Don't underestimate this step! You should have a plan what you want to achieve with your affiliate program, and how to do it.
Questions you should ask:
Commissions
How much commissions can you afford to provide? Will they be attractive for the potential affiliates compared to your competition?
The commissions differ a lot comparing any industry. For general goods the commissions are from 5% to 20%. For electronic goods, such as software, they can be up to 50%. For e-books it is not unusual to see a commissions of 50-80% of the sale value.
You should check the commissions your competition offers. Your commissions should be comparable to them, or better, otherwise you'll not persuade affiliates to promote your products.
It is usually a good idea to add a performance criteria, so that the general commissions will be for example 20%, and if affiliate delivers 5+ sales per month, he'll get 30% commission.
In Post Affiliate Pro (PAP) it is possible to set up different commission groups and performance rewards, which automatically assign the affiliate to a higher commission group upon matching a predefined criteria.
Recruiting affiliates
How do you want to attract your affiliates to join your affiliate program?
You should promote your affiliate program on your own website, and you can consider submitting your new affiliate program also to affiliate program directories. There are several companies that can do this task for you. Search on Google for "affiliate program directory submission" to find some.
Running the affiliate program
Will you run your affiliate program by yourself?
If you are a small-business merchant, you probably will. PAP tries to automatize your tasks as much as possible, so there's not too much work to do in an affiliate program.
For better results, it is possible to hire an external affiliate manager. Running an affiliate program can be even a fulltime job, if you want to do it seriously. There are things like recruiting new affiliates, finding "superaffiliates", watching and evaluating the program, training the affiliates, and so on. All these things are not necessary, but they can bring better results.
Continue to the next step of setting - 3. Configuring the system