So the rumors were true, Amazon Associates US are changing their commission structure after all.
This announcement comes off the back of multiple stories of people getting contacted directly by Amazon Associate employees to discuss changes to their commission structures, including a few friends of my own. The changes that are being made are big and bold and will certainly change the nature of the game drastically and have a significant impact on the niches that Amazon Associate affiliates choose going forward.
What are these changes?
Amazon US are scrapping the entire volume based model; you will no longer begin at 4% and have the capacity of hitting 8.5% commission rate each month based on the volume of sales you generate. Instead, Amazon is putting into place category specific commission rates, most of which are under the 8.5% top tier which many full-time affiliates have been enjoying for the past several years.
Let’s compare the changes
I’ve put together the comparison chart above which illustrates the changes in commission rates.
Note: to explain the columns in the old row which have a dash (-) mean they are new categories and were more than likely, previously a part of the volume tier model (4% – 8.5%).
The columns with a dash (-) in the new row are no longer there; they may have been merged with other categories or are now under the ‘all other categories’ category at the bottom of the table.
Remember: the old volume-based model was exclusive of the categories noted in the column named ‘old’ above. This means that if you sold a graphics card under the old model, you would have received 2.5% commission which is equal to the new model. However, if you would have sold a lego box set, you would have received between 4% & 8.5% commission (depending on how many sales you generated throughout the month) compared to the new model which means you would only generate 3% commission.
This is the old volume-based model:
This is being completely scrapped this commission model will no longer be in action from the 1st March 2017, and you will instead have category based commissions as you can see in my illustration above.
Why is Amazon making these changes?
Honestly, no one knows, and no one is ever going to know the real reason. Once the official E-mail is sent from Amazon, perhaps they will give us a reason, perhaps not – even if they do it could (and most likely will) be some bullshit. So, let’s just forget the why and move on.
Note: before people start whining and saying things like ‘Amazon hates affiliates, they are pushing us away e.t.c, that’s bollocks, they wouldn’t go ahead and invest time and money into the Amazon Associates interface, sponsored advertisements or the official WordPress plugin. They are a business at the end of the day, a business which until recently has never made a profit, so they’re entitled to make changes, as much as we may hate them for it.
Since the birth of Amazon, it has been 100% focused on growth, what better way to grow an online retailer than to lure an army of affiliates into the program by offering them commission rates which tickle us in places we would rather not talk about!
What do I think of these changes?
While scrutinizing some of the
changes drops in commissions I’ve seen quite a few which have taken me by surprise.
Let me begin with things that haven’t surprised me:
Toys, PC & PC Components, Televisions – the margins as a business on these are pretty tight already, so Amazon was doing huge favours in the toy market with the whopping 8.5% commissions (for people hitting the highest tier) I highly doubt they were making much money (if any) in this category with the volume based tier. So, it does not surprise me that toys have dropped to 3% and the same goes for PC’s which were previously included in the volume tier model but capped at $25.
Side note: it makes me lol that Amazon have added a category for Amazon Gift Cards & Wine at an incredibly tempting 0.00% >_<
Outdoor & Kitchen – I am quite surprised that Amazon created a specific category for Outdoor and reduced it to 5% from the previous volume tier model (4% – 8.5%). I would have thought the margins on outdoor products would be sustainable at a higher commission rate than 5%. Also surprising is the Kitchen category, I thought that would have been higher than 4.5% this is going to hurt a lot of people since Outdoor & Kitchen are both incredibly popular for affiliates.
Home & Home Improvement, Lawn & Garden & Pet Products – on the other side of things, I am massively surprised that this category has been given an 8% commission rate.
However, behind every decision that Amazon has made when creating this new commission model, there is a reason.
I think we can all agree that Amazon has one of the biggest and best selections of products in the kitchen and outdoor market, with a huge amount of FBA sellers in both markets which have helped Amazon offer products at significantly lower prices than many of it’s competitors. With this being said, I think Amazon understand that no other online retailer can compete on a mass scale in these markets. Sure, there are more specialist retailers for outdoor products (fishing retailers, camping retailers, hunting retailers) but Amazon is going for mass market, no one can compete.
Another point to made, going back to the FBA sellers for Kitchen & Outdoor products, I think people are less brand loyal. When it comes to purchasing a tin opener, wine glasses, knife sharpeners, tents, camping seats, flashlights, most people are not going to be bothered what brand name is on the product you simply want the best for the most affordable price and Amazon does a fantastic job at offering you this.
However, if we now discuss the home & home improvement market I think this is where consumer perceptions change, if you are looking for a sofa you may want to test it out, which means researching offline and this also means you may purchase offline (easier to organise delivery, potentially better offers in store) and if you decide to purchase online then you want one of the products you have already tested in the store in which case you go to the stores online shop or direct to the retailer. This isn’t just the case for sofas, but any home furniture.
Then you also have things like the wood grains, the quality of finish – all of which are incredibly difficult to gauge online, then you also think about lighting, how subjective is lighting, a floor lamp that I like due to its retro design may be completely opposite to your chic style. You don’t get subjective when looking for a tent or a set of kitchen knives or a garlic press.
