Affiliate marketing vs referral marketing—have you also wondered what the difference is between the two?
Well, you’ve come to the right spot.
Both referral and affiliate programs are very effective customer acquisition strategies for businesses. The similarity is that they both rely on incentives to drive revenue.
But that’s where the similarities end.
The techniques, underlying strategy, mode of promotion, and target audience are vastly different.
So, how are they different when comparing affiliate marketing vs referral marketing? And which is the right strategy for your business? Should you use one of them or both to boost customer revenue?
In this post, we’ll discuss the key differences and answer all the critical questions to help you make wise choices.
Let’s dive in.
Affiliate marketing is a marketing technique in which a company compensates third-party publishers for generating leads or conversions for the company’s products or services.
These third-party publishers are called affiliates. Affiliate marketing relies on affiliates or publishers to do the marketing for them.
In affiliate programs, companies pay affiliate partners a commission fee that incentivizes them to promote the products or services of the company. And this fee is based on performance, usually per lead or sale.
You may have seen many influencers sharing product links on their social media posts or videos. It is common to see terms such as “affiliate link” or “sponsored post” on their social media posts.
If a buyer uses the unique affiliate link to buy a product or service, the affiliate receives a commission for the same.
Let’s explain with an example.
Here is a YouTube video on how to start a blog.
Image via YouTube
If you scroll down to the description section, you will see several product links. At the end is a disclaimer about affiliate links.
Image via YouTube
If a viewer buys a product using any product links in the description box, the YouTuber will earn a commission from that sale.
Sometimes, instead of a link, influencers may share a unique discount code, as in the example below.
Image via YouTube
Affiliate marketing is a win-win for businesses and affiliates.
That’s because these programs lead to a growth in revenue for both the brand and the affiliates. Brands also have another advantage here, as affiliate programs rely on affiliates to create their marketing efforts and content. So, businesses can promote their products on multiple channels without spending on marketing.
You need only invest time and effort in finding and vetting your affiliates. Good affiliate software streamlines the entire process, from signing up the affiliates to paying their compensation safely.
For affiliates, it is a great way to earn some additional passive income every time someone uses their affiliate links or codes to buy a product.
Creating an affiliate marketing program requires extensive planning and tracking, though. Thankfully, many affiliate marketing tools are available that make this work much easier.
The biggest benefit of an affiliate program is that it’s entirely performance-based. You will pay an affiliate only when the desired action has been achieved, such as a sale or increased traffic.
The other advantages of an affiliate program are:
Performance is more important than clicks in an affiliate program. You will only pay commissions for the sales generated, regardless of the number of clicks on the affiliate link.
You have the option of working with a large pool of affiliates, which can significantly widen your reach at no extra cost. The influencers you partner with have developed their own dedicated following over the years. Their followers trust them, and when they recommend a product, they will likely buy it.
Affiliate marketing is an excellent way to reach a wider audience without spending a fortune on marketing activities.
For instance, see how this affiliate post has garnered so many likes.
Image via Instagram
Pro Tip: Be selective of the affiliates you partner with. Partnering with an influencer with an engaged audience similar to yours will increase your sales conversion rate.
Investing in affiliate programs is a great way to attract more relevant traffic. New customers who click on the affiliate links will be aware of your products and genuinely interested in moving to the next level in your sales funnel.
Compared to ads and other marketing efforts, referral programs and affiliate marketing programs focus on a specific target audience and attract more qualified leads compared to ads and other marketing efforts.
As a brand, you have better control over an affiliate program and enjoy greater flexibility. You can restrict the compensation if you plan to cut down on marketing costs. Similarly, you can offer a greater margin to your affiliates based on the response.
You also can design different reward structures and slabs based on your offerings. Compensation can also be decided based on the quality of leads an affiliate generates for you.
Referral marketing relies mostly on word-of-mouth marketing to promote products or services to new customers. It’s an effective digital marketing strategy that encourages loyal customers to directly refer their friends and family to your business by sharing referral links. In turn, they receive attractive rewards.
