12.01 – Understanding Multi-Tier Affiliate Marketing
The advent of the internet and the latest technologies have significantly impacted the world of affiliate marketing, and multi-tier affiliate commissions provide an excellent example. In the following sections, we will explore two-tier marketing, three-tier marketing, and beyond, along with strategies for recruiting affiliates.
The allure of multi-tier affiliate marketing
Virtually all affiliate compensation plans, whether single-tier or multi-tier, fall under the category of cost per sale (CPS). This means that all commissions are derived from the product’s sale price, which is one of the reasons why merchants find affiliate marketing appealing. However, there are ways to profit from affiliate marketing even without making a direct sale, as we’ll discuss later in this chapter.
Exploring two-tier marketing
A two-tier affiliate program is a compensation model that offers you the opportunity to earn affiliate commissions on both your direct sales and the sales generated by affiliates you introduced or sponsored into the merchant’s program. These affiliates, often referred to as sub-affiliates, are part of your team.
So why would a merchant implement such a program? The primary motivation is to create a viral component within the sales force, allowing it to grow without the constant need for the merchant to recruit new affiliates. Imagine having your existing sales force expand itself, thanks to the incentive of “overrides” or commissions generated by the work of new affiliates.
In a typical two-tier structure:
- First tier offers 40 percent commissions on all sales directly generated by you.
- Second tier offers 10 percent commissions on sales generated by affiliates you introduce (your sub-affiliates).
Here’s how it works in practice: Let’s say a product costs $50. If you sold eight units directly through your marketing efforts, you’d receive first-tier commissions of $160 (40 percent of $50 multiplied by 8 units). Now, if you present the opportunity to sell the same product to your audience, and 25 people sign up as affiliates through your link, resulting in a total of 43 sales, here’s what happens:
The total gross sales made by your sub-affiliates amount to $2,150 (43 units multiplied by $50), earning them a total of $860 (40 percent of $2,150). In your role as a second-tier affiliate, you’ll receive $215 in affiliate commissions (10 percent of $2,150). Adding your first-tier commissions of $160 and your second-tier commissions of $215, your total earnings amount to $375. Not too shabby, right?
However, remember that not all your sub-affiliates may exhibit the same enthusiasm for selling the product as you. The 80/20 rule often applies, where 80 percent of affiliates may not sell much, while the remaining 20 percent generate most of the sales. To address this, we’ll discuss recruiting sub-affiliates later in this chapter.
Calculating commissions and overrides
Are commissions, especially overrides, calculated as a percentage or a specific dollar amount? It’s crucial to read the merchant’s compensation policy for clarity. For example, in an affiliate program, there may be a two-tier commission structure where a 60 percent commission is paid on direct sales (tier one) and a 5 percent override is paid (tier two). However, another merchant may offer a first-tier commission of 50 percent with a flat dollar amount, such as $5, as the second-tier commission.
This underlines the importance of thoroughly understanding the compensation structure of the affiliate program you’re engaging with.
Looking beyond the second tier
In true multi-tier (three tiers or more) programs, you rely on the collective efforts of affiliates at your level and below. While the idea of earning money from others’ efforts sounds appealing, it can be problematic in practice. Many are drawn to multi-tier structures with the hope of others doing most of the sales work. This can lead to a situation where little money is generated, even with a large number of sub-affiliates.
To succeed in multi-tier programs, remember these key points:
- Focus on the product and direct sales (consider this a golden rule).
- When considering recruiting sub-affiliates, ensure they share your enthusiasm for point #1.
- Maintain regular communication with your sub-affiliates and offer assistance or guidance when possible to help them generate direct sales.
The bottom line is that it’s better to have fewer, but more active and effective, sub-affiliates than to spend time amassing a large number of sub-affiliates who contribute little to your sales. Product sales must remain an essential part of the equation for anyone to make money.
It’s worth noting that multi-tier affiliate programs differ from traditional offline multi-level marketing (MLM) programs, also known as network marketing. The online multi-tier model avoids the inconveniences of attending meetings and paying excessive participation fees, making it more appealing to many.
