QUESTION on How to Start An Affiliate Program
I own an internet business (www.wechoosevirtues.com) and I have a customer who wants to market my business online for a commission.
1) Is there a guide I could get that would give me some idea how to structure this agreement and commission rate?
2) I plan to give her a discount code that would confirm that she has generated that particular sale. Is there another way to do this?
3) How is this relationship viewed for tax purposes? She is not an employee; does she need to start her own business to be a vendor for me? Thank you so much
– Heather
ANSWER by Isabel Isidro
Dear Heather,
Thank you for your question.
What you are describing is commonly known online as affiliate programs. There are ready made commission sales agreements or contracts similar to this one http://www.shrm.org/TemplatesTools/Samples/HRForms/Articles/Pages/1CMS_006443.aspx that you may refer to and pattern your own from the template. You may also check out other websites who offer free templates of these kinds of forms. I suggest looking at how Amazon.com runs its affiliate program https://affiliate-program.amazon.com/ (check out their Operating Agreement)
There are no guidelines about how much you are willing to give (%) as commission. In our experience, some book or ebook publishers’ share range from five percent up to 50% depending on how much the costs are. If it is a downloadable item or ebook, the sharing is usually up to 50 % of sales. With real books, it is usually anywhere from five to seven (5-7%).
Giving her a discount code would be fine in identifying her sales. That is, at the moment that she is still the only one selling for you.
If the number of those generating commission sales for you increases, consider purchasing an affiliate management program or software in order to allow you to automatically track where sales is coming from. You can also search the companies who can provide this through the search engines (search Google for “affiliate management software”)
Another way is through Google Analytics. If you use Google Analytics to track your web statistics, you can activate the ecommerce tracking segment http://www.google.com/support/analytics/bin/answer.py?answer=55528 . You can then create a special tracking URL for her that will allow you to track whether she generated any sales for you. http://www.google.com/support/analytics/bin/answer.py?answer=55578
For tax purposes, she will be an Independent Contractor. You will have to issue an IRS Form 1099 and report the commission amount to the IRS whenever her commissions go $600.00 and up annually. Otherwise, you may not be required to do so. Please read the IRS section on “Forms and Associated Taxes for Independent Contractors” http://www.irs.gov/businesses/small/article/0,,id=179114,00.html
She can act as an individual affiliate using her own name with her SSS Number as her Tax ID or she can also start her own business with a business name and can use her SSS number or acquire an EIN number from the IRS.
Hoping that we have answered your question.
Regards,
Isabel Isidro
Recommended Books on Affiliate Program:
- Affiliate Program Revolution: Learn To Setup The Most Active, Profitable And Traffic Producing Affiliate Program In Your Entire Market Starting Today
- A Practical Guide to Affiliate Marketing: Quick Reference for Affiliate Managers & Merchants
- Affiliate Selling: Building Revenue on the Web
- Make-Money-Online Series: How to Start Your Online Affiliate Store: Step-By-Step Guide to Making Money Online
Article originally published March 2006. Updated on January 21, 2012
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