Why the Performance Fee Model Is On Its Way to Extinction

I am going on record and declaring that the traditional 20-30% affiliate network performance fee model is headed for extinction. 

Currently, there are significant pricing and structural changes taking place in the US performance marketing industry that are signaling what may be coming for the rest of the global performance industry. 

For networks to remain relevant and competitive as the market evolves, they will need to embrace changes to a model that has not evolved with the times and is hindering the industry’s greatest opportunities for future growth.

What is the performance fee model?

At its core, a full service affiliate network has historically offered three main components:

• Technology (program hosting, tracking, payments & reporting)
• Publisher development services 
• Account management services

These services are in addition to ancillary functions, such as fraud monitoring, compliance, etc.

Rather than charge for each of these services separately, full-service affiliate networks usually charge a single “performance fee,” or “override” as it is referred to in Europe. This fee is typically a percentage of program revenue (e.g. 1-2%) or commissions paid to affiliates (e.g. 30%). The idea is that it covers those three main service components. 

This model came of age in the early 2000s when affiliate marketing was a new industry and the networks provided the majority of new publisher relationships for retailers. Networks also tended to have publisher exclusivity in the early days of the industry, which helped make this fee model so popular. 

At the time, the performance fee model made sense because:

• Retailers only had to pay the network when a sale was made. 
• They had little knowledge of the publisher landscape. 
• They were attracted to the wide base of exclusive relationships forged by the networks. 

As a result, the performance fee model became the standard for the industry over the next decade. 

Read the full article to learn how the current performance fee model came to be and the challenges it’s causing today, five trends that threaten the current version of the performance fee model, and what networks will need to do if they want to continue meeting the needs of the market.

This article was originally published on PerformanceIN.

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Robert Glazer is the Founder and Managing Director of Acceleration Partners, a leading performance marketing agency focused on profitable online customer acquisition for high-growth consumer businesses. Acceleration Partners was ranked #4 in Fortune’s Top 10 Places to Work in Advertising & Marketing and has been named a Best Workplace for Women two years in a row by Great Place to Work? and Fortune. The company has also been ranked on Inc 5000/500’s Fastest Growing Companies for 4 years in a row and named to Boston Business Journal’s Fast 50 for two years in a row. Representative clients include Tiny Prints, adidas, Target, Reebok, eBay, Jet.com, The Children’s Place, ModCloth, The Honest Company, Warby Parker and Rent the Runway. You can read his Friday Inspirations at www.fridayfwd.com.