More and more Americans are looking into ways to make money from home. One way to accomplish this is through affiliate marketing, in which companies pay you a commission for referring sales to their site. While many people have tried affiliate marketing, the question remains just how profitable it can be.
The average affiliate commission can vary wildly between products and parent companies, with some sales yielding no commission at all, with others offering commissions over 100%. All things considered, the average affiliate commission is likely to be between 10% and 20%.
Again, there is so much variability in the commission rates and so many different types of products and services that offer affiliate commissions that it is tough to nail down an exact average. The important thing for the affiliate marketer is to understand what type of commission they will receive as part of the program and calculate how many referral sales will be necessary to make affiliate marketing worthwhile.
What Affects Affiliate Marketing Commissions?
The idea behind affiliate marketing is simple: You sign up for an affiliate program offered by a company and then create a blog, social media, and other online content that will direct sales back to the parent company.
Every time a purchase is made due to one of your referral links, the company gives you a cut—usually a percentage but sometimes a set dollar value—for directing the sale to them.
While the concept of affiliate marketing is mostly consistent among products and industries, marketers’ commissions are anything but. For example, one merchant of luxury used jewelry may offer affiliate commissions of 50%, while a similar seller may only offer 10%.
Why this discrepancy among commission rates? There is a multitude of reasons.
Affiliate Marketing is Valued Differently Among Companies
Arguably, the biggest driver of affiliate commission discrepancies is the value placed on affiliate marketing by companies. Simply put, some companies remain ignorant of the power of affiliate marketing and do not offer enticing commission rates to get the online populace involved in promoting their business.
In the introduction, it was mentioned that some companies pay commissions of over 100%. You may be wondering how this is possible. Why would a company pay an affiliate marketer more than the product’s price to promote the item for them?
The short answer is that these companies rely heavily on the power of affiliate marketing to produce repeat business.
For example, say that a digital graphic design company offers a $200 referral reward to any affiliate marketer who directs sales to their site. However, the referred sale ends up being only $50, meaning that the company is paying the marketer a 300% referral fee, which seems completely illogical.
The reality, though, is that the next time the consumer needs their graphic design needs filled, they are likely to go directly to the company’s site, meaning that the company pays no referral commissions at all. The consumer may also refer other friends or colleagues to the company, meaning that the ongoing business created by this handsome affiliate commission made it well worth the investment.
While such hefty commission rates are not the rule, it does help demonstrate the logic behind how commission rates will vary.
Savvy businesses understand that they will get more people doing work for them by offering generous affiliate commissions. In addition, this extensive network generates a strong client base of repeat business that will likely be commission-free for the company.
Some Companies Are in a Stronger Financial Position
As the old saying goes: “It takes money to make money.”
Companies that are in a strong position financially will be able to pour more money into marketing. In contrast, struggling companies are more likely to do as much in-house promotion as possible to save on paying marketing fees.
In the name of competition, companies with larger bankrolls will offer higher affiliate commissions than their competitors, attracting more content creators and firming their hold on the market.
Profit Margins Vary Among Products
Products with low-profit margins, meaning that their sell price is scarcely more than the cost to make them, will not be able to offer beautiful affiliate commissions.
Items such as books and non-luxury clothing will sometimes have commission rates below 1%, with some commissions only counting as a step toward referral milestones and not bringing with it an actual monetary value.
On the other hand, items such as software subscriptions that are nearly all profit and designed to elicit recurring purchases can offer very handsome commissions of 50% or more.
How to Increase Your Average Affiliate Commission
If you are doing the math on making some real money as an affiliate marketer, you can take several steps to make the undertaking worth your time.
Find Your Niche
One of the most important concepts behind becoming a successful affiliate marketer is to choose a niche industry and become a respected source of information within your realm.
If you have a blog or social media page promoting car restoration products on Monday, database software on Wednesday, and hiking backpacks on Friday, you are likely to alienate any audience you may have created. It will also make it challenging to rank in any searches, as search engines will not know what they are getting with your page.
Even if you partner with companies that offer handsome commissions, you will not get enough traffic to make it matter.
The other idea is to choose a niche that does not have a lot of competition. For example, general subjects such as “fishing” or “cooking” are definitely topics people turn to the Internet to search. Still, there is so much out there on these topics that it is unlikely that browsers would ever choose your page.
Choose High-Margin Products
As mentioned, some products will yield much more significant profits than others, which means fewer units have to be sold to make a business profitable.
If your content links back to picture frames, you will need to sell many picture frames to make your marketing efforts profitable, as the commission will likely be well under 5%. On the other hand, high-margin products, such as composite roofing shingles, can yield a nice second income stream with just a handful of sales.
Create Valuable Content
Another great way to keep the affiliate commissions rolling in is by producing high-quality content. If you have a page that visitors enjoy, then it only stands to reason that you will convert more traffic into commission-earning referrals.
Conversely, content that is spammy, unprofessional, and littered with errors and imperfections is sure to drive traffic away from your page.
Best Industries to Offer High Affiliate Commissions
If you are looking to get your commission rate on the right side of 20% and make your affiliate marketing efforts worthwhile, the following industries are some that you should strongly consider:
- Software Services: As mentioned, companies that see the value in affiliate marketing to cultivate repeat business will offer very high commission rates. As software subscriptions are inherently recurring, you will likely do very well if you can refer business in this realm.
- Health and Fitness: Many health and fitness products are incredibly high margin and are likely to lead to ongoing purchases from health-conscious people, so items such as vitamins and exercise equipment are a strong bet.
- Finance: There has been an explosion of interest in online stock and currency trading, so if you can refer traffic that leads to new account openings, you are sure to generate hefty commissions.
The average affiliate commission is highly variable based on product and industry. While some programs offer commissions of less than 1%, others will actually payout over 100% if they place a high value on the power of affiliate marketing.
By balancing out these extreme instances, most affiliate marketers can expect to see a commission rate between 10% and 20%, so it is incumbent to know if these rates will make the process worthwhile based on the volume of referrals you expect to generate.