SaaS Commission Structures

A Guide to SaaS Affiliate Commissions


There are several reasons why an affiliate program is great for your SaaS business. But you may be wondering how much you need to spend to make this happen.

There are many questions that come with commissions for SaaS affiliate programs…

How much do you pay affiliates?

How often do you pay?

In fact, how do I know when to pay them?

Unfortunately, there really isn’t a black and white, established industry standard to follow. However, there are a few things you can do to formulate a commission structure that can attract high-quality partners as well as align with your overall business strategy.

1. Calculate your operating costs and earnings

Start by calculating your profit margin to know what you can afford. Your profit margin is the starting point.

Then there are a few more calculations that will drive your program’s commission structure. Here are some other things to consider:

Cost per acquisition (CPA)
Cost per acquisition (CPA) is the cost of bringing in new customers. CPA measures the ROI of your marketing effort. This gives an idea of ​​how much is spent acquiring new customers and compares the effectiveness of different marketing channels.

Customer lifetime value (LTV)
Customer lifetime value (CPV) is how much a customer will spend on your business over time. This indicates how much you will earn from an affiliate promotion and is an important factor in how you allocate resources and budgets (in this case, commission for affiliates).

operating cost
Operational Cost is the cost of running your affiliate program. Generally, this is just the cost of an affiliate tracking software – but it can also include optional items like promotional materials or program management.

2. Determine your commission structure

Once you have that foundation, it’s time to start adjusting your program’s parameters. We’ve broken down the different factors involved here:

Conversions

Decide what you will reward affiliates for. What you choose as a “conversion” depends on what you want to achieve with your affiliate program.

The ultimate goal for most programs is to increase sales. However, conversion goals for SaaS businesses can vary.

For example, a SaaS business might see conversions as trial records and expect a certain portion of those records to be paying customers. In this case, they pay affiliates for leads or they turn into a completed payment when trials sign up.

Pay per click: Pay affiliates for the traffic they send to your site. This attracts potential customers to your site and helps expose the brand, but does not guarantee that they will become paying customers and your return on investment (return on investment) is harder to see.

Pay per lead: Pay affiliates for any communication they generate from relevant customers – contact forms, site registrations, mailing lists, etc. including. This is likely to bring in higher quality traffic that could potentially become paying customers; however, just like clicks, it does not generate a sale.

Pay per sale: Payment partners for referral customers who complete a purchase with checkout. For e-commerce businesses, selling is often the immediate purchase of a product; For SaaS businesses, it is purchasing a recurring payment subscription.

Paying for sales is the most common method and is one of the reasons affiliate marketing is so cost effective.

For Free Trials: If your SaaS business offers a free trial, you’ll probably want to follow this journey. Track a customer from the moment they sign up for a trial until they become a paying customer with Tapfiliate’s Customers functionality. When the customer enters a paid subscription, the conversion will be attributed to the affiliate.

Commission rate

How much will an affiliate be compensated for a conversion.

Consider both your product/service and your target audience to determine which commission rate to use. Some combinations work well with fixed odds, while others require the use of percentage based odds.

Fixed Rate: A certain amount per conversion.

Sales Percentage: A percentage of conversion sales.

Commission Frequency

Commission frequency is how often an affiliate gets paid. This will likely be determined by the type of conversion, whether it’s instant purchases or subscriptions.

The calculations we mentioned earlier will be very useful in determining a commission frequency that fits your budget and appeals to affiliates.

One-time commissions: Reward affiliates for a sale made by the customer they refer. This is usually the default commission type for programs, especially e-commerce.

Recurring commissions: Commissions will be rewarded when a referred customer pays a subscription fee. The recurring commission can be weekly, monthly or annual depending on how subscriptions are paid.

Perfect for recurring commissions, SaaS, and subscription box affiliate programs.

Recurring commissions, if selected, may have an upper limit. A cap creates a limit on the number of conversions attributed to an affiliate. The limit can be a certain number of conversions attributed to an affiliate, or a certain amount of time that those conversions are attributed to an affiliate.

