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There are very few mistakes you can make in running an affiliate program that are absolutely devastating. Today, I’ll share one that I recently witnessed and how they could have avoided it.

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Previous Episodes of The Affiliate Guy

How to Build Your Team: Working with Virtual Assistants, Contractors, and Full Time Employees to Scale Your Business

How to Work with An Affiliate Network: Q&A Lightning Round

Don’t Launch if You Don’t Want This…

The Worst Part of My Entire Business: Why You Need to Hire an Affiliate Manager

How to Decide to Accept or Decline an Affiliate

How to Write, Publish, and SELL Your Book with Chandler Bolt

This Affiliate Program Just Made a Fatal Mistake: Here’s What They Should Have Done Instead

There are very few mistakes that you can make in running an affiliate program that is absolutely devastating. Today, I’m going to share one that I recently witnessed and how they could have avoided it. So as you might imagine, I’m a member of a lot of affiliate programs and there are a lot of companies that we promote.

There’s a lot that admittedly I’m an affiliate, but we don’t really promote them. I’m an affiliate to be able to see how they’re managing their program. I try to do this with programs in different niches and different types of affiliate programs, like retail products versus digital products. I try to do it somewhere.

Maybe they’re evergreen versus launches and things like that. And just to be able to get exposure to different affiliate programs. Part of why I do that is not only to occasionally steal a really good idea but also to see what bugs me as an affiliate. What do I see in these affiliate programs? It absolutely drives me insane. And then I seek to fix those things.

I seek to avoid those problems in the first place, and I seek to improve upon them. Give you one example. We do live leaderboards for a lot of the launches that we run. This is a page that is consistently updated that has a live leaderboard. Where did the idea for that come from? It came from the fact that I was an affiliate and I was going nuts.

Like some of the leaderboards wouldn’t be updated for 48 hours. And this is 48 hours in the middle of a seven-day open cart. Not 48 hours when it’s a week and a half, two weeks before the card opens and whatever. Not a big deal, right? But this was driving me insane. And I said you know what? I got to fix this. We do a pretty good job. We update it twice a day. But imagine how I feel if it’s not updated for 48 hours. How does somebody feel if it’s not been updated for 12 hours?

I’m like, I’m going to fix that. I’m going to create a live leaderboard. And we did that. And it was a big innovation. And there are tons of other things that we’ve done as a result of that. Well, one of the things I’m always doing is watching what these affiliate programs are doing. And I got an email recently I’m going to read to you and I’m going to strip some personally identifying information out of this email. I’m not trying to call this company out. If you recognize who this is, this is not me saying this is a terrible company. And the person who said this is a terrible person, that’s not what it is. I’m saying, you know what? They made a mistake and I want to share what they could do.

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Now, that’s part of it. But also, what could they have done to not put themselves in this situation? What could they have done instead? They put themselves in a bad situation. But what could they have done to react to that situation? I’m going to read this email to you, stripping out as much as I can. I want it to still make sense but not give anything away. The subject line was affiliate program changes. Now, right off the bat, when have I ever got an email with that innocuous subject line and there has been good news in the email? It hasn’t happened. Now, I appreciate the fact the first five words in this email are, I’ve got some tough news.

This is a concept we call Bluff. Bottom line upfront. Got that from the military. Don’t give me the freaking backstory. Drives me insane when somebody comes up and they have clearly something to say and they go, well, hey, Matt, remember how like a few years ago, blah, blah, blah, and then this happened and then we like, oh, my gosh, I’m not following you. Can you share with me the bottom line up front, please? Maybe that makes me a jerk. Like, that is the right way to communicate.

Now I can go, oh, I might not need the backstory if you come up to me and like, you’re on our team and you say, hey, blah, blah, blah, and then, OK, so really, what we need to do is spend $50 to fix that. I didn’t need the backstory. Hey, Matt, this happened and it takes $50 to fix it. Okay? I don’t need to know the backstory. I really don’t. Or you’re just going to pay $50 and fix it. Yeah. Okay, cool. Problem solved. We’re done. And there’s somebody I won’t say who, but there’s somebody in my life that’s like for him to tell the story.

