marketing, salesI run a web-based business by myself, and I don’t do any significant sales or marketing. So, as you’d expect, my business is growing slowly…
My operational costs are very small thanks to inexpensive cloud services so I wouldn’t mind paying significant referral fees to anyone who refers a paying customer to me. For example, I was thinking of paying the referrer 50% of all payments I get from a referred customer for their first year.
My prices are low so referral payments would be relatively small. A very large customer might pay $1000 per year. Most customers pay much less.
You see a lot of referral programs, but most of them give credits (e.g., Dropbox increasing your storage amount) rather than actual money. Are there any drawbacks to paying money to referrers?
I know I’d have to be explicit about informing them that they would be responsible for taxes and I might need to file 1099’s for some of them, but I’m comfortable doing that.
The downside to paying cash is, as you alluded, the paperwork involved. However, if you are serious about attracting the best affiliate marketing professionals, you need to pay cash as people can't pay their grocery bills or mortgages with Dropbox credits. Despite your personal experiences, the vast majority of affiliate programs are in-fact based on cash payments. You may not have noticed them because they are not promoted to end-users like the "tell your friends and get credit" programs are.
Most serious affiliate programs (with a few exceptions ie. Amazon) are run using affiliate marketing marketplaces such as Commission Junction or ShareASale. Those platforms will help you with running your program and will provide confidence to affiliate marketers who trust having a third party platform on which they do business with you. The platforms also expose your program to thousands of affiliate marketers who might otherwise not know your opportunity exists.
You might want to look around your industry to see what others are offering in terms of affiliate payments. 50% of revenue for a year sounds quite high for just about any industry (except maybe the most competitive businesses like adult websites). On the other hand, being generous may help your sales to skyrocket and may establish you as the dominant service in your industry.
All content is licensed under CC BY-SA 3.0.