How do I split margin between a customer discount and a creator commission?

A creator or influencer offers to promote your brand with a personal code. Their followers get a discount, and they earn a commission. It sounds like a fair deal until you notice that both payments come out of the same pool of margin.

One order, three claims on the money

Take an order priced at Rs 1,000. Your product cost, shipping and packing together come to Rs 670. Without any code you would keep Rs 330.

Now add a creator code with 10 percent off for the customer and an 8 percent commission for the creator.

• The customer discount is 10 percent of Rs 1,000, which is Rs 100.
• The creator commission is 8 percent of Rs 1,000, which is Rs 80.

The customer pays Rs 900. From that, you pay Rs 670 of costs and Rs 80 to the creator. Rs 900 minus Rs 670 minus Rs 80 leaves Rs 150.

So a Rs 330 order became a Rs 150 order. The code took Rs 180 of your Rs 330 between the two parties. That may still be a good trade if the creator brings you customers you would not otherwise reach. The point is to see it clearly before you say yes.

What happens at 15 percent off?

Creators often ask for a bigger discount because it helps their followers feel they got a deal. Try 15 percent off with the same 8 percent commission.

The discount is Rs 150, so the customer pays Rs 850. After Rs 670 of costs and Rs 80 commission, you are left with Rs 100.

Five more points of discount cost you Rs 50 per order, which is a drop from Rs 150 to Rs 100. Your profit on each order fell by a third just because of one number in the offer.

Check how commission is calculated

Agree in writing whether the commission is on the listed price or on what the customer actually pays. In the example above, 8 percent of the paid Rs 850 would be Rs 68 rather than Rs 80, and you would keep Rs 112 at 15 percent off. It is a small difference per order, but it is the sort of thing that causes an argument after a good month.

Also settle these before you start:

• Does commission apply to orders that are later cancelled or returned?
• Is shipping included in the base the commission is calculated on?
• When do you pay, and how will you share the figures?

A simple way to set the numbers

Begin with your contribution per order, which is price minus product cost, shipping and packing. Here it is Rs 330. Decide the share of that you are willing to give away in total, say a little over half. Then split it between the customer discount and the commission.

If the creator wants a larger customer discount, offer a lower commission, or the other way round. Do not raise both.

Is a creator code better than other options?

It depends on what else you could do with the money. For a comparison of paying only when a sale happens against paying for ads, read is an affiliate commission cheaper than ads. For how affiliate and referral links work in your store, see affiliates and referral links for your store.

Run the numbers on one real order before you promise anything. The five minutes of arithmetic are cheaper than a campaign that runs at a loss.