2017 Amazon Commission Changes
Update: Amazon recently changed their commission structures again, making this article out of date. We’ve left it live though in case you wanted to compare our advice in this article to our new article. You’ll notice our advice is much the same in both, that if you want a successful and safe business you should diversify your income streams. Click here to read the up to date Amazon commission article.
The only thing that stays the same is that things always changes.
Nowhere is that truer than in the online business world. Right now, it is happening with Amazon announcing a March 1st site-wide rollout of commission structure change for their affiliates (they have officially announced this change here). The way the commission structure used to work was that affiliates earned a percentage on a sliding scale based on the volume of products they sell, capping at 8.5% as the highest tier.
In the weeks leading up to this wide-ranging rollout, selected affiliates earning 8.5% commissions doing large volume were given a call personally by Amazon representatives to inform them of the change coming down the pipeline. While Amazon insists that it will still maintain itself as the best affiliate program around, there is no getting around the fact many affiliates are going to get hit in the pocketbook by this change. This is going to affect quite a few people – niche site builders and also buyer/sellers at Empire Flippers.
When dramatic business-impacting changes like this come out, many people shout that the business model is dead or can no longer make money. They close up shop and leave the online world altogether.
While this change WILL hurt a ton of affiliates, there are still some opportunities people can take advantage of as these changes roll out.
A Hit For Experienced Amazon Affiliates, Quicker Profits for Newbies
Those who will suffer most from this change are the larger Amazon affiliates who are earning the 8.5% commission via the old tiered system. These affiliates stand to lose with this change (Most will lose somewhere between 15-40% of net earnings) as Amazon switches to a flat rate percentage for each category.
You can see the new changes below:
As you can see, not every affiliate will be hurt as dramatically, depending on the product category their niche sites is focused on. Yet, most super affiliates using the Amazon Associates program are typically selling in more than just one category, so it’s likely their sites will take a hit in revenue and, ultimately, profit.
Technology based websites stand to lose the most when commissions drop to 1% across the board. If tech affiliates can’t adapt, this will significantly impact a lot of businesses in an already very competitive space. Already these commissions are pretty low – 1% video games & consoles and 2.5% on computers.
On the flip side, the new changes announced could help newbies or new sites make larger profits from the start in categories such as apparel and home improvement. Instead of having to sell enough volume to get to the next tier in pay, new sites will instantly start at a higher commission rate regardless of how many products they are actually selling. Of course, this only applies if the new site chooses the correct categories that offer the best commission percentages.
While newbies stand to make more money in these categories, there may be increased competition in these niches in the coming months as more affiliates look to leverage these higher percentages with their own sites.
What Will Happen to Affiliate Site Valuations?
There’s no getting around it, making less money directly translates into a less valuable business. The valuations will go down, in some cases quite significantly as is the case for technology sites earning all their revenue from the Amazon Associates program. Again this clearly depends on the category of the site – some sites might see a slight increase in their earnings, but those are definitely in the minority.
Note from Justin & Joe: We will be repricing ALL of the Amazon Associates sites on our marketplace to reflect this change. Our methodology for this will include using the seller’s earning report from Amazon. We have created a formula using historical sales that adjusts the commission percentage based on the new rates that Amazon has rolled out. These rates are adjusted in every category and accurately updated with the historical earning amounts. Since every item is in a different commission category, we will take every category that the website is selling in into account for the new adjusted valuation price.
For example: If you mainly sell items in the Outdoor niche at the new 5.5%, there might be some of your items that fall under the Apparel category at 7%. The new prices will now reflect all items sold in their new dedicated category. If a 3/6/12 month average is used, then every month has been updated with the corresponding commission changes.
We will clear this change with the sellers and, once approved, push the change live on the marketplace. As we’re in the middle of rolling this out and you’re wondering which sites have been changed (and which haven’t) look for any that have had their prices updated after February 27th, 2017.
Some Amazon affiliate site builders will continue with business-as-usual, but others are looking to at least diversify their businesses, if not move away from Amazon entirely. While you can still sell these assets for a very nice exit, it’s probably worth at least revisiting the fact that having all of your earnings on another platform opens you up to risk when/if they decide to make changes.
We’ll dive deeper into how you may want to diversify below.
The good news about selling Amazon affiliate sites is that buyers still consider them an excellent investment opportunity. From a buyer’s standpoint, not much is likely to change. The sites are still very hands off and require little to very slight management on their part to run. If anything, they will be getting a slight “discount” on these Amazon affiliate sites since the sites themselves will still be attracting the same amount of traffic that they can use to split-test new offers once they acquire the sites.
How Affiliates Who Took A Hit Might Recover & Future Proof Their Business
Amazon is often cited (especially by themselves) as the best affiliate program around. When it comes to physical products, they have almost any item you can think of for sale. It is easy to use and people love shopping on Amazon.
That does not necessarily mean they are the best option for every niche, however.
