Everyone in the business world, from internet marketers to CEOs understand the importance of marketing. With that said, there are many types of marketing that your company can start using. Considering that, you might be determining between affiliate programs vs referral programs.
When done correctly, both referral marketing and affiliate marketing are great ways to grow your business. In some ways, these two marketing methods are similar. But they’re not identical to each other.
Let’s look at the similarities and differences between referral programs vs affiliate programs. We’ll also look at referral vs affiliate programs and which one is best for your company.
Table of Contents
Similarities Between Referral Programs and Affiliate Programs
In many ways, affiliate and referral programs can seem quite similar to one another. Let’s take a closer look at how referral and affiliate programs are similar to one another.
Rewarding Others for Bringing Customers to Your Business
One of the most striking similarities when comparing referral marketing vs affiliate marketing programs is the end result both of these marketing techniques have for your business.
With a referral program, you’re rewarding people who refer out your company to other people or businesses.
Companies utilizing affiliate programs reward people (affiliates) that bring a company qualified leads that end up making a purchase.
Do the two previous explanations sound similar to each other? It’s because affiliate and referral programs are very similar to one another in this aspect.
They’re Both Marketing Techniques
At the end of the day, it’s always good for a business to keep growing. To help ensure this happens, most companies utilize some types of marketing techniques.
With that in mind, another similarity between affiliate marketing and referral marketing is that they are marketing techniques. The end goal of either of these campaigns is to bring more customers to your business.
Whether you’re a B2B or B2C company, both marketing strategies can be very effective.
Source: BigCommerce
Differences Between Referral Marketing and Affiliate Marketing
Now that we’ve looked at the similarities between these two marketing methods, we need to see how they differ from each other. Let’s look at the differences between affiliate and referral marketing programs.
The Attachment of a Potential Customer
One huge difference between referral and affiliate marketing is how attached your lead is to your business.
With affiliate marketing, it’s rare for the person marketing your business to have much of a relationship with who they’re trying to sell to.
In most cases, someone will encounter an affiliate marketing pitch by visiting a website that uses this type of marketing technique. Unless they’re a frequent reader, the affiliate and their customer start out as strangers for the most part.
Things change when discussing referral marketing. With this type of marketing, the relationship in question is much more personal. More often than not, a referral comes from a friend, family member, or someone else that the person knows. With this type of connection, it’s often much easier for people to trust referrals over affiliate marketing.
This all isn’t to say that affiliate marketing is ineffective. Far from it. One recent study found that 81% of businesses currently use affiliate marketing to generate more sales and receive more leads.
Referral Marketing Offers More Variety With Rewards
With affiliate marketing, there’s typically only one main way to reward affiliates and that’s with money. That’s not necessarily a bad thing. After all, who is going to turn down money as a reward?
When it comes to referral marketing vs affiliate marketing, you have more options with how you reward people. Sure, you can pay people after they make referrals and you gain a new customer (making more sales). With that said, companies also incentivize or encourage referrals by offering free or discounted products and services.
Pros of Referral Marketing Program
Now, let’s take a quick look at why referral marketing can be a great marketing strategy. Here’s more information about the pros of a referral program.
Personal Recommendations
As mentioned earlier, the nature of a referral program means that referrals will be from close friends or family members. When someone you know recommends a product or service, you’re likely to trust it because of the existing relationship you and this person have.
Affiliate marketing relies on less personal connections. Because of that, on average, you’re more likely to receive a successful referral than you would be to make an affiliate sale.
Expanding Your Existing Customer Base
If your business is going to spend money on marketing efforts, you probably don’t want to deal with a lot of risk. Fortunately, you shouldn’t worry about a referral program being ineffective.
In most cases, your existing customers will be providing referrals to other people. With such strong brand advocates leading your referral campaigns, this type of marketing can expand your customer base fast!
Keep Existing Customers Loyal
Imagine that you’re a new customer about to buy something from two different companies. We’ll call these businesses Company A and Company B.
A friend referred you to Company B. You were not referred to company B.
You buy a product from each of these companies and take them home. Neither product works and you have to return them both to each separate store. After you return your items, which business would you be more likely to try again?
If you’re like most people, you’re more likely to give Company A another chance. Since someone you knew staked their reputation on Company A, you’re more likely to brush off a bad experience with this business.