It is the most comical thing. The gist of the story is I went to the ice cream place and spilled the ice cream on my shirt. And to get to that, it’s like so I was driving down was it Cold Water Road or Lima Road? Which one goes eastbound? Which one’s westbound? They both go North-South thing. It was cold water. I was at the intersection of Sunshine. To the right of me was this green car. Like, what does this have to do with you tripping over the curb once you got to the ice cream place and spilling ice cream on your shirt? So I appreciate that.

The bottom line up front, is I’ve got some tough news. That’s a lesson here that we’ll talk about when you got to break the bad news to your affiliates. Got some tough news. We’re ending the current version of our affiliate program and transitioning to a new model. We’ll be switching to a model that pays $75 upfront for every new account, but no ongoing commissions. Under the old model, if you refer to a customer paying $29 a month, you would receive eight-point $0.70 per month, which would take almost nine months to reach $75. On the new model, you earn $75 right away but do not have the ongoing commissions.

Now, this is the problem. I liked the fact that I was making a lot of money ongoing for the people that I had referred, and that was the agreement that we had. But I’m going to continue with this email. This will allow creators who are actively promoting to earn more money upfront webinars launches, et cetera, especially good for this model, but help us avoid the ongoing obligation that is out of our control don’t really understand that ongoing obligation to fulfill the contract that we agreed upon.

Starting in March, we are tapering off the affiliate commissions on referrals more than two years old. That taper will play out over a six-month period from March to August this year. By September of this year, we will no longer be paying any recurring commissions on our old model. Affiliates will still be able to start generating commissions using our new $75 bonus structure starting in May. A little bit confusing there. I’m not sure. I hate to kind of, like, fall away. Is it this?

So I would appreciate some more clarity there and we’ll talk about that. Okay. Making this change to the affiliate program is the last thing we want to do. And I spent a lot of time trying to figure out another path, but I couldn’t find one. Let me explain. All right. I’m going to break down this email a little bit later, but the issue here is they had an agreement with their affiliates and they are effectively lowering the Commission because I have referred roughly doing some quick math, 1200 people, I actively promote this to the tune of we make more money every two to three months than we do. So I’ll make more money.

Well, would have made more money in April than I made in January. So we’re clearly referring some people to them. And assuming that there’s a little bit of attrition, some of those people are dropping off. I might only refer six people to them from January through March, and we might lose two. So a net of four. But I’m consistently sending them more customers. And part of that is the way that they were paying. Part of that is because every time we get a payment from them, it reminds me, oh, yeah. And we go out and promote them actively.

He said, Let me explain. We’re in a competitive market, and the growth for this company has slowed at a time when we were spending more and more to attract and retain team members, pay for the server and email infrastructure, and invest in building out the product. The affiliate program is our biggest marketing expense by a substantial margin. It’s probably also the biggest source of all of your customers. More specifically, the vast majority of affiliate payouts Are going out to affiliates who are no longer actively promoting the Convertkit. Many stopped years ago.

We’ll talk about that. We’ll address that. The result of this is that we’ve run just barely above break-even for the last year. We’re up against competitors who have deep pockets from VC funding. We’re putting as much money as possible into building the best platform we can for creators. But doing it as an independent company is very challenging, Especially with this long-term liability. Liability? Not a good use of that word there. We created from our affiliate deals. I know a lot of people will be p*****, and I think it’s totally fair if you are too. But I look through all the options and couldn’t find any other way to get growth on track and give us the resources to serve creators long term.

If you want to talk to us, I’m here along with so and so, our director of marketing and such and such, our affiliate manager. We love to keep working with you if you’re interested. Thanks for listening. I’m not picking on them, but things changed. The market changed. Their margins changed. I get that. But in my opinion, they never should have been in this position. They needed to do a better job on the front end of how to determine commissions. One thing I want to point you to is a video that I did. It’s a free video. It’s on our YouTube channel. How to determine the right affiliate Commission structure. All right. And I’ll link to that in the show notes. It’s super easy.

