Commission Rates Explained: Maximize Your Affiliate Earnings

Are you an aspiring affiliate wondering about commission rates?

Do you want to know what are “good” commission rates for affiliates?

I’ve reviewed more than 377+ affiliate programs on this website, and in this post, I’d like to shed some light on:

  • Different types of commission structures
  • How to calculate your commissions
  • Commission rates for physical vs digital products
  • Should you promote physical or digital products
  • Common mistakes among beginner affiliates

After this post, you should be able to make better decisions (as an affiliate) when it comes to promoting products and maximizing your earnings.

Let’s hop right in.

Commission Rates Explained

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A Common Mistake Among Beginners

New affiliates often have this enthusiastic rush to add affiliate links ASAP.

And in the process, they may forget to give much thought to if what they are about to promote will actually pay decent commissions.

More often than not, you will see people putting all their effort into promoting cheap products (games, books, mouse mats, etc). And when they eventually get that first sale, they’re surprised when the commission is just a few pennies.

While getting that first tiny commission can fire up your motivation, it’s not enough to make you retire yet.

Now, it’s okay to promote those cheap products, but if you’re just getting started with affiliate marketing and want to rely on the income from commissions, you may want to promote more expensive items – remember;

Cheap and expensive items take the same amount of effort to promote.

So make sure to choose wisely what you want to focus on in the beginning.

Further below I will show you what I look for in commission rates and price points.

Understanding Commission Rates

Let’s quickly go through the basics.

The following is what you’ll encounter when researching affiliate programs and I’ll also show you how to calculate your potential commissions per sale.

Here are the most popular commission structures you’ll encounter:

  • Percentage-based
  • Flat-rate
  • Tiered

Percentage-based commissions are the most common type you’ll encounter in affiliate programs.

How do percentage-based commission rates work then?

In short, affiliates earn a certain % of the total purchase made by customers.

Let’s say an affiliate program offers a commission rate of 20% for you.

Now if you promote a product that costs $100, your commission would be $20 per sale (20% of $100).

Here’s another example with a commission rate of 50%.

If you promote a product that costs $200, your commission would be $100 (50% of $200).

Learning to calculate percentage-based commissions is the most important aspect here as you’ll be dealing with this type of commission structure the most.

The formula for calculating percentage-based commissions is:

Commission per sale = (Commission rate/100) x Product Price

Where “Commission Rate” is the percentage rate of commission expressed as a decimal (for example, 10% would be written as 0.10).

For example, if an affiliate program offers a commission rate of 10% and the product you’re going to promote costs $250, the calculation would be:

Commission per sale = (0.10) x $250 = $25

This means $25 is the amount you’d earn per sale.

With the above calculation, you can now figure out how many $25 products you’d have to sell to reach $1,000/month or whatever your income goal might be.

$1,000 / $25 = 40 products per month

Sounds achievable.

But how many visitors would you need to sell 40 products in one month?

Let’s say you have a very conservative conversion rate of 0.5% (pretty much anyone can achieve this).

We can use the following formula to calculate the needed visitors:

Number of visitors = Number of Conversions / (Conversion Rate / 100)

We know we need to sell 40 products and we assume our conversion rate is 0.5%, then our formula looks like this:

Number of Visitors = 40 / (0.5 / 100) = 40 / 0.005 = 8 000 Visitors

This means you are only going to need around 8,000 visitors per month to achieve your $1,000/month income goal by selling $25 products.

To put this into perspective, if you sold $50 products (instead of $25), you would only need 4,000 visitors to achieve your $1,000/month income goal.

I hope this made sense.

Let’s quickly look at other commission structures now.

Flat-rate commissions mean that you will receive a fixed amount for each item sale OR the entire order.

The commission amount might vary wildly depending on the company, but what I’ve seen the most are flat rates of $5-10 per sale.

In my experience, affiliate programs offering flat rates can be a hit or miss because you may not get credited for multiple items in the order as you would with percentage-based commissions.

So make sure to check out what kind of affiliate program the competing brands are offering. Chances are you may get higher commissions if they offer a percentage-based structure.

Tiered commissions are also fairly popular.

The core idea is that your commission rate will increase to the next level as your sales volume increases.

For example, below are tiered commission rates for a knife brand I recently covered:

  • 10% commissions – under $500 in monthly sales
  • 15% commissions – $501-$2,000 in monthly sales
  • 20% commissions – over $2,000 in monthly sales

With this type of structure, you’ll earn more commissions per item as you progress the levels. And as you can see, these too are “percentage-based”. It’s possible to encounter “tiered flat-rate” commissions too.

Next, let’s take a look at what rates you should look for in physical and digital products.

Commission Rates For Physical Products

The commission rates for physical products are almost always lower than for digital products.

This is because physical products come with additional costs for the company (shipping, packaging, etc) and profit margins are already tight for them.

Typical commission rates for physical products are between 1.5% – 20%.

What this means for affiliates is that if you want to earn worthwhile commissions, you have to promote higher-cost items to make up for the lower commission rates.

Of course, this depends entirely on your income goals.

Personally, I try to get at least $25 – $50+ per sale when it comes to physical products. This means I aim for commission rates of at least 10-20% and the products should be over $250 to make it worth it for me.

I don’t mind lower than 10% commissions either as long as the product prices make up for it.

Commission Rates For Digital Products

Digital products offer much higher commission rates because there isn’t manufacturing, shipping, or packaging involved.

The commission rates for digital products can reach up to 95% in some cases.

I very much prefer digital products over physical ones due to the higher profit potential.

Another major benefit of digital products is how some of them offer recurring commissions.

There’s quite nothing like earning commissions month after month from a sale you made 3 years ago. If there was a secret to succeeding with affiliate marketing, I’d say it’s with recurring commissions.

When it comes to promoting digital products, I aim for around $25 – $100 per sale here too, with an emphasis on the products having recurring commissions.

And since the commission rates are typically higher for digital products, the products themselves don’t have to cost as much to earn decent commissions. The lower price point of items means more sales too.

Should You Promote Physical Or Digital Products?

You can earn great money with both.

But there is definitely more potential in digital products due to recurring commissions and generally higher commission rates. The products can cost less for you to still earn decent commissions and there are also fewer refunds.

Physical products aren’t bad, but due to lower commission rates you often have to focus on promoting products that cost $250+ to earn large enough commissions to make it worthwhile. This obviously limits the product selection to some degree.

Remember that you don’t necessarily have to choose between the two.

In most niches, it’s possible to promote both types of products.

It just may take some research before you find fitting digital products for some “physical” niches.

Overall, I prefer digital products more.

How To Find Affiliate Programs With The Best Commission Rates

Now, this comes down to knowing your niche and doing affiliate program research.

You have to look for brands with affiliate programs and see what kind of rates they are offering for affiliates.

If you are not sure how to do this, make sure to read my article on How To Find Affiliate Programs In Your Niche.

You can also check out my affiliate program lists and see if I’ve covered your niche.

I also want to mention that the affiliate program offering the highest commission rates is not always the best option.

As always, you want to consider what are the most helpful products for your audience.

This way you’ll make more sales too.

Additional Resources

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Make sure to check it out before you go.

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Mikko

What's up! I started my first affiliate website in 2018 promoting PC peripherals and since then I've been hooked on making money online with affiliate marketing.

Ever wanted to make money online promoting popular products from Amazon?

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