Is paying an affiliate commission cheaper than running ads?
A commission is paid only when a sale happens, while ad spend is paid either way, so compare the two on what you keep per sale.
Sellers often ask whether it is smarter to hand out affiliate links or to put the money into Instagram and Google ads. The honest answer depends on your own numbers, but the shape of the two costs is different, and that is worth understanding.
The key difference
An ad costs money whether anyone buys or not. You pay for the reach, and some of it turns into sales and some does not. An affiliate commission costs money only after a sale has happened. If the affiliate brings nobody, you pay nothing.
That does not make commissions cheaper in every case. It makes them lower risk.
A worked example
Say you sell an item at Rs 800. After product cost, shipping and packing, you keep Rs 300 as contribution. This is before any marketing.
With an affiliate at 10 percent commission, you pay Rs 80 on each sale. Contribution after commission is Rs 300 minus Rs 80, which is Rs 220.
Now take ads. Assume, for illustration only, that your ads cost Rs 200 for each sale they bring in. Contribution after ad cost is Rs 300 minus Rs 200, which is Rs 100.
On these made-up figures, the affiliate sale leaves you Rs 220 and the ad sale leaves you Rs 100. The commission is Rs 120 cheaper per sale.
Where this comparison can mislead you
The ad cost of Rs 200 is an assumption. Your real figure comes from dividing your ad spend by the number of sales it produced, and it may be much better or much worse. Use your actual number.
The second problem is volume. Ads can reach many strangers on demand. An affiliate may bring only a handful of sales a month, or none. Cheaper per sale is no use if the total number of sales is tiny.
The third problem is the discount. If the affiliate's code also gives customers money off, as many do, add that to the commission. Ten percent commission plus 10 percent customer discount costs Rs 160 on an Rs 800 sale, and your Rs 300 shrinks to Rs 140. The comparison with ads is much closer.
Questions to ask before you choose
- What is my real cost per sale from ads, using the last month of data?
- How many sales could an affiliate realistically bring in a month?
- Will the commission be paid on returned or cancelled orders?
- Does the same person already buy from me, so that I am paying a commission on a sale that would have happened anyway?
Use both, keep records
You do not have to pick one. Ads buy reach quickly while affiliates give you trust through a person. Keep separate records for each channel: spend, number of sales, cost per sale and contribution left. After two months you will not be guessing.
To see how referral links and codes work with your store, read affiliates and referral links for your store. To set a fair split when a customer discount is also involved, see splitting margin between a discount and a creator commission.
Do the sum on your own figures. A commission feels cheaper, and sometimes it truly is, but the number on your own order sheet is what decides.