You want to be competitive, and that’s the thing. They were kind of the new kid on the block. They wanted to be competitive. I got that. But you got to leave the room, too. I feel like they could have probably gone a little bit lower on their commissions on a recurring thing. $29 a month. Feel like they could have gone 750? Roughly. I think it would have. Technically, if they pay 25%, it would have been like 742 or whatever. I’m not sure the exact math on that. Now that would have said, oh, wow, the whole dollar 30, $0.30 a month. Matt, whoop did you do? But that dollar, $0.30 a month would have been accruing and accruing and accruing and accruing for months and months before they ever hit this problem. They would have bigger reserves. And even now, I don’t imagine that this problem is a 50% problem. I imagine this problem is a very small problem that got out of hand.

So a year ago, when their margins started thinning, they would have had, I don’t know, a million dollars more in the bank. That’s probably pretty handy if they spent it correctly. B, they would have had less of that, quote, unquote liability to pay. So you want to be competitive, you want to be enticing. You’ve got to leave room for things like this. And so I was texting back and forth with a friend of mine, and he said, I can’t see them escaping this about a class action lawsuit.

Now, I’m pretty sure if they have their terms and conditions set right that they have the ability to change them. But the reality is they did promise that we’re going to pay commissions for the life of this contract. And they’re not their affiliates have stood by them through price increases. He said, well, they went through a rebrand and it was a disaster. And then they switched back. So I’m probably giving away who it is. It is what it is, right? He said, there’s been a decline in customer service quality. And essentially what they’re saying here is we’re not happy with the amount of money we made. So we’re taking the money we promised you and we’re not giving it to you.

That’s the problem that I have with this. That is the problem I have with this. Now. What could they have done instead? Like, they’re in this position. They’re in this position. It is what it is. What do they do now? What do they do now? So if they hadn’t made the right commissions upfront, which would have been a little bit less about a buck 25 less per deal per month, I think that probably would have made a massive difference. I think it would have solved the problem in and of itself. But let’s say that it didn’t. Let’s say that, well, let’s just go with what they were at. They were paying 870, and they needed to get it down. Number one, I would have had them.

This is the very first thing I would have done is said, let’s add a manual step. Let’s require them to recommit to the affiliate program to continue to receive payments, and we’ll talk about the rest. But immediately, some of those people earning $25 a month who don’t even notice would have just gone out the window. Like, hey, we just want to reconfirm. Like, you could switch payment systems.

There’s a solution. Switch payment systems. In order to continue to receive your commissions, you got to resign up for the new payment system. I guarantee you 5% to 8% of the commissions out the window immediately. Problem solved. 870 a month times 5% every single month has gone. That solves the short-term problem immediately. Even if it’s only 4%. 5% like that. That problem is probably solved, at least in the short term. This is their choice. Like lower commissions, close your affiliate program, but they are dishonoring a deal. My friend said this dishonoring a deal you made is not cool. And so we can’t do that. So the reality is they did find themselves in this situation.

They didn’t do what we suggest and create a better Commission structure. No one expects them to go bankrupt. We’re not expecting, you know what, just keep dealing with this. Like, who cares? So what should they have done instead? Why? I said number one, immediately have their affiliates basically kind of resign up for the program, essentially, but not say, hey, we’re switching payment systems. You need to resign up. I guarantee you 4% of the Commission’s right out the window. I think it’d probably be 8%. Secondly, honor the deals that were already made for active partners. Okay. Be willing to make less on current partners in order to keep them happy and promote that 870. I get it. You got to hire people, you got to do other stuff. You’re not making anything. They’re making something. And these affiliates are their lifeblood.

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So here’s what you do. You send out an email outlining the problem, basically saying what it said, but in a little bit more detail and state that if you continue to promote and bring on new customers, we’re going to honor the deal that we made on past referrals, but we’re changing it for new referrals. If they want to change it starting March 1 or I would suggest a little bit later, we’ll talk about that. But starting in the future, if they want to say starting with referrals coming in on June 1, we’re paying this new structure. Fine. I don’t like it. I don’t like it at all. But fine. Or maybe they could have been switched to the model that I suggested before and said the new model is if you refer one to ten customers a month, then you earn $7 per referral.

If you refer whatever, like ten to 25, you earn 725. So on and so forth. Right. And what they’re paying is based on the number that they refer to in that given month. Okay. So how this works is if you refer to zero, you earn $5. So you can’t tell me that liability from five to 870 doesn’t dramatically alter things. So we’re going to pay you lifetime again starting on this future date. But if you refer zero customers in the month of August and you have ten customers currently paying $29 a month, you refer zero customers, you’re going to get $5 a sale. You refer to one to ten.

