Compensation for Advertisers

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Catch 'Em, Pay 'Em, Keep 'Em

In March 2004 eBay announced that a publisher in its program had earned commissions topping one million dollars for three consecutive months. Interest in its program skyrocketed afterwards, providing yet another example of the clearest trend we've seen in affiliate marketing: that nothing motivates publishers like - you guessed it - money. Cash will always be king in performance marketing.

We've also seen, however, that dollars in don't necessarily equal dollars out. The way you pay makes a huge impact on publishers' behavior and ultimately your returns. Catch and keep publishers by creating a balanced payout structure of tiered commissions, incentives, bonuses and contests.

"Structured relationships, scaled to performance, take away the benefits for affiliates of 'program hopping'...and conversely, progressive commission structures encourage affiliates to become better long-term partners with retailers in the hopes of grabbing the carrot of increasing commissions," reports Jupiter's 2005 study "Affiliate Marketing: Developing a Solid Affiliate Base."

So, let's go over Commission Junction's five steps to developing a payout structure that will catch 'em and keep 'em:

Decide what you can offer.
Give publishers rewards they'll respond to.
Divide publishers into groups and set different goals for each.
Determine the best timing for incentives.
Measure success.

1. Decide what you can offer. Payout planning begins with the evaluation of how much you can pay publishers based on the revenue you expect to earn from each transaction. Start by calculating the life time value (LTV) of a customer if you are running a leads-based program, or determine what your margin is on a sale. Use these figures to determine a benchmark commission rate. Pad your base commission estimates with some wiggle room for extra payouts in the form of performance incentives, contests and bonuses. 20 percent extra is a good rule of thumb, and perhaps even more for your high-volume publishers as they reach high performance tiers.

The rate you decide upon will also be contingent on your program's growth strategy. An aggressive market penetration strategy will require higher total commissions and, necessarily, a lower profit margin. However the higher commission rates will really help kick-start publisher activity, especially if those rates are better than your competitors within the CJ Marketplace.

2. Give publishers rewards they'll respond to. In step one, you calculated how much you could offer, but before you determine how to parse out payments, keep in mind Jupiter's findings regarding what publishers respond to most (in order of impact):

Progressive commissions (payment per transaction increases with volume)
Cash bonuses
Prizes to top publishers (contests)

Publishers also respond to perks such as: custom program terms, access to trademarked keywords, custom creative and tools.

Remember to describe the commissions and incentives in a way to which publishers can relate. When you announce a performance incentive (described in more detail in Step 3) state that the incentive is a percentage based on the total commissions for the month. Some advertisers make the mistake of basing incentives on gross sales which, though important to you, doesn't much concern a publisher whose focus is on commissions.

3. Divide publishers into groups and set different goals for each. However you structure your payouts, make sure that you plan incentives to touch each publisher segment. New, mid- and high-performing publishers should all have a compelling reason to step up performance. In order to set up compensation structures that will motivate across the board, divide publishers into groups based on performance (see "How To" Topic 1 below for details). After your groups are created, set different, yet inspiring and attainable goals and performance incentives that will kick in at each level of performance for each group. See "How To" Topic 2 below for details on how to manually bonus a publisher.

"How to" Topic 1: Use the CJ Account Manager™ to create your groups so you can set different incentive benchmarks for each group by 1) running a performance report, 2) downloading a spreadsheet with all your publishers' activity for the last three months, 3) dividing your publishers into obvious performance groups, 4) saving those groups within the CJ Account Manager and 5) setting different performance incentives and tiers for each group.

"How to" Topic 2: Incentives normally take up to 50 days to reach a publisher. If you'd like to bonus a publisher so they can receive payment more quickly, go to your CJ Account Manager and 1) click on the Run Reports tab, 2) Run a transaction report, 3) click on the Enter Manual Transaction button and 4) Enter the PID and bonus amount.

So don't just take our word for it, look at these examples of goals and incentives that have succeeded for Commission Junction advertisers in the past:

New publisher incentives are perfect for activating publishers in your program. One advertiser offered new publishers a one-time $50 bonus for the first ten $10 leads they drove. This helped get new publishers "over the hump."
A publisher that drives an average of five leads per month could have an incentive kick in for driving seven. The group of publishers who average from 10 to 13 sales could be assigned a goal of 17.
As mentioned in Step 1, work 20 percent of the base commission into the incentive. So, for example, if you set an incentive benchmark at 20 computers and if selling 20 computers earns $200 in commissions ($10 per computer), then offer a $40 bonus (20%) for reaching that 20 computer benchmark.
Already a program sought out by publishers because of its reputation for good commissions, performance incentives and regular communication, 1-800-Contacts hosted a wildly successful contest in which the five publishers, with the greatest increase over their individually set goals, would receive prizes of $3,000, $1,500 or $750. Growth from the contest was sustained by personal contact and mid-month check-ins from 1-800-Contact's diligent account manager. He cheered on publishers with calls saying things like, "You're only five sales away from your goal with only ten days to go! Keep it coming!"

4. Determine the best timing for incentives. In our experience, contests or special incentives work optimally when used no more than quarterly or semi-annually. This keeps "special" offers more fresh, appealing and likely to motivate action. In order to manage the workload of running a contest or bonus program, stagger these incentives to a different publisher segment each month, rotating through all groups (low-performers in January, mid-performers in February and so forth). Also, stick to calendar months (i.e. May 1st to May 31st) for contests so that reports sync up easily.

5. Measure success. What types of results define successful incentives and contests? For contests, we find a five percent response rate is typical. That might seem a bit low at first glance, but if even three out of 100 publishers invited to a contest decide to participate and meet the goal, you discover a "diamond in the rough," or just one "hits it out of the park," it's well worth your investment. Again, the idea is to bring up the performance level across all publisher segments - small incremental rises across the board do wonders for a program's bottom line. As for incentives and bonuses, you may pay them out on a one-time basis, but many publishers will continue to leave your campaign up on their sites. This is why we recommend that your returns on any contest or special incentive offering be calculated over a three-month period.

And don't forget these final crucial tips. If you run a leads-based program, make sure you can motivate more leads without rewarding for a higher volume of lower quality leads. Turn up leads without turning down quality.

Also, keep in mind that incentives and contests should not be used in the place of competitive base commissions. After all, you want publishers to work hard for you for more than just one month, and if activity increases in response to a contest, you want to make it worthwhile for a publisher to continue driving the increased amount of traffic. Maintain increased performance through regular contests, incentives and personal follow-ups with your publishers.

Celebrate your payoffs. So you've applied the suggestions above and now you're a winning advertiser whose well-structured program combines tiered commissions, incentives, bonuses and contests. The graph below illustrates how your savvy is lifting the bottom line. Can you see that Commission Junction advertisers who offer the most program terms and performance incentives are also those with the highest earnings (as measured on a scale of 1 to 5 bars corresponding to their Network Earnings Rating)? In fact, advertisers with a one-bar Network Earnings Rating use, on average, one payout term or performance incentive, while those with a five-bar rating use, on average, nearly 65 different payment terms across product categories and performance tiers - final proof that a balanced payout structure catches and keeps your publishers best.