productivity: As you analyze your numbers, you’ll start to see where you can make subtle improvements to boost sales, increase revenues, and lower costs.
• Pay Per Sale has excellent ROI potential: There’s little cost upfront and, since you only pay when a sale is made (and revenue is generated), your ROI on PPS should be fantastic.
• It generates more long-term business: PPS is focused on bringing in paying customers, which has a greater chance of yielding repeat sales than low-quality leads with only tepid interest in your brand.

PPS compensation is suitable for nearly every affiliate marketing program, given that, ultimately, every business seeks to generate more sales. There are a few details you’ll want to keep your eye on, though, to get the most bang for your buck.

Stuff you should watch for

Before you go all-in with a PPS compensation model, make sure that you’ve considered the following points:

• Start by calculating how much you’re willing to spend and creating a set budget.
• Performance is everything, so you’ll need to arm your affiliates with the training and tools that they need to consistently refer new sales.
• Affiliate link tracking is vital to PPS compensation, so be certain you have an accurate system in place to tally those numbers.

Watching out for these potential pitfalls and employing best practices will provide your brand with an advantage, should you choose to go with a PPS commission scale for your affiliates.

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Additional affiliate compensation models

PPS might be the most popular affiliate compensation model, but by no means is it the only one at your disposal. Other commission schemes of note include Pay Per Lead (PPL) and Pay Per Click (PPC).

When you’re paying per lead, you’ll be dispensing compensation to your affiliates for every conversion action they net you. These might be newsletter signups, downloads of a trial software program, etc. — you determine the parameters. Then you have your affiliates work toward whatever conversion action you wish to see more of.

The pay-per-click model, on the other hand, operates just as it sounds. You compensate affiliates for every click of their referral link that sends a unique visitor to your site — and that’s it. 

These additional models can complement something like a pay-per-sale commission scheme. Yet on their own, they aren’t as popular because there’s a greater likelihood they’ll only bring your brand low-quality traffic that won’t result in sales or long-term customers. 

Therefore, when using PPL or PPC models, you’ll want to be certain that you’ve taken the precautions required to prevent a deluge of fraud and fake leads.

Incentives and payment terms

Two final points you’ll want to keep in mind before setting up any affiliate compensation scheme are the inclusion of additional incentives for your partners and the particulars of how you’ll be delivering all of your payouts.

Extra incentives are a great way to supply your affiliates with some added motivation. You could do something straightforward, like boosting the commission percentage for affiliates who reach specific benchmarks, or you might prefer a non-monetary approach, such as gifting affiliates some of your products. 

The choice is yours, and you have plenty of latitude to experiment with different bonuses to see what works best.

As for payment terms, there are three things you’ll need to work out:

• Payment threshold: The minimum dollar amount an affiliate has to earn to trigger a payout. Avoiding large quantities of payments for minuscule sums will ease your admin and management burden.
• Payment frequency: How often you pay affiliates who meet the minimum threshold. This could be every two weeks, every month, or every quarter — it’s up to you.
• Payment method: How you send payments to your affiliates. You’ll want to settle on something easy to use and common, such as direct deposits or PayPal transfers.

With those points resolved (and your compensation model decided upon), you should be ready to reel in top-performing affiliates.

Wrapping up

Your affiliate marketing strategy should center on attracting high-value partners and keeping them happy. Money is the most effective way to achieve that goal, and understanding the most common models of rewards and affiliate compensation model and is a definite first step.

Beyond understanding these methods of compensation, however, you must be able to implement them properly. 

That’s where affiliate software like LeadDyno comes into play. LeadDyno makes it easy to craft your commission structure and issue payouts to your affiliates. Check it out to see how it can help you put all of the pieces of your affiliate program into place today.