Can you make it like one to five? You’re going to get $7 or whatever $0.70 I don’t know. What is the number. You can figure out the math. That works. Okay. You refer 100 people this month, you’re going to earn 870, you’re going to earn 870. If you refer 100 people, they’re referring a crap ton of people. Who cares if you’re only making a buck 50 a sale right now because they are sending you so many people who will buy other stuff, who will upgrade, who will come to the event.

If you have an event, all these people that they’re referring to, some of them will become affiliates themselves. So say we’re changing it for new referrals, but we’re going to honor all the past ones. This will build incredible loyalty and respect. This is the reason why we and our clients don’t continue to pay for old sales. If they’re inactive it’s in the agreement. You must remain an active affiliate to continue to get paid on old sales. And you could put it in the new agreement. Like, if you don’t make a sale for a year, you no longer get paid on anything from the 13th month. In other words, if you refer somebody in January and you don’t make another sale through January of next year and February of next year, you’re not making anything on those people from January. That’s fine. That’s a perfectly legit way to do it. A year is a pretty good thing. All you have to do is we don’t actively promote them a ton.

They’re just up on our Toolbox page, Mattmcwams.com Toolbox, they’re up there and we make like one or two sales a month. And then periodically we’ll do a big push for them and we might make 1020, 50 sales that much. And then it goes right back down to two, three a month. Occasionally we’ll sign up every now and again. I’m like, oh, wow, we signed up seven people last month. I have no idea how, but we did sometimes it’s that we promote this company on the back end of one of our other offers and we promoted that offer and we got 50 people to sign up for that and five of them signed up for this thing. And then we had our regular two roughly. So number one, filter out the people who aren’t actively promoting but honor these old contracts, honor those, and then build in a new structure that’s a little bit better than this one because this is a dramatic change and it sucks.

This new version sucks compared to the old one. And you can’t go from one extreme to the other just to address problems that aren’t my fault as an affiliate. The third thing is you got to give them at least three months, preferably six. Lots of heads up. Don’t wait until the last second. They only gave us a one-month notice. That is not cool. Give them some time. Hey, we’re going to be making this change. We send this out basically in February or maybe late January.

We’re going to be making this change beginning in April or preferably in May or June. Give them some time. Not only are we going to honor our current agreement, we’re going to change it a little bit but it doesn’t start until June. Okay, cool. I can deal with that. Fourth give yourself a lot of margin on new partners so you never have to do this again. With this new program, we’re going to honor our commitment to our previous current partners but for everyone signing up they’re just under the new one and you could start that today. So you say we can’t deal with those margins. Okay, that’s fine.

The new ones who are signing up today are only going to account for a 10th of a percent of your sales this month but next month they’ll account for 2% of your sales and the following month they’ll account for five and then eventually the old people are going to be flipping over to new and at least on new sales it’s a process, right? Don’t wait until you hit crisis mode. It drives me nuts when I hear about companies that have 100 employees and they laid off 42 people. Really? Did you lay off 42 people in one day? You couldn’t have laid off ten people like three months ago and maybe have not gotten to this point. Lay off ten or twelve people three months ago, maybe five last month.

This drives me nuts how bad are you at planning and forecasting and understanding how finances work be better at those things if you’re running an affiliate program, just be better at those things. So given yourself the margins and this is essentially going to create two Commission structures you got the old partners in the new that’s fine. You probably already have a bunch of Commission structures for big partners, medium partners, little partners, etc. Anyway.

Fifth, you got to communicate the change early often. Get on the phone. Go live in the Facebook group for your partners. Send multiple emails. Send a text to your top ones. Whatever you need. Reach out in advance before you send the blast communication. Reach out to your top affiliates personally. Get on the phone with them. This is one of the things that drove me nuts about this one. I got one email about it. What if I didn’t open that email? In fact, I didn’t. It was forwarded to me. I got the email. I found it later, but it just got filled. Program changes, whatever I deleted or my assistant deleted it, but there should have been multiple follow-ups to that.