Cons of a Referral Program
Referral programs are great, but they’re not perfect. Let’s learn the other side of this story and take a look at the disadvantages of referral marketing vs affiliate marketing.
Not Easy to Control
Are you the kind of person that has to hold the remote control? If so, you might like giving up a bit of control over your market when you start a referral program.
Yes, your company can include content in its referral campaigns. In fact, it’s encouraged. But the key to have successful referral campaigns comes down to the companies or people talking about your company.
Having people talk about your business to others can be great. But how are they talking about your business? What are they saying? Are they leaving out important information?
These are all questions you might not have always have clear answers to. If you can give up a little control and trust your advocates to deliver the right message, your company could soon start making many successful referrals.
Referrals Could Take a While
Customer engagement plays a crucial part of any referral program. If you don’t have a lot of loyal customers, referral marketing could take a little while to pay off. That doesn’t mean you should necessarily avoid referral programs. Just don’t expect instant results.
You can offset the time it takes for referral programs to gain steam by trying out other forms of marketing while you wait. It’s also worthwhile to consider other word of mouth marketing methods like setting up an affiliate program.
Pros of Affiliate Marketing
Let’s now shift our focus for a second and learn more about the affiliate program. If done well, this type of program can encourage customers to make lots of purchases. Here are a few advantages of setting up an affiliate program.
Paying Only After a Sale
One benefit of affiliate marketing is that it doesn’t rely on much risk. Affiliates understand that they must send sales a company’s way to generate income. Fortunately, both affiliate marketing and referral marketing depend on your business following through after the other party does.
With affiliate marketing, you’re not leaving a lot of risk on the table. Instead, the risk goes to the affiliate marketers who must generate qualified leads that make purchases.
The Possibilities Are Endless
One of the ways affiliate programs benefit your business is that they can lead to a lot of sales. Many affiliates are only getting sharper and more skilled. If you can find the right affiliate advocates, your company could soon enjoy skyrocketing revenues.
Certain companies tried this type of digital marketing on a whim, only to find themselves becoming huge authorities in their chosen industries. Of course, the more affiliate sales you’re making, the more money will be paying out.
So, make sure you set commissions that many affiliates will find appealing that also won’t hurt your company’s bottom line too bad.
Cons of an Affiliate Program
What are the cons of an affiliate program? I’m glad you asked! Oh, you didn’t ask? Well, I’m going to tell you anyway. Here are the drawbacks of an affiliate program.
It’s Gonna Cost You
When your company has a referral program, most of the people you’re targeting will be existing customers. It’s not too difficult to start a referral campaign by giving out discounts and coupons. That won’t work with an affiliate program.
Affiliate programs rely on the people referring out your company (your affiliates) to get paid. Coupons are nice, but your affiliate program rewards need to involve money. If you don’t believe me, take a look around at most affiliate networks.
Most affiliates sign up to promote offers for money.
Finding the Right Commission Rate
Before almost anyone sets up a link for referring marketing and affiliate marketing, they’ll want to know how much they’re getting paid. Considering that, your company will need a commission rate or structure in place.
Since these are basically third-party brand advocates, your business can’t rely on loyalty. If your commission rates aren’t what they feel is worth their time and effort, most high-traffic affiliates won’t run your offers.
If your cash compensation is too high, you’ll have plenty of affiliates. The (bigger) problem is that your company isn’t going to be making much profit per sale!
Tips for a Successful Referral Program
You know the basics of referral programs. Now, it’s time to learn a few bonus to set up a successful referral program.
Look for Great Candidates Now
Some companies assume they’ll need to set up referral and affiliate marketing programs before they find candidates. But that’s not always the case. Your company could have a few or many loyal customers who would make candidates for your referral program.
You don’t have to wait for these people to start using your referral links. Instead, be proactive and reach out to these people first. If these people or companies are already fans of your company, joining your referral program is a logical next step.
As companies set up referral programs, they typically look for:
- Current customers: People who buy products or services from your company are ideal people to be in your referral program.
- Enthusiastic employees: Referrals don’t only have to come from customers. Your business might also have eager employees who could help organically increase revenue.
- Followers on social media platforms: Besides established or new customers, you might also find lots of candidates from social media.