In fact, depending on your niche there might be other affiliate programs that pay you far more than what Amazon is paying even on the old tiered structure they had. Many of these affiliate programs will pay higher rates and will often have much longer cookies. Amazon cookies every visitor that clicks on your affiliate link for 24 hours, meaning anything that person buys within 24 hours will be attributed to your account.
Other affiliate programs can have as long as 90-day cookies, meaning anything that visitor buys from that website within 90 days will be attributed to your account. That is a long time, and it can make a big difference in revenue. You will still want to split test this, but by doing so you might find a big win just by switching over to a different affiliate program.
Even though we know Amazon has major trust with consumers and a well-optimized funnel, the increased percentages and longer cookies other affiliates offer may now be worth exploring for your site.
Authority Sites & Expanding Beyond The Amazon Associates Program
As a niche site builder, you should consider building out a genuine authority site…one that goes beyond the Amazon Associates program as a singular monetization method. Authority sites can net you a much higher ROI, typically have diversified traffic and revenue streams, and thus can protect against changes in any one program better than a niche site that only earns revenue from Amazon Associates.
For people with a genuine following, you may be able to recover lost revenue by reaching out to the actual manufacturers of the products. If you own a technology niche site or unboxing Youtube channel, for instance, you might be able to reach out to manufacturers to sponsor your reviews, or to pay you for banner ad spots on your niche site if the site is ranking #1 for an important buyer keyword for that manufacturer.
This is something you can do on top of still sending that traffic to Amazon through your affiliate link to purchase the product. Again, test out the manufacturer’s affiliate program if they have one, as you might see better results.
Buying Up Property
The last thing to note is that if you are a big affiliate in the Amazon Associates game, you might see a lot of competition drained from the market by this change. Many Amazon affiliates will likely feel burned by Amazon, pack in their bags, and leave the game entirely.
This could leave many once competitive niches with a lot more gaps for you to build and leverage into with your niche sites. While we don’t believe we’ll see a mass exodus from Amazon Associates (Even with the currently grumbling about the changes online), some niches may be more affected by this than others so it may pay to look for gaps in the market.
An Opportunity for Amazon FBA Owners with Cash On Hand
There is another opportunity out there for the savvy Amazon FBA owner, or even e-commerce store owner, as this Amazon update rolls out industry wide. That advantage is the ability to strategically acquire Amazon affiliate sites that are related to your niche. When you do this, you are basically buying traffic at a discount since these Amazon sites will dip in their earnings, and thus value, while still keeping the same amount of traffic.
These strategic buys can lead to new insightful data as well. You will see other products within your niche that the audience is prone to buy, which can help you in deciding to launch your next product. Also, each of these sites can become little satellite sites that can collect emails for your overall brand. This strategy is not at all new, and Jon Haver from Authority Website Income has already written a detailed post about the concept here.
The important thing is finding a site that works for your product specifically. This can be a bit tricky, depending on what you are selling. It is unlikely you are going to find a site that is selling your EXACT product (though it is a nice bonus if they do). On the other hand, you should be looking at sites that are closely related to your niche – if you’re selling running shoes and you stumble upon an Amazon affiliate site selling treadmills, for instance, this could be a good purchase for you as a way to sell more of your shoes. If you sell hardcore health juicers, an Amazon affiliate kitchen website could potentially be alright, but you would likely see far less benefit of buying that site as a strategic acquisition.
You buy these sites for cheaper than what they would had been a month ago, replace the links with links to your physical product, and revamp the sites to become email collecting machines that can be used to launch any new product you create – not to mention bringing back old customers to either your Amazon FBA listings or to the affiliate site for more potential sales and engagement.
The Only Constant is Change
Again, the only constant in the online business world is changing. With every change, comes drawbacks and opportunities. In order to see these, you need to take a step back to look at the big picture. Every year or two there is a major shakeup in the online space, here is a list of just a FEW changes that had entrepreneurs grumbling in the last few years:
- Google Panda / Penguin Updates
- The Google Adwords Slap affected many sites relying on that paid traffic.
- Amazon’s Review Smackdown impacted some FBA businesses, but especially those looking to get their new businesses off the ground.
- Facebook’s organic reach declining dramatically over the years as they force more and more businesses to use their ad platform instead.
These aren’t the only changes that have come about, and Amazon’s newest commission structure change will definitely not be the last change that shakes up the online world.
If you want to survive the next 10-20 years then you need to learn to adapt to the changes. Every setback for someone provides an opportunity for another, and while everyone else is yelling the world is falling apart you will be using first mover’s advantage to further your own business.
Instead of niche sites, maybe build out huge authority sites. Instead of allowing just one platform to control so much of your business like with Amazon’s FBA program, focus on developing a fully branded e-commerce store.
Look for opportunities to diversify both with traffic and revenue streams. Not only will it make your business potentially more valuable, it will also protect it against changes like this in the future.
Of course, once you find something that works for you, scale it as fast as possible before a change comes through that ruins your strategy that ends up changing your business altogether.
At the end of the day, adaptability is the key.
What changes will you make in your business going forward? How has the Amazon Associates change affected your business? Let us know in the comments!