For example, your affiliate program is set up with recurring commissions with a three-month cap. If an affiliate refers a customer who pays for a software subscription for one year, the affiliate only gets a commission for the first three payment months. After this period, the affiliate will no longer receive commissions even if the referred customer continues to pay for the software.

Using a cap makes sense for many businesses, but still offers affiliates an attractive commission offer.

Lifetime commissions: Affiliates receive a commission from a customer they refer to your website for both the first conversion and all subsequent conversions.

Using lifetime commissions can make a program very attractive, especially when working with top affiliates and influencers.

Additional ways to set up commission structures

There are several other ways to set up your program, including commission tiers and bonuses.

Commission tiers
Reward different rates for different sales volumes. This means that an affiliate’s commission amount increases with the more conversions they have. Commission tiers are a great way to motivate affiliates to actively and continually promote your brand.

For example,

  • 10% on each of the first 10 conversions
  • 15% on conversions up to 50
  • 20% on conversions up to 100
  • 30% for every conversion over 100

Be sure to pre-calculate increased commission costs within the overall commission structure so you don’t offer rates the business can’t afford.

If you are using Tapfiliate, you will find commission structures under affiliate groups.

bonuses
Use bonuses to reward your affiliates when they reach a certain conversion amount or meet a conversion amount goal.

With Tapfiliate, bonuses can be customized with commission rates, bonus periods (timeframes) and target targets.

For example, if an affiliate achieves 5 or more conversions, they will receive an extra 5%. If the affiliate provides 7 conversions, 5% is added to all 7 conversions until the bonus period expires.

Bonuses are another effective way to encourage affiliates to promote more. However, be sure to pre-calculate these costs into your commission budget.

3. Considerations

contestants

As with any other marketing strategy, it’s important to look at what your competitors are doing. Research other programs in your field and review their offers and terms and conditions. This gives you an idea of ​​what they offer and how you can make your program stand out among quality partners compared to other programmes.

Keep a spreadsheet of the best competition with commission rates and additional program offers. This will allow you to clearly see how each program stacks up against each other and the gaps and opportunities that may exist. Periodically update this spreadsheet to stay aware of what your competitors are offering and see if any trends are emerging.

Please note, while it is important to monitor the competition, we recommend that you do not make decisions based entirely on this information. If competitors raise their commissions, it may be tempting to raise yours as well. However, increased commissions may not fit in your budget and you risk going negative just to keep up.

room to grow

When setting up your program’s commission structure, it can be very tempting to bid the highest possible commission within your margin. However, it is strongly cautioned against setting the highest commission from the very beginning.

Here are some recommendations from UpFoundry’s Associate Director Taylor Barr:

If you bid the highest commission you can offer, you limit the following:

Possibility to increase your commissions for all affiliates if you find the channel is working for your business.

The ability to increase your commissions for each affiliate if they send/recommend you quality customers.

Ability to lower commissions. Yes that is right. You CAN REDUCE commissions, but the problem is this: when you lower a commission rate in your program, it sends a negative signal that the company is not doing well or doesn’t trust its affiliates (and it’s human nature in general, prefer to avoid a little loss.).

Giving yourself room to grow also gives you space to rebuild. As we mentioned, competition can change and new trends may emerge – let your program adapt and adapt to changing circumstances.

Using suggested metrics and calculations, evaluate your program annually to see where opportunities exist to deliver more and rethink incentives that are not paying off.

Finally, keep it simple

As you can see, there are several factors that go into making a commission structure. It can be complex and complex.

But it’s best to try to keep it as simple as possible for your affiliates.

Be clear about your commission structure and make it clear in the terms and conditions of your program. This will reduce the time required for affiliate management and prevent affiliates from being disappointed with the result.

As we said, there is no perfect science to setting up your program’s commission structure. However, with these factors in mind, you can create a program that is financially sound and motivates the best partners to promote your business.


Sign up for Tapfiliate’s 👉 free trial to start your SAAS affiliate marketing program


Leave a Comment

Your email address will not be published.