Affiliate Economics

An affiliate program pays a third party (the affiliate) a commission for driving a sale, signup, or other conversion. The affiliate takes the marketing risk — they spend time and money promoting you before they earn anything. In exchange, you pay only for results.

Affiliate vs referral vs influencer

• Affiliate — Performance-based. Affiliates have their own audience or ad spend and promote multiple products. Commission paid per conversion.
• Referral — Word-of-mouth from existing users. Usually a smaller, fixed reward (discount, credit). Lower barrier to join. Dropbox is the classic example.
• Influencer — Fixed-fee sponsorship. You pay upfront regardless of conversions. Different risk profile from affiliates.

When affiliates work

• You have a proven conversion funnel — Affiliates send traffic. If your landing page converts poorly, affiliate ROI is negative. Fix conversion first.
• LTV is high enough to support commission — A 30% commission on a $9/month product is $2.70. That is not enough incentive for serious affiliates. Higher LTV products support higher commissions.
• Your product has a clear audience niche — Affiliates need to know exactly who to target. A vague ICP makes affiliate marketing very difficult.

Commission structure basics

The two dominant structures: one-time payment per sale (simple, predictable) and recurring commission per subscription payment (attractive to affiliates, more expensive for you over time). Most successful SaaS programs offer 20-30% recurring commission for the first 12 months.

Affiliates earn commission on results — zero cost if they generate zero sales
Fix your conversion funnel before launching a program
Recurring commission attracts better affiliates than one-time payouts
LTV must be high enough to support a meaningful commission
Referral programs (existing users) are different from affiliate programs (publishers)