How Much Is 10% aka Do You Know What You Are Being Paid

Author: Keith

12 Apr

One enigma in affiliate marketing is what exactly does the merchant pay the affiliate.

The thing is all things are not equal some merchants pay commission on the full price of the goods the customer buys including vat, others deduct the vat before paying commission, to add another variable other merchants also pay commission on shipping charges. Any combination of these can and will be paid by different merchants, except maybe paying on vat and shipping but not goods, unless you know better.

So how much is 10%?

Lets take a theoretical order of £100* where the commission is 10%, shipping is £5. (*the £100 includes vat at 17.5%)

Not enough room to post every scenario so I’ll whiz through the most common.

Merchant 1 pays commission on the full value of the order including the vat – £100 @ 10% = £10

Merchant 2 pays commission on the full value of the order including the vat and shipping – £100 + £5 @ 10% = £10.50

Merchant 3 deducts vat at 17.5% before paying commission – £100 – £17.5 = £82.5 @ 10% = £8.25

So you see 3 scenarios and three very different commission payments in the worst case 10% of £100 is £8.25.

It would be nice if the information regarding what the merchant pays was available on the network merchant page, only place I’ve seen it is in the additional information on Paid On Results and then not for every merchant.

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Filed under: Affiliate Marketing

2 Responses for "How Much Is 10% aka Do You Know What You Are Being Paid"

Richard (2 comments.) April 13th, 2008 at 10:49 pm 1
LoveHoney pays a %age of the amount spent on goods.

I think that’s easiest to understand – even if it means we’re paying affiliates a %age of the VAT we’ve collected to give to Gordon Brown.

BTW, the calculation in your third example is wrong. You have worked out the VAT the wrong way round – VAT (Value *Added* Tax) is calculated by adding 17.5% to what the merchant charges. This is not the same as working backwards by calculating 17.5% of what the customer pays.

If £100 is spent by the customer, the VAT element is not £17.50.

Here is the sum you need to do:

Find the original amount that 17.5% was added on to in order to get to £100:

X + (17.5% of X) = £100

So in your example of £100 spend, X=£85.10 and the VAT paid to Gordon Brown is £14.90.

So the affiliate would get 10% of £85.10 = £8.51

If the affiliate is paid 10% of £100 spend inclusive of VAT, the effective commission rate on money earned by the merchant is 11.75%. Which is nice.

If the customer had spent £117.50, the VAT element would be £17.50.

Important to get these sums right if you’re calculating which merchant offers you the best deal!
John C (3 comments.) April 14th, 2008 at 8:29 am 2
It’s even harder with amazon as books are VAT exclusive but other stuff isn’t.

By the way £100 (vat inc) = £85.11 (vat exc).

£100 / 1.175 = £85.11

Cheers

John