Not the commission rate. The fees.
A 10% commission on a $50 order is $5. Run that through PayPal and you'll lose $0.45 in transaction fees. That's 9% of the payout gone before your affiliate even sees the money. Scale to 200 affiliate payouts a month and you're bleeding over $1,000 a year in processing fees alone -- on a channel that's supposed to be performance-based.
The payout method you choose shapes your margins, your affiliates' experience, and how much manual work your team does every month. Most brands default to PayPal because it's familiar. That's not a strategy. That's inertia.
Here's how each payout method actually works, what it costs, and where automation makes the difference.
PayPal is the default for a reason: nearly every affiliate already has an account. Setup is fast. Payouts are near-instant. For small programs with a handful of domestic affiliates, it works fine.
The problems start at scale.
PayPal works for getting started. It stops working when your program grows past 50 affiliates or expands internationally.
Bank transfers cost less per transaction -- ACH payments in the US typically run $0.20-$1.50 each regardless of amount. For a $500 payout, that's a fraction of what PayPal charges.
Direct deposits make sense for high-value affiliates. For a program with 200 micro-affiliates earning $20/month each, the admin overhead isn't worth it.
Store credit keeps money in your ecosystem. The affiliate \"earns\" a balance they can spend in your store. Gross margin on that payout is higher since you're giving product at cost, not cash.
Store credit works as a referral reward for customers. Don't confuse it with an affiliate payout strategy.
Gift cards -- either your own or third-party (Amazon, Visa prepaid) -- sit somewhere between store credit and cash. They're flexible, easy to distribute digitally, and don't require banking details.
Gift cards work well for contest prizes, bonuses, and short-term campaigns. For ongoing affiliate compensation, they create tracking headaches and tax confusion.
The commission rate you advertise isn't the cost you actually pay. Here's where the money leaks.
PayPal percentage fees. On 100 monthly payouts averaging $75 each, you'll lose roughly $250/month -- over $3,000/year -- just in processing. That's before international fees.
Currency conversion. PayPal charges 3-4% on currency conversion. Your bank might charge 1-2%. Either way, if you're paying affiliates in euros, pounds, or yen, you're losing money every time. Some brands eat this cost. Others pass it to affiliates, who then complain. Neither option is great.
Minimum payout thresholds (or lack of them). Without a minimum, you're processing $3 payouts with $0.30+ in fees -- a 10% overhead. Set minimums too high and affiliates get frustrated waiting. $25-50 is the sweet spot for most programs.
Failed payment fees. Bounced ACH transfers, invalid PayPal addresses, expired accounts. Every failed payment costs you time to investigate and often a retry fee.
Overpayment on returns. An affiliate earns commission on a $200 sale. The customer returns the product two weeks later. If you already paid the commission, you're out that money unless you have a clawback policy and the software to enforce it.
Affiliate payouts are taxable income. If you're based in the US, the IRS requires a 1099-NEC for any affiliate you pay $600 or more in a calendar year. That means collecting W-9 forms (or W-8BEN for international affiliates) before the first payout, not after.
Here's what trips up most brands:
None of this is legal advice. But ignoring it creates expensive problems at tax time. Get the forms upfront and use software that tracks cumulative payouts per affiliate.
Manual affiliate payouts work for three months. Then you have 40 affiliates, some with pending returns, some who haven't hit their minimum threshold, two with outdated PayPal addresses, and one in Germany asking why their payout was 4% less than expected.
This is when things break.
Set a fixed payout cycle -- monthly or biweekly -- and let it run automatically. Affiliates know when to expect payment. Your finance team isn't manually reviewing every transaction. Consistency builds trust with your affiliates, and trust keeps your best performers from switching to a competitor's program.
Automate the hold. If an affiliate hasn't earned $25 yet, their balance rolls over. No manual tracking. No awkward conversations. The system just pays them when they cross the line.
This is the one most brands skip -- and then regret. If a customer returns a product within your return window, the affiliate commission should be reversed automatically. Without this, you're paying for revenue you didn't keep. Good affiliate software holds commissions through a \"pending\" period (typically 30-60 days) before releasing payment.
Require a W-9 or W-8BEN during affiliate onboarding, before commissions accrue. Don't let affiliates start earning without their tax information on file. Some platforms handle this natively. If yours doesn't, you'll be chasing paperwork in December.
If you have international affiliates, automate the currency conversion at the platform level instead of handling it per payment. Locked exchange rates on payout day prevent disputes.
Most affiliate platforms route payouts through PayPal by default, passing the fees to you or your affiliates. ReferralCandy takes a different approach: direct payouts to affiliates without requiring PayPal.
That means:
The payout method isn't the exciting part of an affiliate program. But it's the part that determines whether your affiliates stick around or quietly stop promoting you. Get this right and you remove the #1 complaint affiliates have about working with ecommerce brands.
There's no single best payout method. But there is a best method for your situation.
Whatever you choose, automate it. The moment you're manually calculating and sending payouts is the moment your program stops scaling.
Yes. Some affiliate apps -- including ReferralCandy -- offer direct payouts that bypass PayPal entirely. This eliminates per-transaction percentage fees and removes the requirement for affiliates to maintain a PayPal account.
Most ecommerce affiliate programs offer 5-20% per sale, depending on margins. Digital products and subscriptions tend toward the higher end. Physical products with thin margins usually land at 5-10%. The payout method doesn't change the rate -- but fees on that payout affect what affiliates actually receive.
If you're a US-based business and you pay an affiliate $600 or more in a calendar year, the IRS requires you to file a 1099-NEC. Collect a W-9 form from US affiliates (or W-8BEN from international affiliates) during onboarding, not at year-end.
Use a pending period -- typically 30-60 days -- before releasing commissions. If a customer returns the product during that window, the commission is automatically reversed. This is called a clawback, and most serious affiliate platforms support it natively.
$25-50 works for most programs. Lower than $25 and you're processing tiny transactions with disproportionate fees. Higher than $50 and newer affiliates get frustrated waiting months for their first payment. Match the threshold to your average commission per sale.
Yes. The IRS treats gift cards -- whether your own store cards, Amazon, or Visa prepaid -- as taxable compensation. A $500 gift card counts as $500 of income for the affiliate. Track cumulative gift card payouts per affiliate the same way you'd track cash payments for 1099 purposes.
Raúl Galera is the Growth Lead at ReferralCandy, where they’ve helped 30,000+ eCommerce brands drive sales through referrals and word-of-mouth marketing. Over the past 8+ years, Raúl has worked hands-on with DTC merchants of all sizes (from scrappy Shopify startups to household names) helping them turn happy customers into revenue-driving advocates. Raúl’s been featured on dozens of top eCommerce podcasts, contributed to leading industry publications, and regularly speaks about customer acquisition, retention, and brand growth at industry events.
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