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I’m changing my position on something really big–placement fees. In the past I was always very against them but given a lot of changes in our industry, I’m becoming more and more in favor of them. If you are a merchant or an affiliate manager, you are probably considering unsubscribing from my newsletter at this point. But hear me out and maybe you will come to understand and even agree.
What are Placement Fees?
Sometimes known as “slotting fees,” placements fees are when affiliates ask for an up front payment from a merchant to add the merchant’s affiliate links to their site. It may be a small administrative fee like $25 to have the merchant added to the shopping section of a blog. It may be a BIG fee like hundreds of dollars to have a full integration of coupons, product feeds, etc.
Placement fees are not exactly the same as a sponsored post but may overlap depending upon the affiliate. A sponsored post is a merchant paying a set fee in exchange for agreed-upon exposure by the affiliate–and may or may not include affiliate links in the posts.
At Sunshine Rewards we have always differentiated ourselves from other cash back sites by not requiring placement fees. I always worked under the theory that we are “performance marketing” and so we would get paid by actually performing. That is to say, we wouldn’t get paid anything until we sent actual sales and we would be willing to put in all of the work up front to earn those sales. However, the times they are a changing and we are all going to have to change with them (wasn’t that a line from “Oklahoma”?).
Commissions Are Dropping Like Flies
A week doesn’t go by now where I don’t receive at least one notice that my commissions are being lowered and often drastically. In my system I track commissions over time for my merchants. I’m seeing merchants who used to pay 15% now paying 2-4%. More merchants than ever are paying only 1-2%. As an affiliate I often go to a lot of trouble to get a merchant added to my site only to have the commission dropped only weeks after I add it.
Without knowing whether my commission rate will drop, how can I know whether it is worth it for me to pay my employees to add a merchant to my site? It can take me months or years to convince my readers to trust in a given merchant. First I pay my employee to add the merchant, which sometimes includes creating logo banners, researching the merchant to be able to explain them on my site, and then the administrative work of adding them. Next we spend months building up the merchant gradually–posting deals and dropping their name.
By the time my members get comfortable with the brand, the merchant drops the commission either because I didn’t send sales fast enough or they are “restructuring.” Either way, it makes it hard or impossible for me to get back what I have put in.
Merchants Are Switching Networks Every Day
Competition among networks is a good thing. It gives the networks incentives to do bigger and better things for the affiliates and the merchants both. However, the competition between some of the networks right now is causing merchants to move back and forth a lot more. This means that every time a merchant moves, I have to spend time tracking down the new program, applying for the program, and then changing out all of my links. Sometimes I’ve blogged about the merchants in such a way that I don’t even have time to go back and change all of the links.
All of this takes more time that isn’t compensated for. Combine it with the commission changes and the affiliates are usually the only ones who lose out. Merchants almost never switch networks and then RAISE their commissions.
Accounting for Influencer Marketing
Merchants are justifying paying lower commissions to affiliates because they are looking at attribution up and down the chain and seeing that many different channels touch a typical purchase. The flip side of that is that affiliates get paid only on the actual sales and not often on the rest of the influencing that they do. For example, I promote a Target deal in my newsletter and on Twitter. I have a reader who sees the deal and figures they will just pop into their local Target to grab the item on sale because they have to pick up some other things anyway. Not only are my commissions already low, but I’m getting nothing for that influence at all.
Similarly I have seen the number of times that I have a Tweet that is shared and reshared but there are very few clicks. The brand name is getting a lot of traction but because I am paid only on the actual sales, the brand is getting the exposure for free.
Here Come the Bloggers
Most bloggers will expect some kind of hybrid model of commissions and placement fees. A couple of points I made above (influencer marketing and sponsored post) play into this. Bloggers were traditionally paid flat rates for exposure before they started affiliate marketing. Yes…it’s a different ballgame. However, you can’t expect them to completely change their mindsets completely. Do all bloggers deserve the placement fee on top of the affiliate commission? Definitely not. But do some based on their influence and the amount of time they spend generating the content? Most likely.
Rise of the OPMs
The number of OPM agencies (and marketing agencies adding OPMs) is growing quickly. For many of them, affiliates are just a part of the numbers game. I’m going to be pretty cynical here, but it’s based on a LOT of experience.