A referral program works effectively because consumers tend to trust other customers rather than the brand itself.
Businesses that run a referral marketing program encourage existing customer base to become brand advocates.
Understanding referral marketing dynamics and fixing the right rewards for both referrers and referred customers is the key to designing successful referral programs.
For referral programs, companies reward their current customers to promote their brand within their circles. The reward is mostly in the form of store credit, cashbacks, discounts, free products, or upgrades.
Here is an example of a referral program from Dropbox where customers earn rewards in the form of extra storage space.
Image via Dropbox
Fiverr also has a great referral program. You can invite other people to sign up by sending the unique referral link, as shown in the image below.
For all the successful referrals you generate using the invite link, Fiverr rewards you with money.
Image via Fiverr
Referral marketing campaigns are an excellent way for businesses to earn more loyal and happy customers. That’s because these people are referred by your existing customers who already have a favorable view of your brand.
Unlike affiliates, these are your customers, and that makes their words even more authentic. When their friends buy from you, it can also increase their attachment and loyaltyto your brand. This way, referral marketing improves customer retention.
Thankfully, creating a powerful referral marketing program is not very difficult. There are many referral marketing software available in the market that can help you start and manage it well.
Besides being effective and cost-efficient, referral marketing programs also have other benefits, such as:
Customers who are happy with your products and services are the ones most likely to refer your brand to others. Did you know 83% of customers will purchase your products if you offer good customer care? Similarly, customers would recommend a brand to others because of its great customer service.
Customers tend to trust others more than the brand itself. Referred customers are more likely to buy than others. Therefore, having a referral program is an excellent way to gain new customers and boost customer retention.
Implementing a referral program can increase your brand’s awareness by leveraging your existing customers as brand advocates.
Pro Tip: Use a wide range of referral rewards, such as discounts, free products, store credits, and more, to encourage your existing customers to refer more people.
One of marketing's biggest goals is to build trust in a brand. Personal recommendations can make a huge difference in this regard.
New customers who are referred by someone they know tend to be more trusting. Therefore, referral marketing helps you gain high-value loyal customers.
The latter can help you build a larger loyal customer base when comparing affiliate marketing vs referral marketing. Referral programs work within the known community of friends and connections. As they enter your sales cycle with a positive image of your brand, they can organically increase revenue.
What’s more, they would refer friends to try your products and eventually convert into brand ambassadors.
To further understand the difference between affiliate marketing vs referral marketing, you must consider the following key points.
The key difference between affiliate marketing vs referral marketing lies in the promoter—the person doing the “referring.”
In a referral program, the “referrer” is an existing customer who has already tried your products or services. They like your products, which is why they want to tell others about your brand.
In an affiliate program, you rely on influencers, bloggers, and publishers who have the interest and skills to generate revenue via affiliate marketing. When an affiliate signs up for an affiliate program, they are responsible for promoting the affiliate link on their own channels. They’re mainly doing it for financial gain.
Some affiliates may also create a promotional campaign to get more people to visit your website or buy your products.
One of the biggest differences between affiliate marketing vs referral marketing is the relationship between the “referrer” and the person who’s being referred.
In referral marketing, there’s already an established relationship between the “referrer” and the new customer. This relationship and trust are often the reasons for a successful referral.
In affiliate marketing, affiliates do not have a personal relationship with their audience. Their goal is to try and get as many people to buy using their affiliate link to generate passive income.
The image below explains this point.
Image via Referral Candy
Compensation is a major differentiating factor when discussing affiliate marketing vs referral marketing.
Businesses usually follow a structured plan to pay their affiliates. They earn a fixed percentage of income for every new customer they bring. There is no limit to how much they can earn every month.
Referral programs have multiple reward structures. The most successful plan is one where brands reward current and new customers. Brands often prefer offering rewards in the form of discounts, store credits, or free gifts, as these incentives are likely to drive more sales.
In affiliate and referral programs, “sales” and “efforts” are tracked using a link.
Affiliate programs use an affiliate link embedded with a unique code. Referral marketing works in a similar way by using a referral link embedded with a unique code.
