Who pays the override?

[Rich]

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(I originally posted this as part of the original Networks v In House thread, but I'm really interested to get some affiliates views this, so thought I'd split it out not that threads closed)

First off this isn't the easiest view to explain, but hopefully I can make a stab at making it clear. Just ask for any clarification!

One point that is offend made as a reason against a merchant using a network is the override they pay on commissions, typically 30%. But if you think of it another way you can see that this can be seen as a charge to affiliates.

Lets say a merchant can afford to spend 13% of the value of an order to aquire a sale. They pay the network that 13% and the network pays affiliates 10% (10%+30%override=13%).

So who has paid for the override?

Has the merchant paid it to cover the management functions that the network provide?

-or-

Has the affiliate paid it as using the program via the network reduces their admin costs (one set of stats to check, one payment to chase, easier to find programs etc)? Remember, if the network wasn't there the merchant could have paid the affiliate 13% if the network isn't providing them any added value.

-or-

Is it a mix of the two?

I think its clear that it is a mixture of the two. Both affiliates and merchants get some benefits from working with a network so the cost of the override is split between them.

If you assume its an equal split of costs between merchant and affiliate then that is a 15% cost to each side. The split would be different depending on which network you look at and whether they are merchant or affiliate focused.

So from a merchants viewpoint, the cost of using a network may well be well less than the 30% override.

And from an affiliates view point, do the networks earn our money?

A couple of examples using my exeriences.

Tradedoubler seem very merchant focused. Their management interface for affiliates is well featured, but they don't pay as quickly as some other networks and don't protect affiliates against merchants that stop trading.
So I would say the TD override is something like 20%Merchant:10%Affiliate

Buy.at seem more evenly balanced. Their reporting isn't as featured, but it provides enough detail. They have paid out in the past when companies have stopped trading and they also seem a lot more active at promoting merchants and suggesting ways to affiliates of using them. This is an advantage of both sides.
So I would say the Buy.at override is more even 15%Merchant:15%Affiliate

I have no experience of the merchant side of either network so these are just my feelings.
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The reasons behind this post are: -

To try and get the merchants to see that the 30% override is not just a cost to them, but that it is partly covered by affiliates.

To show that the split of the cost is dependent on the network.

And to try and show affiliates that networks arn't really a free ride and that you should ensure you get value for money.

( And to see if anyone understands what the heck I'm going on about! )

[justnozy]

Hi Rich

I understand it perfectly

It is a point that probably could be argued forever because there is no real answer to cover all scenerio's.

In basic terms I would say that if it is a product (which carries a predetermined profit margin ) then it is the aff that is paying 100%. Because the merchant will have a preset amount they are prepared to pay - including overides

If it is a revenue split operation ( eg Greasy Palm) then I would say this would be a 50:50 (or similar) split.

On a pay per lead then I would think it is stacked more against the merchant because costs of leads are often set by the market eg you do not get a £1.43 PPL from an indie (1.43 x 70% = 1.00).
However, I have seen 35p & wondered if this was an attempt to pay 50p less overide.

Which ever the scenerio the networks cost someone - I suppose its really a matter of how you see the benefits in terms of value.

A point I have wonder about perhaps more is where did the 30% itself come from - it (on face value) seems an arbituary figure that is adapted by all.
I assume it is a first step figure & something that can be negotiated depending on the strenght/size of the program - thus raising your question all over again;-

If the overide is reduced by negotiation does the aff get more commission? If not is it now okay to have the opinion that the aff in reality has given the discount - or at least part of it ?

Could go on forever

[MobilesCoUk]

If the overide is reduced by negotiation does the aff get more commission?

Yes in our case as a merchant. Earlier this year we wanted to increase our commissions to Affiliates but the numbers just didn't stack up with the standard override.

We negotiated a reduction in the override and were able to increase our commissions to Affiliates while still maintaining a profitable business for both us and the Network. Isn't that how it should always be?

[Supercod]

I fully agree with you on this. For example I earn one network so much money that I believe that I pay the staff wages of at least 10 people at that company (assuming they are on an average wage of London based affiliate manager who are not experts). However this same company adds no value to my business with regards to any additional services or even basic services, they hardly ever call me, never pay me on time.

And I am not the only one, I know of many people here that make huge sums of money yet get treated like they make a couple of pounds a month with regards to network services.

I do think that once your making networks a certain amount of money, they should take you out of the general population and look after you as they would a merchant. Some networks get confused they think merchant pays loads of money = they are most important when they should be thinking, affiliate makes merchant loads of sales = merchant has to pay network because affiliate makes sales = affiliate is most important because if the affiliate leaves to promote another merchant (or even the same) on another network you no longer getting paid bucket loads of money from the merchant.

However the good news is many networks have learned this valuable lesson, support is never going to be perfect for everyone but at least they making an effort… now if they could just give me a new Merc (a good one) if I make them £300,000 in override LOL ;-)

To answer your other question, some times merchant come along and say this is what I will pay for a sale, you take what you like and give the affiliates what you think is far. Other times they set the amount you can pay because they are on other networks so don’t want you paying more even if you have a cheaper override and so affiliates can get more. I also had experience of networks giving some of the override to affiliates if they get past a certain monetary amount with a merchant, and equally had merchant who will give higher commission for certain sales level if a network is willing to drop some of the override at this higher level. So is loads of room for negotiation.

End of the day networks are business and they will change what they think the market can afford, it’s up to affiliates to make sure they get value for money from the networks and if they don’t to switch links to other networks (where they can) who do give value for money.

[fifimac]

I agree that effectively it is the affiliate that covers the cost of the override. But there are other things which are related to the way the networks operate that can affect commission levels we can afford to pay to affiliates.

We currently work with three networks. Each one has a slightly different override and management fee structure. They also have different policies on recruiting and managing affiliates. We offer the same sales commission (40%) on all networks, but the registration commission varies because of the efficiency or otherwise of the affiliate network from my point of view.

That means I can afford to pay MOST to affiliates working with paid on results...so far the quality of traffic is higher (e.g. in my case it converts better to sales and I have the option to reject applications from overseas affiliates who will generate registrations that I don't want) and the overall cost as a percentage of my monthly invoice from POR is lower.

Affiliate Window comes second. Their charges are higher, but they allow me to control which affiliates I accept onto the programme and it is relatively easy for me to monitor registration to sales conversions

Affiliate Future comes third. I have no control over the affiliates accepted onto the programme unless I check through the list manually AFTER the affiliate has signed up...so, for instance, I can't prevent affiliates who are likely to send russian women to my UK dating site from registering in the first place, but have to try and check through a list of some 500 affiliates retrospectively. If I get 50 registrations from Afuture and 25 are from overseas it damages my site and also means that registration to sales conversion rates will be lower.

I also find it very difficult to analyse conversion of registrations to sales. So, although the override is a slightly lower percentage, the programme is less cost effective for me because I am paying for affiliate traffic that is inappropriate to my business and I take that into account in the registration commission I pay (not sales commission obviously!).