An OPM takes on a merchant and promises certain metrics that often include how many affiliates they recruit in X amount of time and how many sites they can get posting about the merchant. Because of that, the OPMs come to the affiliates asking us to join programs that they know darn well are NOT a good fit for our sites…and they don’t care. They don’t care if we eventually make any sales because their first goal for the merchant is just to get the affiliates to put up the links.
So I as an affiliate spend the time/money putting up the links to maintain a good relationship with the OPM. Within 3 months, one of these things happens:
- OPM loses the contract because they couldn’t get enough sales for the merchant
- OPM/merchant kicks me out of the program for not making sales fast enough
- Merchant closes the program because the OPM ran it into the ground
This happens to me EVERY SINGLE MONTH. So the OPM got paid for their work but I end up not making a dime off of mine. Keep in mind this isn’t all affiliate managers or OPMs. However, it’s enough that it’s become an issue for many of us affiliates.
Does Everyone Deserve Placement Fees?
Some of what I posted above might seem bleak and adversarial, but that was not my intention. Certainly not every affiliate deserves a placement fee for every link they put up. Often times an affiliate applies for a program because they know that they can generate sales for a particular merchant very quickly. Sometimes the merchant will offer other incentives that make it worth the affiliate’s time (like the new ShareASale Discovery Boxes). Sometimes the affiliate isn’t doing enough work to deserve anything at all.
My hope is that if you are a merchant, affiliate manager, or OPM you will consider what I have said and measure it against your own practices. If there is a place to make some changes, consider what those might be and how they might benefit everyone.
Something that I often don’t see talked about but I believe to be at the core of this is the expectation of the merchant that every sale needs to be profitable.
They need to understand that they can pay X amount per customer acquisition under traditional channels, hire additional resources, spend more money, etc. Or they can pay “nothing” when affiliates acquire the client for them.
In the second case, they should be happy to pay a fantastic commission and be thankful that they didn’t have to front money for traditional channels. Maybe the affiliate commission makes the sale break even or even lose a couple of bucks.
They should still be happy about it because they have a new customer and the lifetime value of that customer should overshadow the initial commission that was paid. If it doesn’t, they’re doing something wrong.
The reason they don’t acknowledge this is because their backend that is supposed to turn that new customer into a lifetime customer, sucks and they are unwilling to look at that and make it better. They don’t spend time re-marketing or building and nurturing that relationship.
I would encourage merchants to work on their backend sales, upsells, repeat sales and customer retention so that they can pay attractive commissions for first sales and justify skipping a placement fee.
But that would require actual effort on their part, and whenever I talk to a merchant about this and even offer to help, it’s something that they will “look at later when they get to it.”
As for “influencer” marketing and fees… don’t even get me started with that.
Something else I should have mentioned but didn’t is that placement fees are only one part of the bigger picture of negotiations between the affiliate manager and the affiliate. As always, it often goes back to the relationships. I am 100% willing to add just about any merchant for certain OPMs with no questions asked. In return, I know that they will help me when I need other types of help–approval into a small program, a higher commission rate in a program I know I can do well with, contest prizes, etc. In those cases, it’s the give and take of my relationship with the OPM that makes me willing to add the merchants rather than a placement fee. It’s still an exchange of value–just a different kind.
Thanks for this perspective Tricia…not surprisingly, I agree with some of the points you have made along with some of Cindy’s points.
One thing that hasn’t really been addressed, that clearly effects affiliate compensation, is working with a network that allows for custom attribution rules. It’s important to ensure, as you mention Tricia, that affiliates get credit for their work regardless of where they fall in the sales funnel. Merchants and OPMs alike should be leery of working with networks that do not allow them to, for example, pay a commission to both a blogger and a coupon site when both of them were involved in the sale. I believe it is a crime for affiliates to spend their time and energy promoting a product, simply to have the shopper hop onto a site like RetailMeNot at the end of the purchase, and then lose credit for the sale. The “last click” model is flawed and really needs to be considered.
I totally agree with this, as you know Jen and we make sure our merchants are aware of this when they talk to us about what networks to be on. I also encourage all affiliates to make sure that they have the current promotions on their site. We even include them in our newsletters to make it easy for them, affiliates need to take advantage of the tools that OPMs/AM offer them.
