How to Calculate Affiliate Commissions for Influencer Campaigns

If you're partnering with influencers on an affiliate basis to grow your revenue – you're already ahead of the traditional pay-per-post game! The next thing to figure out is the percentage of commission you give your influencers.

Offer too little, and you might miss out on some fantastic collaborations. Pay too much, and your profits could take a hit.

In this blog, we'll walk you through a simple step-by-step guide, complete with templates and formulas, to ensure you calculate the right affiliate commission – making sure every collaboration keeps you in the green.

🤔 Why calculate? Can't we just offer a high commission?

Offering a very high commission might seem tempting as a way to attract top-tier influencers, but it's crucial to weigh the long-term implications for the brand's overall health and growth trajectory.

Starting at a lower commission rate, such as within the 10-25% range, provides brands with negotiation leeway. This can be especially important for high-performing influencers who might request higher commissions over time.

For DTC brands, a significant portion of profitability comes from repeat purchases and building a loyal customer base. Offering high commissions can limit the resources available for post-sale engagement strategies, loyalty programs, and other retention activities that enhance CLV.

From a psychological perspective, extremely high commissions can sometimes make influencers question the value or quality of a product. If a company can afford to give away 50% of the selling price, influencers might wonder about the true cost of the product and its inherent value.

💰 1 — Understand your margins

If your net margin is high, say 65%, you have enough room to maneuver. This could allow for a substantial influencer commission, and a generous customer discount, and still leave room for a decent profit.

For example, if you were to offer a 15% commission to the influencer and a 15% discount to customers, you'd still be left with a 35% profit margin, which is reasonably healthy.

On the other hand, with a tighter net margin, such as 30%, your wiggle room is significantly reduced. Offering 10% to both influencers and customers would only leave a 10% profit margin, which might not be sustainable in the long run, especially when considering other overheads and potential returns.

A workaround for this, if you have multiple products and margins vary, is to consider a model where commission rates vary based on product categories. Products with higher margins might have higher commissions, while those with slimmer margins offer lower commissions. This way, you can balance out the profitability across your product range.

📜 2— Duplicate the affiliate commission template by SARAL

Begin by duplicating the Google sheet here. Go to File > Make a Copy.

The template is designed to automate many calculations, ensuring that once you input the necessary data, the figures you need are generated accurately and instantly. It saves time and reduces the possibility of any error.4

💳 3— Enter your costs

Once you've duplicated the sheet, gather and document cost-related data for your products:

• Product Name: Note down the name of your product in the first column. This is especially helpful if you plan to manage multiple products using this template.
• COGS(Cost of Goods): This is the cost it takes to produce one unit of your product.
• Total cost with shipping: Enter the total cost of sending the product that is your shipping and packaging. Add any express delivery costs if applicable.

If you're adding a personal touch to your shipments like a thank-you note, complimentary gifts, or premium packaging, add those expenses also here. All these might seem minor but can add up. Document these costs to get a comprehensive view of your expenses.

• MSRP (Manufacturer's Suggested Retail Price): Finally, note down the maximum selling price, the price tag that your customers see and pay. This will help calculate the revenue of your calculations, helping understand what comes in for every unit sold.

The accuracy of your commission calculations largely depends on the completeness and correctness of this data. So, take your time and ensure you've captured every penny spent.

💲 4— Reverse-Engineer Profitability

Profitability is the cornerstone of any business. Before diving into allocating commissions and discounts, you first need to decide the bottom line – what's the net margin you aim to achieve from affiliate sales?

For instance, if you're targeting a 30% net margin and currently operate at a 65% gross margin, this means you've got a cushion of 35% to play with. This 35% will be your reservoir from which you'll draw for discounts to customers and commissions to influencers. Remember, this doesn't mean you have to use the entire 35%, but it sets the upper boundary to ensure profitability.

🧧 5— Discount and Commission Allocation

Now that you've established the boundary with the 35% (or whatever your specific percentage is), it's time to split it. This is a balancing act, as offering too much to one side can hurt the appeal to the other.

Avoid a drastic disproportion like offering a 30% discount to customers and only a 5% commission to influencers. This can make influencers feel undervalued, considering the effort they put into promoting the product.

