How to Determine Partner Payouts (Calculator Included!)
Setting a payout for affiliates can be scary! That's why we've built this in-depth affiliate payout calculator, so you can understand the costs associated with your business, your profit margins, and what you can afford to pay an affiliate while still turning a healthy profit.
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Your partner payout is the commission you agree to pay a partner when they successfully convert a customer on your campaign. You can think of it as similar to a cost-per-acquisition (CPA) model brands pay to acquire new customers on platforms like Facebook, Instagram or TikTok. But in this instance, instead of paying that amount to the platforms, you pay it directly to your partner who is helping you successfully reach their audiences.
How Do I Determine My Partner Payout?
There is no perfect formula to determine your partner's payout. This is because most brands have completely different types of products, price points, business models, and expectations.
Before you jump in to calculate your payout, ask yourself some questions. What are your goals? Are you looking to add small incremental growth, launch into new channels, or blow the roof off of your sales targets? A higher CPA is typically correlated with more partner interest and sales volume, but the overall performance (ie. conversion rate) of your campaign is equally important for retaining and growing partnerships.
It can be difficult to price exactly right out the door, but also keep in mind that it’s typically easier to negotiate with partners once they’ve already experimented with your campaign. For that reason, most brands tend to choose a launch payout on the higher side, and re-evaluate after 50-100 orders are generated. With some real-world sales data on hand, it’s possible to examine the quality of customers being generated and decide if an updated payout is needed. While having an attractive launch payout is a great asset, there is no need to stress if you pick the wrong number - you can modify your payouts at any time in the ‘Partners’ tab!
What Variables to Consider When Determining Your Partner Payout?
1. Lifetime value (LTV)
Arguably, LTV is the single best metric you can use to inform your partner's payout. It reveals, on average, how valuable an acquired customer is to your business. By managing and optimizing your business around LTV, you can feel more certain that the upfront cost of a higher partner payout is worth the yield that the new customer will bring in over time. If you have the systems in place to track this, you will have a huge competitive advantage in being able to offer high-value (but profitable!) payouts and attract the best partners to scale your program. If you don’t have insight into LTV, you can approximate using CAC and AOV instead.
2. Cost-to-acquire customers (CAC)
If you are already paying to acquire customers, then your internal acquisition costs are a great leading indicator of what a suitable partner payout could be. Keep in mind that internal costs typically underestimate the cost reductions provided by organic visitors and repeat purchasers by 20% or more. Paid media buyers currently make up over half of the Squaredance partner ecosystem, and they’re targeting cold audiences. If you’re buying on Facebook internally and seeing average acquisition costs around $60, then the chance of a partner doing the same for $30 is extremely low. If a partner wants to run in a paid channel that you haven’t tried before, you can reach out to them via Messenger and ask what their typical acquisition costs are to see if there’s a mutually acceptable payout.
3. Average Order Value (AOV)
If your campaign attracts mostly one-time customers, then Average Order Value is a strong direct signal of what you can afford to acquire a new customer. Under such a model, earning a small but consistent profit per average sale is a great way to safely grow. On the other hand, if you have strong customer retention and repeat purchasers, then AOV does not provide sufficient context into the value of a customer and you should use lifetime value instead.
Partner Payout Considerations:
There are two important factors to consider when determining how to set your Partner payout. They are relatively easy to track and should be routinely considered when determining the Return on Investment (ROI) of your partnership program. They are:
Lead Generation
One of the best features of a commission-per-sale model is that you only pay when a customer purchases your product. Our data shows that brands monetize an average of 17-20% of the cart abandonment (leads) originated by affiliates. Focused brands understand how valuable this data is and will commit a resource internally to execute weekly promotional email, SMS or live agent outreach promotions to convert affiliate leads into customers. At the very least, we would highly recommend that you send out between 2-3 abandon cart emails per week that offer an increasingly better incentive with each email to persuade prospects back to your website to purchase your products.
The Halo Effect
They say “all ships rise in the tide”, and this is very much true in partner marketing. While your payout is only awarded to partners for direct acquisitions, your brand benefits indirectly from all of the new awareness that these campaigns produce. The other “ships” here are all the other channels in which you operate, be it your organic storefront, your Amazon store, or your SEO & paid search efforts. Squaredance advertisers report that they see an average of 22-25% channel lift on Amazon and Search when their partner programs are actively generating sales.
