Skip to content
Back to Monetization & Revenue

Commission Structure

How to structure commissions (flat, percentage, tiered, recurring) to align affiliate behavior with your revenue model.

Why

The commission structure determines what behavior affiliates optimize for: a flat $50 per referral drives volume (affiliates want many quick conversions), a 30% percentage drives value (affiliates want high-ticket customers), a tiered structure (20% up to $1k MRR, 30% above) drives both, and a recurring commission drives retention (affiliates want customers who stay). The wrong structure creates misaligned incentives: a flat $50 commission on a $29/mo product makes affiliates promote the monthly plan (low commitment, high churn) instead of the annual plan (high commitment, low churn), because both pay $50. The right structure for SaaS is usually a percentage (20-30%) of the first payment or first 12 months — this scales with the deal size, so affiliates are incentivized to drive annual plans and larger teams. For one-time products, a flat commission works because there is no retention dimension. The most common mistake is copying a competitor's structure without thinking about your own revenue model — your LTV, churn, and plan mix determine the right structure, not what others do.

When

At program launch, and whenever your revenue model changes (new plan, price increase, shift from monthly to annual default).

How

1. Map your revenue model: is it recurring (SaaS) or one-time (product)? What is the LTV? What is the plan mix (monthly vs annual)?
2. For recurring SaaS: use a percentage (20-30%) of the first 12 months of revenue — this aligns the affiliate with both deal size and retention
3. For one-time products: use a flat commission ($50-100) or a percentage (30-50%) — flat is simpler, percentage rewards affiliates for driving high-ticket sales
4. For tiered: offer 20% up to $1k MRR referred, 30% above $1k — this rewards affiliates who drive both volume and value
5. Add a bonus for annual plans: if the affiliate refers an annual plan, pay 1.5x the commission — this aligns them with your preference for annual (lower churn, cash up front)
6. Set a commission cap at 12 months for recurring — paying forever creates a liability on your balance sheet and most affiliates stop promoting after month 3 anyway
7. Do not pay commission on self-referrals, existing customers, or renewals outside the 12-month window — these are not new revenue
8. Test the structure with 5-10 affiliates for 3 months, then adjust: if affiliates only drive monthly plans, increase the annual bonus; if they drive high churn, switch from recurring to one-time

Example

# EZ4Code commission structure (recurring SaaS)
const commission = {
  type: "recurring_percentage",
  rate: 0.25,           // 25% of first 12 months
  cap: 12,              // months
  annual_bonus: 1.5,    // 1.5x for annual plans
  excludes: ["self_referral", "existing_customer", "renewal_after_cap"],
};

// Affiliate refers a $29/mo monthly plan
// Commission: $29 × 0.25 = $7.25/mo for 12 months = $87 total

// Affiliate refers a $348/yr annual plan
// Commission: $348 × 0.25 × 1.5 = $130.50 (one-time, with annual bonus)

// Tiered structure (for larger programs)
// 20% up to $1k MRR referred, 30% above
function commission(mrrReferred: number) {
  if (mrrReferred <= 1000) return mrrReferred * 0.20;
  return 1000 * 0.20 + (mrrReferred - 1000) * 0.30;
}

Common Problems

  • ⚠Using a flat $50 commission on a SaaS product — affiliates promote the cheapest monthly plan because it converts easily, and you get high-churn customers. Use a percentage so affiliates prefer annual plans.
  • ⚠Paying recurring commission forever — this creates a permanent liability on your balance sheet and most affiliates stop promoting after month 3. Cap at 12 months.
  • ⚠Not paying a bonus for annual plans — affiliates drive monthly plans because they convert faster, but you want annual. Pay 1.5x for annual to align incentives.

Best Practices

  • ✓Match the commission structure to your revenue model: percentage for recurring SaaS (aligns with deal size and retention), flat for one-time products (simpler, no retention dimension).
  • ✓Pay 1.5x commission on annual plans — this aligns affiliates with your preference for annual (lower churn, cash up front) and costs you less than a churned monthly customer.
  • ✓Cap recurring commissions at 12 months — this limits your balance-sheet liability and reflects the reality that most affiliate-driven customers who churn do so in the first year.