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Affiliate Marketing vs. Referral Marketing: What to Choose?

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 affiliate marketing and referral marketing are very effective customer acquisition strategies for businesses. The similarity between the two 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? And which is the right strategy for your business? Should you use one of them or both? We have answered these questions, and more, in the blog post below.

Let’s dive in.

What is Affiliate Marketing?

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.

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 the 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 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

Say a viewer buys a product using any of the product links mentioned in the description box. The YouTuber will then 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 both businesses as well as 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 they rely on affiliates to come up with the marketing content. So, businesses can promote their products on multiple channels without spending on marketing.

All you will need to do is put in some initial effort to find and vet your affiliates. After that, most of the marketing activities will be taken care of by them.

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 a ton of planning and tracking though. Thankfully there are many affiliate marketing tools available in the market that make your work a lot easier.

What are the Advantages of Affiliate Marketing?

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:

Low Overhead Costs

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.

Wider Reach

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, their followers are likely to buy.

Affiliate marketing is an excellent way to reach a wider audience, without having to spend a bomb 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. You will have a higher sales conversion rate by partnering with an influencer that has an engaged audience that’s similar to yours.

Improved Brand Awareness

Working with bloggers and influencers not only widens your reach, but also improves brand awareness. The more people know and trust your brand, the more likely they are to buy from you.

What is Referral Marketing?

Referral marketing relies mostly on word of mouth to promote products or services to new customers. It’s an effective marketing strategy that encourages loyal customers to directly refer their friends and family to your business.

Referral marketing is powerful because consumers tend to trust other customers rather than the brand itself.

Businesses that run a referral marketing program basically encourage happy customers to become brand advocates.

In a referral program, companies reward their existing customers to promote their brand within their circles. The reward is mostly in the form of cashbacks, discounts, or upgrades.

Here is an example of a referral program from Dropbox where customers are rewarded with extra storage space.

Image via Dropbox

Fiverr also has a great referral program. You can invite other people to sign up by sending the invite link, as shown in the image below.

When your friends sign up using the invite link, Fiverr rewards you with money.

Image via Fiverr

Referral marketing is an excellent way for businesses to earn more loyal and valuable 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 word even more authentic. And when their friends buy from your brand too, it can improve their attachment to 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.

What are the Advantages of Referral Marketing?

Besides being effective and cost-efficient, referral marketing also has other benefits, such as:

Improved Customer Retention

Customers who are happy with your products and services are the ones most likely to refer your brand to others. Did you know that 59% of customers would recommend a brand to others only 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.

Increased Market Reach

By implementing a referral program, you can increase your brand’s reach 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.

Gain High-Value Customers

One of the biggest goals of marketing is to build trust in your brand. Personal recommendations make a huge difference in building trust.

New customers who are referred by someone they know tend to be more trusting. Therefore, referral marketing helps you gain high-value loyal customers.

Affiliate Marketing vs. Referral Marketing: What’s the Difference?

To further understand the difference between a referral program vs. affiliate program, you must consider the following key points.

The Person Who’s Referring New Customers

When it comes to affiliate marketing vs. referral marketing, the person who’s doing the “referring” is entirely different.

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, it is their responsibility to promote 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.

The Relationship with Potential Customers

One of the biggest differences between referral and affiliate programs 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 is often the reason 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

Tracking

In referral and affiliate marketing, “sales” and “efforts” are tracked using a link.

Affiliate programs use an affiliate link embedded with an unique code. Similarly, referral programs also use 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.

Promotion Method

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 to drive sales.

Here is an example of Instagram influencer Mariano Di Vaio promoting Hair Bello on Instagram.

Image via Instagram

Referral 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.

Audience Pool

A key difference between referral marketing vs. affiliate 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.

Referral Program vs. Affiliate Program: Which One Should You Choose for Your Business?

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:

E-commerce

If you have an e-commerce 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 e-commerce affiliate programs is Amazon Associates.

Image via Amazon

Coaching or Consulting Services

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

Local Services

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

Gyms

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

FAQs

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:

  • Choose a niche
  • Pick an affiliate platform
  • Create an affiliate marketing program
  • Decide on a healthy commission to motivate affiliates
  • Find affiliates to promote your products
  • Track sales and pay the affiliates

Q3. What are the three types of affiliate marketing?

A. The three types of affiliate marketing are:

  • Unattached affiliate marketing
  • Involved affiliate marketing
  • Related affiliate marketing

Q4. What are the different types of referrals?

A. The different types of referrals are:

  • Direct referrals
  • Email referrals
  • Incentive-based referrals
  • Social media referrals

Q5. How do I create a referral program for my business?

A. Follow these steps to create a referral program for your business:

  • Set your goals
  • Decide on an incentive to offer your customers
  • Create a landing page for the program
  • Inform your customers about the program

Conclusion

We hope you now have a good idea about how affiliate marketing and referral marketing are similar yet different. 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.

Gaurav Sharma

Gaurav Sharma is the Founder and CEO of Attrock, a results-driven digital marketing company. Grew an agency from 5-figure to 7-figure revenue in just two years | 10X leads | 2.8X conversions | 300K organic monthly traffic | 5K keywords on page 1. He also contributes to top publications like HuffPost, Adweek, Business2Community, TechCrunch, and more.

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