Foundations · Lesson 4 of 7
Writing a commission structure that works
About 11 minutes · Yogender Kumar, Managing Partner
By the end of this lesson you'll be able to
- Set a base commission from your margin
- Use new and returning customer rates to pay for growth
- Write the payment terms partners need to see
Why this matters
Commission is the main message you send partners. A flat rate tells them every sale is worth the same to you, and they'll chase whichever sales are easiest. A well-built structure tells them what you actually want, and pays them properly for it.
The core idea
A commission structure has four parts.
- A base rate, set from your margin and your limit per customer.
- Customer tiers: more for a new customer, less for a returning one. Most networks can pass a new or returning flag with each sale.
- Performance tiers: a higher rate once a partner passes a monthly sales level, to reward the partners who grow with you.
- Terms: what counts as a valid sale, how long you have to check it, and when you pay.
Category rates are sometimes added, with lower commission on low-margin products. Keep the structure simple enough to explain in one paragraph. Partners can't aim for a target they can't follow.
Worked example
Hartwell Outdoor, with illustrative figures, pays a flat 10% on an £80 order, so £8 a sale. Two partners send it 100 sales each month:
- A cashback site. 40% of its sales are new customers.
- A review site. 85% of its sales are new customers.
Under the flat rate, the cost of each new customer is:
- Cashback: £800 ÷ 40 = £20.00
- Review site: £800 ÷ 85 = £9.41
Hartwell switches to 12% for new customers (£9.60) and 5% for returning ones (£4.00).
- Cashback: (40 × £9.60) + (60 × £4.00) = £384 + £240 = £624. That's £15.60 per new customer.
- Review site: (85 × £9.60) + (15 × £4.00) = £816 + £60 = £876. That's £10.31 per new customer.
Total commission falls from £1,600 to £1,500. The review site, which brings in new customers, now earns £76 more a month. The cashback site earns £176 less, and returning customers through it cost £4 instead of £8.
Nobody's been cut off. The money has simply moved towards growth.
What each new customer costs, flat rate against tiers
The terms partners need to see
- Valid sale: a completed, paid order that isn't returned, cancelled or placed with a code the partner wasn't given.
- Validation period: for example 35 days after the order, to cover delivery, the 14-day cancellation period and the time to send goods back. Many retailers allow longer.
- Payment: approved commission paid in the following month's run.
- Changes: at least 30 days' notice of any cut to rates.
From sale to payout
Example timetable
In practice
- Start from your limit per customer, then subtract network fees to get the most you can pay.
- Ask your network to pass the new or returning customer flag before launch.
- Publish the structure in one short paragraph partners can repeat back.
- Review rates every quarter against cost per new customer, partner by partner.
- Give notice before cutting rates, and explain why.
Common mistakes
- A flat rate for everything. It pays the same for a loyal customer who'd have bought anyway as for a brand-new one.
- Tiers nobody can reach. A bonus at a sales level no partner gets near changes nothing.
- Cutting rates without notice. Partners move their best placements to whoever pays reliably. They remember who didn't.
Try it yourself
A partner sends 200 sales a month on an £80 order, and 30% are new customers. You pay a flat 10%. You're considering 12% for new customers and 4% for returning ones. What does each new customer cost under each structure?
Show answer
Flat 10%: 200 × £8 = £1,600. There are 60 new customers, so £1,600 ÷ 60 = £26.67 each. Tiered: (60 × £9.60) + (140 × £3.20) = £576 + £448 = £1,024. That's £1,024 ÷ 60 = £17.07 per new customer.
Quick check
Not scored. Pick an answer to see the explanation.
What does a higher rate for new customers encourage partners to do?
Why set a validation period of around 35 days on retail sales?
Key takeaways
- A structure has a base rate, customer tiers, performance tiers and clear terms.
- New-customer tiers move the same budget towards growth.
- Judge partners on cost per new customer, not cost per sale.
- Give notice before you cut rates.