Offer Enticing Rewards
Referral marketing and affiliate marketing work best when customers want the rewards your business offers. Without good referral rewards, most people aren’t going to take the time to enter an email address (let alone tell other people to buy stuff from you).
So, make sure that you’re offering free product, discounts, or some combination of offers that will lead to more referred customers.
Make It Personal
Referral marketing is ALL about relationships. If you want your current customers to help you create new customers, you need a strong connection to the former audience.
Yes, you can do this with excellent rewards. But it’s also just as important to let your referrers know they’re an important part of your sales process and business.
When a company creates strong customer relationships, they often earn referrals for life.
How to Run an Amazing Affiliate Program
Now that you know how affiliate programs work, check out these tips to be the program every affiliate wants to be a part of.
Offer a Tiered Commission System
It’s important to remember that, if you choose affiliate marketing, your affiliates will be doing a lot of pre-selling before anyone gets to your website. To help ensure that your people called affiliates send you many potential customers, it’s good to consider offering a tiered commission system.
What is this type of system? It rewards affiliates based on how many sales they make. If a group of affiliates are bringing you more happy customers than others, consider increasing the commission rate for an experienced content writer.
Who Says Customers Only Get Loyalty Points?
Another way to make sure that your affiliate link gets click is by offering loyalty rewards to affiliates. Many affiliate programs and referral programs use these kinds of reward systems. When you nurture customer relationships and the relationships between your business and its affiliates, you’ll gain your company a lot of big wins.
Host Competitions
Many large affiliate companies host contests for its customers. These contests typically offer a prize or prizes to affiliates who make the most sales. With the right prizes, your affiliates might work extra hard to bring more customers your way.
Considering testing out a contest with your company’s current affiliate partners. Chances are, you should notice an increased stream of new customer revenue from these contests.
Acknowledge and Reward Top Sellers
When an affiliate promotes products, they typically spend lots of time and even some money to become a top-seller. As these people or companies continue pulling off their word-of-mouth marketing, it’s a good idea to make sure they’re acknowledged for their hard work.
You can shout out an affiliate in an email meant only for your affiliates. How you choose to acknowledge them is up to you. But this simple act can do a lot of good for your company’s affiliate program.
Examples of Affiliate Programs and Referral Programs Done Well
As we start to wrap up this look at comparing a referral program vs an affiliate program, I also thought it’d be helpful to show you a few examples. Here’s a look at a few companies that know how to create satisfied customers and happy affiliates or referrers.
Amazon Associates (affiliate)
If you want to learn how to create an affiliate program, it’s helpful to see how one of the world’s largest retailers does things. Admittedly, Amazon’s rates for affiliates could be way better like it used to be.
However, getting to use an affiliate link from Amazon builds a lot of trust in customers’ minds. Plus, I’ve personally never experienced a problem with getting payments through Amazon’s program (not always the case for shady affiliate programs).
Casper (referral)
Casper is a mattress and bedding company that knows how to create an enticing referral reward. When people successfully share Casper’s referral links, they get a $75 Amazon gift card and 25% off a Casper mattress.
As you fine-tune your referral program, think about how referrers can earn rewards enticing enough to get them sending new users your way.
Referral Programs Vs Affiliate Programs: Which is Best for My Business?
After learning how these programs are similar and different from each other, it’s time to think about which one is best for your company.
If your company is after quantity of leads over quality, it might be best to choose affiliate marketing.
Companies preferring quality over quantity, go with referral marketing.
For example, the close connections that come from referrals are usually easier for companies depending on local business to pull off. Larger companies who are after e-commerce traffic from throughout the nation or world can get better results with affiliate marketing.
Of course, the best option is to use both referral marketing and affiliate marketing together. Both of these marketing techniques are incredibly effective. If done well, it’s hard to go wrong with implementing either of these marketing programs into your business.
For more marketing-related breakdowns, check out my article where I compare content marketing vs inbound and other types of marketing.
Alex Eagleton is a copywriter and digital marketer passionate about helping companies connect with customers. Throughout the past decade, he’s worked with companies including Referral Rock, Connecteam, and Ramsey Solutions. He’s a versatile writer who understands how to align with companies, truly matching their voices and tones.
When he’s not writing, he enjoys spending time with his dogs, reading, and playing guitar.
You can reach him by emailing alex@contentmarketinglife.com.