For customers, offering customers a 5% discount might not be enticing enough to motivate a purchase. A more balanced 15% for customers and 20% for influencers might be more effective in our example.

Always ensure the combined total of the customer discount and influencer commission doesn't exceed your allocated percentage (in this case, 35%).

📦 6— Profit Per Unit

Once all data is input, your sheet will automatically determine the profit you stand to make per unit. This calculation considers your operational costs, the discount offered to the customer, and the commission paid to the influencer.

By closely examining this figure, you can gauge if your pricing strategy is sustainable and profitable in the long run.

While driving sales is essential, maintaining a healthy profit margin ensures your business's longevity and success.

📈 7— Project earnings for influencers

This last step is crucial to create an attractive value proposition for influencers that can set your brand apart from others.

Let's say an influencer can sell 100 products a month, and they receive a $5 commission per sale, that's $500 in a month and $3,000 over six months.

When approaching influencers, ensure you present these projections in a way that's relevant to them.

If you're reaching out to an influencer with a massive following, they might expect higher sales volumes. On the other hand, a micro-influencer might be thrilled by a consistent, smaller earning projection. The key is to be realistic and backed by data.

Beyond just the numbers, ensure you communicate the broader value of collaborating. Perhaps there's room for further collaborations, perks, or even long-term contracts if the initial phase is successful. This projection is not just about immediate earnings but about building a sustainable, beneficial relationship for both parties.

3 Tips to make your affiliate partnerships successful

Collaborating with influencers is more than just crunching numbers. It's about building strong, win-win relationships. You need to motivate, reward, and understand influencers better.

To help you get the most out of your partnerships, we've listed 3 key strategies below:

🪜 Adopt a tiered commission structure:

Rather than offering a flat commission rate, consider a tiered structure. This can be based on the sales volume, reach, or any other metric you find relevant. For example:

• Initial Phase: Offer a basic commission to start with. This acts as an icebreaker and allows influencers to prove their worth.
• Intermediate Phase: Once the influencer achieves a certain threshold (like 100 sales or 10,000 engagements), offer them a slightly higher commission. This encourages influencers to push a little harder.
• Elite Phase: For top-performing influencers, offer the highest commission rate. This recognizes their efforts and incentivizes them to maintain their performance.

Inside SARAL, you can set-up multiple commission tiers like this:

Create one Primary tier for everyone, and the rest as rewards for top performers

The idea behind this is to reward growth and dedication, which can motivate influencers to put more effort into their campaigns.

🎁 Blend commissions with non-monetary perks

Money isn't the only thing influencers value. Many of them are keen on experiences, exclusive products, or even opportunities that boost their personal brand.

• Give them early access to new product launches, allowing them to tease and build anticipation among their followers.
• Invite them to exclusive events, webinars, or workshops. This not only strengthens your relationship but also provides them with content to share with their audience.
• Give them a shoutout on your social channels to boost their followers & appreciate their efforts.

By combining monetary incentives with non-monetary perks, you can provide a comprehensive package that's both appealing and cost-effective.

📊 Data-driven decision making

• Automate your analytics: Invest in tools that automatically track the success metrics of each influencer collaboration. This allows you to adjust commissions proactively based on actual data, ensuring you remain profitable while still rewarding top performers.

How SARAL reports your metrics

• Create a feedback loop with influencers: Open a line of communication where influencers can share their insights and feedback. They have a closer ear to the ground and might offer invaluable qualitative data on why certain products are resonating or not.
• Look at the metrics: Beyond typical metrics like clicks or sales conversions, consider the lifetime value (LTV) of customers brought in by each influencer. Some influencers might bring fewer customers, but if those customers keep coming back and have a higher average order value, they might be more valuable in the long run.

What's next?

Once you've figured out your commissions, wouldn't it be great to see the return on your investment?

SARAL provides an in-depth analysis of influencer ROI, allowing you to see which collaborations are truly paying off.

But that's just the tip of the iceberg.

SARAL is an all-in-one influencer marketing platform for DTC brands that want to grow their revenue and not just likes and comments. It can help you find the right influencers, manage outreach, track performance, and build relationships.

All this without shelling out $10,000+ upfront for complicated tools that leave you with more questions than answers.

Claim your free trial for SARAL. Start testing. Learn what works for your brand and scale your brand. ✨

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