This website, like most others, gets some revenue from affiliate marketing. It’s a program where when a customer buys a product through a link, the website owner receives a small commission, at no cost to the customer.
Benefits of Affiliate Marketing
When employed by reputable websites, affiliate marketing is a win for everybody. The customer gets a great product, the grill company makes a sale at a higher margin because it’s not sold at wholesale through retail, and the website owner gets money to reward them for their content.
From the grill company’s perspective, affiliate marketing is a tool to drive direct-to-consumer (DTC) business. They’re paying a commission to drive traffic to their site rather than a retailers. It also has an ancillary benefit of marketing even if a sale isn’t made.
What Grill Companies Get Wrong
What some of the largest grill companies did at the start of the grilling season makes us think that they don’t understand the purpose, as we just laid out. Right as Memorial Day was approaching this year, they lowered their commission rates.
Commission Rates
Both retailers (e.g. Amazon, Walmart) and grill companies offer affiliate marketing. Usually the commission rate is in the 3% to 5% range, with some grill companies offering a little higher than that.
Grill companies also usually offer a higher commission rate than a retailer. That’s because (as mentioned before) the product is being sold directly, so their margin is much higher by cutting out the retailer.
Competition
Grill companies may have thought that they were saving money by lowering commission rates, but that ignores the purpose of an affiliate program and who they’re competing against. When a company is trying to make higher margin DTC sales, they are actually competing against retailers.
It’s our experience that clicks to retailers convert at a higher rate than direct from grill companies. This puts grill companies at a disadvantage to start with.
While some grill companies lowered their commission rates ahead of the grilling season, retailers raised their rates for grill sales. The retailers understood they’re competing on a seasonal item against other retailers.
Their commission rates at retailers ended up much higher than directly from the company.
Result
The result of a dynamic where companies pay a lower commission rate than retailers, is that traffic is driven to retailers. Not only is the commission higher on the grill itself, but if a customer buys through a retailer, they often purchase more accessories and other items unrelated to the grill, generating even more commission.
The result to the grill company is lower margin. They have a higher volume of sales through retail at the benefit of saving a small percent from DTC commissions.
Conclusion
To create an effective affiliate program, a company needs to understand the strategy behind why they’re creating one in the first place. They also need to understand who they are competing against. Otherwise, they are missing out on larger DTC margin sales.