Given this, steer clear of any affiliate programs that charge you for participation. Reputable merchants are eager to have you join their marketing program and reward you for your performance as sales are generated.
Recruiting affiliates for your multi-tier program
As the emphasis in multi-tier marketing is on the product more than recruiting, it’s advisable to invest your time where satisfied customers are found. There are numerous resources to help you find potential affiliates or narrow down your search in the right niche. Here are some places where you can identify prospects:
LinkedIn groups
LinkedIn, a prominent professional networking platform, provides opportunities to connect with individuals seeking business and career connections. If you’re an affiliate looking for sub-affiliates, LinkedIn can be a fruitful platform. For instance, if you promote a product relevant to accountants, you can search for LinkedIn groups related to “accountant” or “accounting.” Join these groups and engage with members by asking questions and sharing relevant content that accountants will find valuable. It’s an excellent way to identify prospects interested in your product or service.
Facebook groups
Facebook hosts thousands of active groups, many with hundreds or thousands of potential prospects. You can find groups that match your niche or product, and joining these groups can provide you with a pool of prospects. Using Facebook’s keyword search, analyze the results to determine if a group’s members are suitable for your affiliate program. Engage with group members, ask questions, and share information about your product or service to identify potential sub-affiliates.
Meetup groups
Meetup offers opportunities for face-to-face interactions with local groups. These groups often have chapters in your area and are a great resource for finding prospects within your niche. For instance, if you’ve recently become an affiliate for a company selling hiking products and you love hiking, search for a Meetup group dedicated to hiking. Join the group, participate actively, and connect with potential sub-affiliates interested in your product.
By focusing on the product, effectively communicating with sub-affiliates, and exploring these platforms for potential recruits, you can maximize your success in multi-tier affiliate marketing.
Tips for recruiting sub-affiliates
- Create Compelling Content: Develop content that showcases the benefits of joining your affiliate program. This could be in the form of blog posts, videos, or webinars. Explain how sub-affiliates can earn commissions and the support they’ll receive.
- Leverage Your Website: If you have a website or blog with a significant following, use it as a platform to recruit sub-affiliates. Create a dedicated page or section explaining your affiliate program and how others can participate.
- Email Marketing: If you have an email list, send out invitations to your subscribers who might be interested in becoming sub-affiliates. Personalized and well-crafted emails can be highly effective.
- Engage in Webinars and Workshops: Host webinars or workshops related to affiliate marketing. This allows you to interact directly with potential recruits, answer their questions, and explain the advantages of joining your program.
- Offer Incentives: Provide incentives for new sub-affiliates. This could include higher commission rates for the first few months or a sign-up bonus. Incentives can motivate individuals to take action.
- Networking Events: Attend industry-specific networking events, conferences, and seminars. These events provide an excellent opportunity to connect with like-minded individuals who may be interested in affiliate marketing.
- Referral Programs: Implement a referral program within your affiliate program. Reward your existing affiliates for referring new sub-affiliates. This can create a snowball effect of recruitment.
- Educational Resources: Develop educational resources and training materials for your sub-affiliates. Highlight that you’re committed to helping them succeed. This can be a strong selling point for potential recruits.
- Transparent Communication: Be transparent about your affiliate program’s terms, conditions, and potential earnings. Clear communication builds trust and encourages more individuals to join.
- Engage with Online Forums: Participate in online forums or discussion boards related to your niche. Contribute valuable insights and establish yourself as an authority. In your forum signature, promote your affiliate program.
- Partnerships: Form partnerships with influencers, bloggers, or website owners in your niche. They can promote your affiliate program to their audience, and you can share the commissions.
- Follow Up: After recruiting sub-affiliates, maintain regular communication. Offer support, guidance, and resources to help them succeed. A motivated and informed sub-affiliate is more likely to perform well.
- Monitor Performance: Keep an eye on the performance of your sub-affiliates. Identify high performers and provide them with additional incentives or recognition.