One thing you need to do in preparation for this invites a group of trusted affiliates to share their thoughts, share their ideas. Like, just talk through it. Right? You might learn something that would work better than what you were thinking or maybe learn how to communicate it to the masses. Working with a group of like five or six people is kind of like a mastermind setting. And so as you’re doing this communication, though, I want you to follow the basics of communicating bad news to your affiliates. Like, I’ve shared this in a bunch of other places. But let me just run through kind of the seven things you need to do if you’re going to communicate bad news to your affiliates.

You want to apply these seven things. And these apply whether it’s this thing, really, really bad news or maybe there’s something wrong. Like, hey, our server is down and we don’t know when it’s going to be back up. Like, it’s not like it went down for two minutes. The network is having issues. This product is no longer available. And we said it was going to be and we really plan. The supply chain got messed up and we didn’t forecast it very well and we got sued whenever the FTC is after, whatever it might be. If you’ve got bad news, this is how you communicate that bad news to your affiliates. Very first thing is just to be direct and avoid mixed messages.

So first, be direct and avoid mixed messages. Be thoughtful and caring. We’re breaking bad news to people, but don’t sugarcoat things. That makes it more difficult for people to digest it on their own terms. So just be direct and I will give this email credit. Came out right out and said, I’ve got some tough news. We’re ending our current model and transitioning to a new model. Kind of got right to the point. Okay, I appreciate that. Second, explain how the decision was made. Explain how the decision was made. Study after study shows that people are more willing to accept an unfavorable outcome if they believe that the decision-making process was actually thought through. If it was sound.

There’s a term for this. I remember learning this in psychology class called procedural fairness. So you might want to say to your affiliates, for example, here’s the process that we followed here’s, the people that we spoke with and where things came out. This is why I go back to what I just said. Invite a group of trusted partners and say, here are the things that we talked about and we met with these partners. Maybe you don’t need to listen to my name, but we met with some of our top partners and we brainstormed and we masterminded. And here’s what we arrived at. And I do appreciate that. They walk through, they break down the numbers and they outline the problem, but walk through the process a little bit more. Explain how that decision was made. Express empathy. That’s number three. And they didn’t do a terrible job of this. But I feel like, I feel like there could have been more empathy.

The affiliate who’s getting the bad news, you got to understand how they’re going to feel and how they are likely to think about the message that you’re delivering to them. All right? So try to anticipate their emotions. And again, not a bad job. Like he says in the email, like, I know a lot of you are going to be p*****, and it’s totally fair if you are. So I appreciate that. But maybe express a little bit more empathy and understanding about the ways that you can help them to get past the bad news into thinking of solutions and next steps together. So that’s what I’m talking about. When he says, if you want to talk through this, like, no, we’d love to talk through this with you. We’ve made ourselves available. Click here to schedule a call with us. Or even just as simple as like, hey, let’s talk about how you can take advantage of this.

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This is going to benefit those of you who are actively promoting. And also, by the way, we’ve introduced some tiered prizes and things that you can win if you make a certain number of sales. I get it. If this is the decision they made, while I disagree with it, what are some of the things that maybe make up for it? I don’t know what those are. We’ve added prizes. Okay, well, that doesn’t really solve a financial problem if it’s truly a financial problem. But hey, we’ve improved conversions by 3.2% over the past year. I’m making myself available more to affiliates to do podcast episodes. So you can actively promote more. We’re doing custom landing pages for all affiliates, something like that. So, yeah, there’s some bad news, but there’s some upside too, right? Fourth, you got to own the situation. Everything is your fault. Do not pass the blame.

You don’t need to explain the why and all that. Just own it. So in this particular situation, I kind of feel like they’re blaming $0.70 I’m quoting competitors who have deep pockets from VC funding liability that we created from our affiliate deals. That’s not really owning it. Just own the situation. Like, hey, we screwed up. I love when people do that. I’m like, immediately you’ve got my attention. I’m on board with whatever it is. Do not pass the blame. Everything is your fault. So if the server goes down, don’t blame your host. Blame yourself for not having some redundancy built-in. To be quite honest, yeah, we’re on the cloud, but when our site goes down, we just own it. Like somehow we messed up.

