A Complete Guide for SaaS Affiliate Commissions

Affiliate marketing is taking the world by storm. And why wouldn't it, when it continuously proves to be an effective marketing tool? It can significantly increase conversion from leads to sales, affiliate marketing can bring many advantages to SaaS businesses, whether they choose an influencer or a review site as their partner.

A good affiliate marketing strategy can take your business to heights you only dreamed about before. It increases brand awareness, customer base, and earnings and gives you deeper insight into consumer behavior.

But because affiliate marketing is a vast industry constantly growing and expanding, it's challenging to navigate and maximize its benefits. Below you will discover how to determine your commission structure, maximize your affiliate program earnings, and set the best KPIs.

Set Your Commission Structure

One reason why companies love the affiliate marketing model is that it is based on conversions. You get the chance to pay your partners based on their performance, which saves money in the long run.

There are many ways to pay your partners. So before embarking on the journey of affiliate marketing, you need to create a commission structure that will meet your business's needs and satisfy your affiliate partners.

Conversion Types

First, you need to choose the type of conversion you will base your commissions on. In other words, you should clarify what kind of action the affiliate partner must encourage to get paid. In the world of digital affiliate marketing, there are three types:

Pay per Click – The marketer receives compensation when a consumer uses their link to access or click your website or product. Since you pay for clicks, this affiliate payment strategy doesn't guarantee you will get paying customers and higher conversion rates.
Pay per Leads – In this case, you will pay your partners for all leads they manage to procure. By leads, we mean all contact with new consumers interested in your product. This includes emails, registrations, and contact forms. It is slightly better than PPC for ROI, but it also doesn't guarantee any monetary benefits.
Pay per Sale – The majority of businesses agree that pay per sale is the best affiliate payment scheme. In this case, you pay your partners only if they manage to make a new sale. More specifically, when they persuade consumers to make a purchase. In SaaS companies, you pay the marketer if they manage to entice consumers into paid subscriptions.

Commission Rate

When it comes to commission rates, you only have two options. You can either pay your partners a fixed sum or one based on percentage. In the first case, they will get a specific payment when they complete a specific task (e.g. 5 sales, 10 registrations, 10 clicks).

They will get a percentage out of the final sale in the second case. The average rate varies between 5% and 30%. Most businesses have a cap on this percentage. For example, the marketer will get a share for the first three signups of the same customer and will stop benefiting from it afterward.

Payment Frequency

By payment frequency, we mean how often you will pay your partners. It's important to clarify this before starting your campaign, as you want to avoid misunderstanding. It can be a one-time or a recurring commission.

One-time – paid right after a sale from a new subscription/click/lead.
Recurring - paid right after new or renewed subscriptions. The payment timeframe will depend on how your subscription process works, whether on a weekly/monthly/yearly basis.

Aside from these two types of payment frequency, you can also give out lifetime commissions. If you choose this option, you will pay marketers for the first and for future conversions. This is an excellent option if you are a large company looking to lure affiliates away from your competitors. However, it can be harmful to startups and smaller SaaS companies.

Commission Awards

Most affiliates stick to one niche, so some of your competitors will probably get in contact with them too! You must keep your partners satisfied if you want to run a proper affiliate campaign that will maintain and measure the success of your SaaS. Commission bonuses and tiers are a great way to do this!

You can give a bonus to marketers who are more efficient and eager to succeed, as this will make them feel appreciated for their hard work and encourage them to continue in promoting your business's affiliate program. For instance, you can give a 10% bonus to all affiliates who make over 10 sales per month.

In addition, you can include a tier in your affiliate program. This means that marketers can move up the ladder – receiving a higher commission as they bring more traffic and conversion.

Calculate Your Business Costs and Earnings

The key to affiliate marketing success for SaaS is proper strategising and budgeting. You don't want to overspend on a marketing campaign. Evaluating your costs and earnings is essential before creating a commission strategy.

Besides taking a closer look at your current financial situation, you should also focus on:

Cost Per Acquisition – The relation between your spending for the affiliate campaign and the revenue it brings back. Simply put, it's your campaign's ROI.
Customer Life Time value – The average time and money new consumers will spend on your business. The higher it is, the higher the affiliate's commission should be.
Operational Cost – The cost of launching and managing your affiliate campaign usually refers to your affiliate marketing platform subscription.

Set The Right KPIs

KPI stands for key performance indicators. These are company/project performance measurements and can come in different forms, and each organization has its own. KPIs help identify issues and successes early on, enabling better decision making and pushing things in the right direction.

When it comes to affiliate marketing KPIs for SaaS, we recommend the following:

YOY (year-over-year) growth
Performance of affiliate marketer categories (content, review sites, influencers, etc.)
Average value from sales
Number of new partnerships and customers
Conversion Rate (CTR)

The main purpose of tracking KPIs is to implement new strategies that eliminate issues and enable growth. For instance, if your number of partnerships decreases, it may be a sign that marketers are losing interest in your program or shifting toward competitors. Promoting your affiliate program or including satisfying bonuses and tiers might be a good idea.

Starting your SaaS affiliate program might seem confusing at first. However, you will get comfortable once you launch your program and develop a particular dynamic.

Don't be afraid of making mistakes, as they are typical for beginners. Instead of seeing them as failures, see them as opportunities to learn and improve your affiliate partnerships. And remember, the key to success is creating a good strategy and minding your budget.