Commission for sales - how much?
I posted recently about a plan to further monetise a very popular site by adding a sales channel for associated products. The idea was to approach site owners already selling such products but who are struggling to get traffic to their stores. There are plenty of targets. So we provide a high profile sales portal for their products, transfer orders to them electronically for fulfilment, take the payment and then pay them less a commission.
I've been researching this over the last week and approached a number of existing sellers - encouragingly, over 60% of them have replied positively. So it looks like a goer. Building a store and setting up payment provision is easy enough but to be honest I've no idea what to charge as commission (I'm kinda new to this stuff). The product prices range from about £4 to £50 but I don't have any idea about their profit margins. I don't want to kill it by pitching too high but equally I don't want to run this for pence.
So where do you reckon I should pitch the commission - 15%, 20% ?? (of sales value). Any guidance appreciated 
Dave J
Comment by Pidea — August 17, 2006 @ 10:24 pm
If any of them are in the bicycle retail business I could help as I have a some experience in that area.
Comment by Chance — August 18, 2006 @ 1:54 am
That's a tough one Dave. I assume you are talking about physical products and not digital downloads?
For physical products, people who manufacture their own typically have 100%+ profit built in (my current employer has over 5000% profit on one item) and wouldn't balk at 15-20% commission if it produced sales.
However, the bulk of small-time ecommerce setups that would be sweating over traffic are typically resellers or drop-shippers- I think I read a statistic somewhere that said something like 80% of ecommerce sites don't produce their products and instead resell.
These drop shippers and resellers typically earn between 10-40% markup on the items they sell. People who are really sucking for traffic because of market saturation- computers, electronics, adult products- make even less at around 10-15%. If I was in their place and you asked for 20% I'd laugh you off the phone
From the 10 or so ecommerce sites I've worked for over the past few years, I think the average margin was somewhere around 30%- you would have to stay in the 1/2 of that range to be an option. Idealy, you would be in the 5-10% range to be a viable option for most shop owners- that's the percentage most spend on AdWords and other forms of advertising per sale.
Comment by Oli Allen — August 18, 2006 @ 8:52 am
Ask them to suggest something? You can always counter it with something a bit higher if you think it's too low, or maybe charge more on your own site than they do on theirs, giving you more of a commission?
Comment by Dave J — August 18, 2006 @ 7:08 pm
Thanks for the excellent feedback folks - the store will actually sell early learning and speech therapy/development products if that helps at all.
I was hoping to pitch at 15% but I may need to revise down slightly. Oli - I've also done as you suggested and asked the sellers for suggestions, hopefully that will help me narrow it down a little.
I think we may also use this as a trial development using JShop in place of our usual Oscommerce, hopefully with a full table-less layout and compliant code. Saves making an arse of it with a client's site
I'll let you know how we get on.
Dave J