I think by now you understand my point, there are significantly more important factors at play with the home and home improvement market so I can understand (whilst being surprised) why Amazon have opted for the higher commission rate here, there is still a lot of room to grow in that market.
With regards to the pet products market, I am not as sure about this, my speculation begs me to consider that similar to the UK, there are a few large online pet retailers who dominate the market. Pet owners do tend to be quite brand loyal, especially if they find food, treats, toys from a particular brand which get a unique and positive reaction from their pets, I’d go out on a whim here and say that Pet owners are more inclined to pay for a particular brand vs. generic products.
I also know from family and friends experiences that pet products do differentiate massively in regards to quality based on brand, so taking into account pet owners may be more brand loyal there maybe a few big online pet retailers who stock particular brands then again I can see why Amazon want to offer affiliates a good incentive to start a pet website to help take a larger share of this market.
I’d love to hear your thoughts about why Amazon has chosen certain commission rates for certain categories, whether you think they’re higher or lower than what you think they should be offering, please share in the comment section below!
Will other online retailers take advantage of this?
This is an interesting question, I don’t think there are any online retailers as large as Amazon, that cover as many product categories while offering such an efficient service (think Amazon Prime, competitive prices) that can take advantage or compete with Amazon, even at a higher commission rate.
However, one definitely comes to mind that might try… jet.com, they are owned by Walmart and they’ve been very loud and public about wanting to increase their online market share and they’ve done a pretty good job so far in taking action and doing that – 29% increase in Q4 2016.
How will these changes affect my earnings?
For those of you who are interested, I’ve not yet accurately calculated the reduction in monthly income, I forecast that I will see reductions of 15-20% revenue. However, I am not just going to sit back and take the hit, since I originally heard about the rumored changes I’ve been researching and contacting retailers directly regarding affiliate programs and I’ve been offered some pretty fantastic commission rates and bonuses so far.
What should you do?
If you are an established Amazon affiliate and are already earning four or five figures per month then follow my suggestions below:
Step 1 – Analyse your sales data
Go into your Amazon Associates account and begin analysing last months sales data, if you have one or two authority sites you will no doubt find a handful of products you sell consistently. Highlight these, then begin to research those brands behind the products, find out if they have E-commerce websites, if so then contact the company. In the E-mail, mention that you already sell xxx number of their products via Amazon and that you would love to do a deal directly.
This a win-win situation for both you and the brand, they win by removing Amazon from the equation, automatically recouping at least 7% on their margins, meanwhile they will be able to offer you a better deal than what Amazon can offer you as well as potentially offering you bonuses for hitting xxx number of sales.
Another benefit is the communication, the networking and the relationship that you can now build with said brand. This is absolutely massive in terms of moving your business forward (yes your website is a business) you can begin discussing marketing ideas with the company, perhaps they could mention you on their website with a quote from you on how good the product is. You can of course get free samples to review and also consider doing competitors to your social audience (haven’t got one, now is the time to build one) which will help attract more people to your brand, allow you to grow your social following and for the company it helps build brand awareness and of course helps with your own brand credibility.
Step 2 – Look outside of Amazon
This a biggie – until now, almost every Amazon Affiliate has solely focused on promoting products that are on Amazon’s website. Why? Because it’s fucking easy and most affiliates are fucking lazy, simple.
Well, if you don’t want to go and crawl back to your boss and ask for your old job, then it’s time to get your finger out of your ass and shift your weight. If you want to make more money then start acting like it, we’ve been very fortunate in that Amazon has made it so incredibly easy for us to make money, just rinse and repeat.
With these changes come opportunities and some of these opportunities were always there…
Have you ever done keyword research and found a load of searches for a product that isn’t on Amazon and just said fuck it, I am not going out of my way to join another affiliate program or contacting this company to try and rank in Google for a product that isn’t even on Amazon.
Honestly, I am 100% sure every market is full of these products – now is the time to begin setting up pages and promoting these products too!
It’s time to diversify
For example, if you sell coffee machines – believe it or not, Amazon isn’t the only company that sells coffee machines, and some big coffee machine companies don’t even use Amazon to sell their machines. So, get in contact with these companies, similar to step 1, but this time talk about their competitors who you’re selling xxx number of products a month, and you’d love to sell their machines as well.
If you are not an established Amazon affiliate and you are just starting out, then of course look at the categories with the higher commission rate, but also note that these categories are going to be significantly more competitive than other categories because the incentives are higher. So don’t just look at the category commission, but also consider what the AOV of a product would be in that market 2.5% of $500 is much better than 6% of $100 and also do the normal market research, competitor analysis, and keyword research that we should always do before entering a market.
Wrap it up
I am going to wrap this up now, we’re at 2,200 words, and it’s getting a bit crazy – I am going to be blogging more frequently now and also going to try and finish of the Youtube series I began and also start some other shit, so watch this space! Oh also, I am going to be writing a post on ‘life outside of Amazon Associates, opportunities for entrepreneurs’ which will discuss things like dropshipping, FBA, lead generation as well as those old school methods like digital products (Clickbank) e.t.c
P.S. Sorry to cut the post short, there is so much I could write about, but I don’t want to overwhelm people or jump around too much.
Please share this post and comment below, I’d love to hear your thoughts about these changes.