We didn’t have enough redundancy built-in. The site’s down. We’re working on it. Right, which is number five. Reassure them that you’re working on a solution. So if you have a problem with the site, tell them you’re working on it. You don’t need to have the solution. A lot of people are like, well, we don’t want to communicate until we have the solution once. That’s three days from now. So this doesn’t really apply to this particular side of things, but maybe it could. Like, if you needed to communicate that we’re lowering commissions and doing all this stuff, what are you doing to make up for that? Hey, we don’t know yet all the other stuff that we’re going to do, but we’re going to make it up to you somehow.

We’re going to do our best to make it up to you. We’ve got some ideas. We’re meeting with our top partners, and we’re going to come back to you with some ideas. Okay, great. That leads to number six, which is promised to follow up. So going back to the case of the servers down, I will immediately reach out to affiliates. The server’s down. We are so sorry. I will let you know as soon as things are resolved. I will let you know. And then the 7th is follow up, follow up, follow up. Like, actually do the follow-up. So in the case of a server going down, the longest that our site has been down in the past three years since we switched host to a company called Agathon, highly recommend them. By the way, the mattmcwilliams.com/agathon link is in the show note as soon as we switch to them. We haven’t really had this.

The longest we’ve been down in the last three years is like 1213 minutes. So it’s not really even by the time I alert our affiliates, it’s probably already back up. Like the time I craft the message and click in, the website’s already backed up. Heck, by the time we even know about it, it’s probably already back up. But I have been in situations just using this as an example where our website was down for 36 hours, we were bleeding. Literally three, $4,000 an hour in sales. That sucks. And we knew it. So what I did was as soon as I knew it was like 30 minutes in, I emailed all of our fillers. We didn’t have Facebook groups or anything back then. This was back in 2000 and 910 but I emailed everybody, hey, this is what’s happening. We have an error that we don’t even know what it is yet. Our website is down. We’re on it. We’re working on a solution. I will let you know as soon as things are resolved.

I went ahead within about 2 hours and sent another message just saying, hey, just wanted to give you an update. I won’t send you hourly updates the whole time but there was an expectation that we’d be back up by now And I want to let you know we’re not we’re working on it again. I’ll let you know as soon as things are resolved. I think about 4 hours later, about hour six or so. I then said, hey, I’ve put up a status page if you want to take a look at it. We put up a status page on another server and it basically said the status page kind of gave updates like here’s where we’re at, click the link below to go to our home page.

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If that homepage is working, It means we’re good to go with all that stuff. And then I sent an email out at about the 124 hours Mark And just said, sorry, still no updates. And then I did send an email at about from the time we figured out the problem until it was fixed was only about 90 minutes and I sent an email out saying, guys, I’ve been told by our team that we should be up in two to 3 hours and then about 90 minutes later we were up. So I followed up. I did what I said I would do. I let them know as soon as things are resolved. As soon as we know more. So again, you can avoid this situation with better front-end planning. So go check out that video on how to determine your commissions. Then follow this. If you’ve got to communicate some bad news which you’ll at some point I don’t know what it’s going to be but there’s going to be some bad news and then the big thing is just to honor your deals.

Honor your commitments to your affiliates and they are the lifeblood of your company. More than likely come up with some creative ways. Take an extra week or so to think about it. Get together with some of your top partners and just be honest with them. If you really are in a pickle, what’s the worst that can come from that? They go, oh, I didn’t know you were in such bad financial shape. I quit promoting you. Well, they’re going to anyway if you screw them over like this. So communicate with them, and ask them for their input. They’re smart people. They’ll give you some good input. So I hope this helps somebody avoid this situation and record this not to be like, beat them up, but to help somebody.

Now, next week, speaking of helping people, I’ve got a pretty special topic. Near and dear to my heart. The next episode is all about the surprising thing that might be holding your business back. You probably haven’t thought of this thing as something that was holding your business back, but I see it holding so many people back and it absolutely just rips me apart. It’s near and dear to my heart and it’s important and it has implications just way beyond business. So I hope you come back for that one. It’s going to be a powerful episode surprising thing that might be holding you back in your business.

So make sure you hit subscribe so you don’t miss that episode. It’s too important if you know somebody who could benefit from this episode. Share this episode with them. Share this episode with them and I’ll see you in the next episode. I’m so excited about it. So important. I’ll see you then.

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