An affiliate link and a referral link work in a similar fashion. It indicates how many times the embedded code has been used, and how many sales or subscriptions it has resulted in.
Affiliate and referral marketing have their own differences when it comes to the methods used to get new customers.
In affiliate programs, an affiliate may use a variety of channels to promote your products or services.
Some may promote the affiliate link on their YouTube channel, blog, or website. Others may prefer to create an email blast, social media post, or use other social media content ideas to promote your brand and drive sales from different social media platforms.
Here is an example of Instagram influencer Mariano Di Vaio promoting Hair Bello on Instagram.
Image via Instagram
Referral marketing or word-of-mouth marketing is different, though. It uses a slow but more personalized approach to promote your brand.
In most cases, there‘s already an established relationship between the existing customers and the referrals. That’s why communication mostly happens through direct channels.
The personalized nature of such communication usually results in higher chances of referrals converting into customers.
A key difference between affiliate marketing vs referral marketing is the number of contacts an individual can reach.
Referral programs rely on the existing relationships between a customer and their contacts. Therefore, there’s usually a limit to the number of people a person can reach.
Regardless of the limited reach, the likelihood of conversion is a lot higher. That’s because the existing relationship adds trust and personalization to the referral.
Affiliate marketing can have a much wider reach than referral campaigns. Affiliate partners with a large following can help you reach a massive audience base. However, trust is an important factor here and it could influence the conversion rate. That said, if the affiliates perform well, they can drive loads of conversions.
Now, affiliate marketing is a type of performance marketing. Affiliate partners only get paid for the number of sales they generate. So, they employ more marketing tactics like content marketing and use social media marketing tools to widen their reach.
Now that you know the basics of affiliate marketing vs referral marketing, you are ready to pick the right one for your business.
Both affiliate and referral marketing are great tools in your marketing arsenal. So, you can choose one or both, depending on the structure and goals of your business.
Here are some examples:
If you have an ecommerce website or an online store, you should definitely launch a referral program to drive sales.
You may consider an affiliate program only if you sell products with high margins.
One of the most popular ecommerce affiliate programs is Amazon Associates.
Image via Amazon
You should invest in affiliate programs provided you track the sales process diligently.
If you cater to a niche market, you may not be able to get as many referrals. So, think carefully before implementing a referral program.
Coursera, the online learning platform, also runs its own affiliate program. You can create a similar one of your own.
Image via Coursera
Do you offer services with high prices or monthly payments? If you do, you should definitely have a referral program. This can get customers to keep sending new customers your way. It’ll also help you win their loyalty.
An affiliate program may be difficult to implement, especially if you have an offline business, or you have a longer sales cycle.
Here is an example of the referral program run by Dave’s Cooling & Heating.
Image via Dave’s Cooling & Heating
A referral program is a must-have. A referral reward could be a great way to build loyalty among your existing customers and get new customers at the same time.
An affiliate program is not recommended because you may not be able to target local leads with online affiliate links.
Here is an example of a referral program run by PA Fitness.
Image via PA Fitness
Q1. How do affiliate marketers get paid?
A. In affiliate marketing, affiliates get paid a commission for bringing new customers to your brand. A commission is paid for every sale that they generate.
Q2. How do I start affiliate marketing as a beginner?
A. Here are some tips to start affiliate marketing as a beginner:
Q3. What are the three types of affiliate marketing?
A. The three types of affiliate marketing are:
Q4. What are the different types of referrals?
A. The different types of referrals are:
Q5. How do I create a referral program for my business?
A. Follow these steps to create a referral program for your business:
We hope you now have a good idea about how affiliate marketing vs referral marketing fare against each other. Both are excellent marketing strategies for new customer acquisition.
Wherever possible, you should use both techniques in your online marketing strategy. Using a mix of the two can help you get a steady stream of customers and reduce your customer acquisition costs.
A well-crafted program can also help you drive customer loyalty, increase brand awareness, and create more satisfied customers.
Do you have more questions regarding referral marketing vs affiliate marketing? Please let us know in the comments below.
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