I don’t think it’s in any way because affiliates are not taking advantage of the tools that are offered to them. Many of us are using coupon feeds, product feeds, network bookmarklets, and everything that we can. That makes it even more frustrating when we spend hours integrating a merchant into our site only to have them drop our commission weeks later or drop us from the program for not getting sales quickly enough.
Tricia, I’m loving your website and articles. Can I ask you for some advice?
For a sort of hybrid deals/affiliate site, I’m considering trying to create a “deals” website wherein I would negotiate with companies with affiliate programs to change my own commission percentage in order to offer their product at lower prices on my website by taking the rest out of my own affiliate commission. What do you think about this?
A friend of mine (who doesn’t do this kind of stuff) says this probably won’t fly with the companies, but what do you think? Is this worth pursuing? Any tips or feedback? I really appreciate your expertise. Thanks
Hi Sean,
It’s an interesting concept and one that I have seen done a few times. In general it is hard because 1) the merchant has to make changes to their shopping cart, and 2) they will end up having a lot of problems with other affiliates complaining about the lower prices available only through your links. That said, I have seen times where in one-off situations the merchants will run a product at a lower price for one affiliate only in exchange for increased placement. Those are usually done on a limited time basis though. I am not sure that you could build an entire business model off of the concept unless you were looking at a small number of products. But you could certainly use it to augment and existing coupon/deal site.
Tricia
If merchants, OPMs, and affiliate managers keep jerking affiliates around like the examples Tricia mentions I would fully expect affiliates to start asking for money up front. I have seen more and more merchants cutting commissions to unreasonably low levels for high value affiliates and there is pretty much no way a blogger or anyone who has to do the work of creating content, doing product reviews, videos, social, etc. should have to work for a 1% commission if that.
That said, there are good merchants, OPMs, and affiliate managers out there who do take care of their content affiliates, know the value of those affiliates in their programs, and make it worth the affiliates’ time and effort to promote them. Affiliates need to seek out those affiliate programs and promote them whenever possible.
I guess you are right. Affiliate income is dropping and companies are trying to shy away from setting up their own department which can take care of affiliation.
I totally agree with you on these points.
Thank you so much for this perspective. My affiliate site does not (yet) lend itself to the idea of placement fees, because it is more of a shopping site, but if all goes well, as it grows, and I can certainly see a day when Merchant’s may be asking to have their products listed due to exposure.
I’ve already experienced the issues of spending vast amounts of time adding a merchant, only having them pull out of their network, leaving me with sad and non-working links.
I can imagine that it would be helpful for the health of the overall affiliate business and consequently for the merchant’s themselves for affiliates to receive realistic compensation for the work involved. But, the market will rule, so I guess we’ll have to see how it plays out. If I were a merchant, I would likely have no problem with a placement fee to be listed on a successful and respected site.
This is pretty one sided. Affiliates need to prove themselves also before they expect money handed to them. I agree that all OPM’s/AM need to carefully monitor who joins their program, the affiliates should be conducive to the merchant they are promoting which really only the affiliate themselves would know if they recognize their audience. Performance Marketing is just that, you get paid for making a sale. Commission drops often are the result of the merchant seeing that their profits have been decreased dramatically and if you are an affiliate and you are making sales for this merchant, perhaps negotiating an exclusive commission rate for you would keep your commissions where they need to be. Remember, a slotting fee is only good one time, but as a strong affiliate, that commission for sales will be paid on that affiliate link for years to come. I could probably write an entire blog countering a lot of the points you made here but my best advice to any affiliate is talk to your OPM or AM about your concerns, a good one will work with you. If they don’t respond, move on to a different merchant. As a merchant, if your affiliates are feeling like they aren’t getting the compensation or attention they need, find a better OPM or AM.
Thanks Cindy, for the tip about negotiating for an exclusive commission rate. I”m not at that point yet, to have any negotiation power, but I will remember that for the future. One of the great things I enjoy as an Affiliate about working with OPMs is that there is a person available who (ideally) has the interest of both the merchant and the affiliate in mind. I say the affiliate, because the more sales the affiliate makes, the better for all.
Connie, you can (and should) try to negotiate commissions all the time. If you don’t think you have “negotiation power” then offer something in return that you do have. I started without any “negotiating power” but was able to get higher than normal commissions for many of the products I promote.
Thats true, never underestimate yourself and your site because you may have just what a merchant is looking for. It never hurts to communicate with the OPM expressing what you might want and what you can do in return.