It was just a few weeks ago I'd sent you an email about a retailer who had dropped their affiliate commission rates.
Now, Amazon is following suit and the changes are significant.
Instead of paying 8% commission for products in the Home category the rate is being reduced to just 3% effective April 21st.
I'm HEAVILY in the Home niche when it comes to Amazon so this is certainly a big impact to me, too.
Before complete panic sets in I want to tell you a true story.
In the early 2000s I was promoted to a new management position at my bank.
The department I took over had an incentive program in place that paid our call center employees a commission every time they could convince a customer to keep their leased vehicle instead of turning it in.
This was designed to help cut the massive losses lenders were facing from a portfolio of vehicle leases that was heavily underwater.
Every leased vehicle that was returned during that time was going to result in an average loss to the bank of more than $2000.
If you could pay your call center staff an extra $50 every time they cut a deal with a customer to have them buy their leased car for $1000 over wholesale value instead of turning it in you could cut your losses by at least 50%.
The incentive program was designed so that an employee could make as much as an extra $1000/month for selling a leased car instead of having the customer turn it back in.
However, while this incentive program had worked well in the past it had not been adjusted to deal with changes in the industry.
When I took over the department not every lease was a potential loss.
In fact, we had a good percentage of vehicles that were coming back that were going to result in a profit to the bank - but only if the car was returned to us.
It was easy to sell those cars to the customer because the customer knew they were getting the car for less than it was worth.
You could get a customer to pay you $5000 for a car that was really worth $9000 all day long, right?
Because the incentive program hadn't been updated we were paying employees a commission to sell those profitable cars back to the customer, too.
In essence, we were paying our employees more if they increased our losses than if they'd helped us by reducing our losses!
Employees had figured out which cars they could sell more easily and had focused in on those cars.
As a result, some employees were making as much as $11,000 a month in incentives!
The incentive program was no longer effective.
The formula used to determine the incentive was no longer obtaining the desired outcome.
Employees were being driven to perform the wrong kinds of actions and they were getting paid big bucks to do so.
An incentive program is supposed to compensate someone when they accomplish a challenging action that benefits the payer of that incentive.
It's not supposed to pay someone for doing something that is easily done.
So, I changed the incentive program to sync it with the environment at the time and to bring it back in line with allowing employees an opportunity to earn as much as an additional $1000/month.
Needless to say, this did not make me very popular with my employees but it did save the bank a great deal of money.
This previous experience in my career immediately came to mind as I reviewed Amazon's announcement.
I've looked at my Amazon commissions for this month and compared them to the same period for last month.
My commissions are UP 128% April 1-15 as compared to March 1-15.
They're up 106% as compared to the same time for February of this year.
They're up 65% as compared to the same time for January of this year.
In fact, they're even higher than the same time in December 2019 which is the highest online sales period of the year!
You can't look at what you sold in March 2020, apply Amazon's lower commission rates and say you're going to make less going forward because the US was just starting to implement stay-at-home orders the end of that month.
You need to watch what happens in April and May.
Remember my earlier email? I explained that if Amazon dropped their commission rates it was going to be for a different reason than the other retailer.
I suspect Amazon hasn't cut commissions in order to cut what they pay to affiliates.
I think they're cutting them because they don't need to pay us double the money to do the same work we were already doing.
It's just like the lease vehicle example above.
People are shopping online now more than they were before. More, even, than they do at Christmas!
They're cutting them because if they don't they're going to pay affiliates way more than they were before but not getting more from the deal.
Does that make sense?
I'm still going to throw in here that I could be all wrong but when I look at my current Amazon commissions I'm not freaking out.
You shouldn't just yet, either.
Sincerely,
Erica Stone
erica@extremereviewer.com
