Pricing Your Products For Affiliate Sales
In previous post, I had discussed the need to hire an Affiliate Manager whether in an outsourced, freelance or full time position. Having decided which professional is best fit to help your business model. Now you are all set to commit to develop an affiliate program.
The next concern that you would need to attend to is how should you proceed with pricing your products.Inasmuch as an affiliate program is a performance-based compensation model, there are costs that you would have to consider to maintain your profitability. Some costs that immediately comes to my mind are the affiliate commission, third party tracking cost with corresponding setup and monthly minimum fee, marketing cost, promotion costs, incentives, plus several more miscellaneous fees.
Pricing might be the most difficult marketing task that you would do - whether you are a big or small business operator. Handling it carelessly could spell the success of your business endeavors.
There are many approaches to do when deciding how to price your products. One is the Parity Pricing wherein you would base your price on the competitors pricing scheme. Using this method, you might price your product at par with that of the competitor which could give impression that you have an equal product which tends to connote as competitor products. Pricing below the competitor could signify inferior product.
Another approach is the cost-plus pricing. This typefied by adding the costs and a profit margin. The key figure is the Net Profit Margins (total sales - all costs). This pricing scheme identifies easily how much you are bringing home as profit.
Both of this pricing schemes has its own pitfalls which might cause you to ultimately lose your capital investment. In my opinion, the best way is to balance your pricing against the market share. Competition on the internet is getting harsher and you would usually see prices dropping beyond your expectation.You can have a leverage on price wars if you have a foresight to segment you markets and products. Pricing should be carefully computed with counter actions of competitors in mind. Also, the cost should not be a definitive element in identifying how much you would be selling your products.
If you are selling your products through affiliate marketing, you need to consider how much the consumers are willing to pay for your product. Once you identify this, make sure you have enouch leverage for commissions, coupon offers and other variable costs. Say the market is willing to pay $35 for a pair of shoes, identify the cost of raw product, packaging, shipping and other miscellaneous costs. Then check how much competitors are giving commissions to their affiliates. Commission rate should always be competitive since you can always recover the cost of customer acquisition - just keep in my the lifetime value of your customers which you would have ownership after affiliates have referred them to your website.. Once you identify these factors, make sure you leave room for future incentives and other rewards. With all the information at hand, i would suggest you price your product at 10-20% higher than the price consumer are open to buy. This is to give you opportunities for future Discount or Deal offers which you can use strategically to attract buyers.
There are other considerations on pricing which I would be happy to discuss in future blogs.
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