When setting up an affiliate program, one of the first questions that comes up is: How much should I pay my affiliates? While commission rates are important, they’re not the only factor to consider when designing a compensation plan.
In this chapter, we’ll walk you through the most common affiliate commission models, help you identify which structure works best for your business, and share benchmarks on average commission rates for SaaS and similar programs.
Affiliate compensation is the strategic framework that determines how and how much you reward partners for driving revenue to your business.
Unlike traditional advertising, where you pay upfront with uncertain returns, affiliate compensation aligns your costs directly with results—meaning that you only pay when affiliates deliver actual customers or specific actions that matter to your business.
The affiliate compensation structure you choose can be a powerful tool for attracting quality affiliates and controlling your customer acquisition costs.Â
That said, in affiliate commissions, it’s not just a question of "how much to pay affiliates." It's really about designing an incentive system that motivates the right behavior while also protecting your margins and supporting sustainable growth for your affiliate program and business.
One of the most common commission models in the SaaS and digital product industries is the revenue share model. Here, affiliates earn a percentage of the revenue from the sales they bring in.
Revenue share model appeal is largely due to the powerful motivation it provides for affiliates to promote high-value products and services, while also helping mitigate common forms of affiliate fraud.
Here’s a simplified overview of the different levels for your revenue-based affiliate compensation structure.
For a detailed breakdown of each model, see our affiliate commission guide.
That said, multiple other commission models exist that could be more aligned with your business model or what your affiliates are looking for.
This model compensates affiliates with a fixed fee for every successful conversion they bring.
While this approach can boost brand exposure and site traffic, it might not necessarily result in direct sales. Under this model, affiliates are paid for every click they generate, irrespective of whether those clicks result in conversions.
In the CPL model, affiliates earn a commission for each lead they generate — for instance, for a form submission. This method can be especially effective for enterprise products with complicated sales cycles.
Remember that it's critical to align your payout model with your business objectives. Let's check what key SaaS metrics to consider when choosing the revenue share model.
In SaaS businesses, the standard practice is to pay affiliates through recurring commissions based on the subscription that customers opt for. However, this isn't always the case.
Some businesses prefer to pay a one-time fee upfront for customer acquisition, independent of the duration of customer retention. This usually happens when the sale doesn't involve a recurring product, making a one-time commission a more feasible option.
If your business offers a recurring product or service, like SaaS products, your compensation strategy must carefully consider two critical metrics: the Customer Acquisition Cost (CAC) and the Customer Lifetime Value (CLTV). Let’s take a closer look at what these metrics mean.
Customer Acquisition Cost (CAC) is a key metric in SaaS, signifying the total expense of acquiring a new customer. This includes the sum of all marketing and sales expenses over a specific period divided by the number of new customers acquired in that timeframe.
Customer Lifetime Value (CLTV) is a metric that represents the total net profit a company can expect from a single customer throughout their relationship with the business. Understanding CLTV is crucial as it guides strategic decisions, from marketing spend to customer retention initiatives.
Here’s an example of calculating the ideal affiliate commission percentage based on CAC and CLTV:
If your current Customer Acquisition Cost (CAC) equates to 40% of your Customer Lifetime Value (CLTV), offering an affiliate a 25% commission would be immediately beneficial.
This arrangement implies that if the affiliate successfully acquires a customer, the business would only need to allocate 25% of the CLTV as a recurring commission, instead of deploying 40% of the CLTV on other customer acquisition strategies. This approach potentially reduces the CAC, making it a financially savvy move.
From 250 SaaS affiliate programs, we found that, in SaaS, affiliates usually receive between 20% and 25% in recurring commissions.Â
While this range varies slightly among businesses, an affiliate's readiness to promote your product directly ties to their potential commission. If you're generous with your commissions, your affiliates will likely reciprocate by promoting your products more fervently.Â
However, it's important to ensure that your commission is set lower than your CAC from other acquisition methods to achieve a reduced CAC. The commission amount hinges on your product's price and the nature of your business model, whether it's B2C or B2B.
Ah, the chicken or the egg dilemma: what’s the right way around?
There isn’t a clear answer that applies to all situations in the case of affiliate compensation. While competitive affiliate commission initially attracts affiliates, performance depends more on alignment between your product, your affiliate's audience, and their promotional capabilities.
Higher commissions can actually attract the wrong type of affiliates. For example, those who are motivated purely by payouts rather than by a genuine belief in your product. These affiliates often produce lower-quality traffic and higher churn rates.
The sweet spot lies in offering competitive rates within your industry while focusing on affiliate quality, support, and relationship building. A 20% commission with excellent affiliate resources and responsive support often outperforms a 35% commission with poor affiliate experience.
What matters most is that your compensation feels fair to affiliates while remaining profitable for your business over the long term.
When it comes to recurring commissions, affiliates typically receive their share as long as the customer remains subscribed and continues to pay each month. Some merchants, however, cap the duration of these payments, with 12 months being the most common duration.
To ease administrative burdens, consider batching your payments. For instance, all commissions for sales referred in a particular month, say March, could be paid on a predetermined date in the subsequent month, like April 1st or even May 1st. This approach allows enough time for potential refund requests from customers.
Commission rates can differ significantly across various industries. For instance, e-commerce often pays lower commissions due to the associated costs of producing and shipping a physical product, resulting in narrower profit margins compared to SaaS-based businesses.
The price of your product plays a significant role in determining your affiliate commission percentage. For a low-cost product, the commission percentage would likely need to be higher to incentivize affiliates. On the other hand, a high-priced product may allow for a reduced commission percentage.
You want your affiliate compensation structure to be a strong point of your affiliate program, not a source of headaches. Here’s what to keep in mind and avoid.
To sum up, the mechanism of compensating affiliates, whether through a fixed upfront fee, a percentage of your sale, or recurring commissions, requires mindful deliberation. Above all, you must consider the affiliates' motivation to promote your products and the financial implications on your business. It's a delicate dance of balance, one that can significantly influence your business's growth trajectory.
Also, have a look at our Comprehensive Guide to Affiliate Marketing for Businesses.
SaaS companies usually offer 20-25% recurring commissions, though affiliate compensation rates vary by product type and market. Benchmark your rate to stay competitive while protecting unit economics.
Recurring commissions suit subscription SaaS, aligning affiliates with long-term customer value. One-time commissions can work if cash flow is tight or customer LTV is high. Choose the affiliate compensation model that supports your business’s growth and cash flow goals.
Your commission should reflect customer value: if CAC is high relative to CLTV, pay a lower commission to stay profitable. Factor in affiliate-acquired customers’ retention to set a rate that balances incentives with unit economics.
