Referral Program vs Affiliate Program

Published by Al Rose

Last Updated on April 1, 2021 by Today Testing Team

Have you always wondered what is the meaning of a referral program? Is it the same as an affiliate program? And so, what does being an affiliate mean?

Well, to give you an idea, referral and affiliate programs are completely different and most times, have nothing to do with each other!

So, a new twist to your understanding?!

Don’t worry, we have you covered. In this article, we will talk about referral and affiliate programs, what they are, how they work, and their differences. We will also help you decide between the two. 

What is Referral Marketing?

Referral marketing is essentially a word-of-mouth recommendation of a product/service that a person makes to his/her contacts, based on personal experience. 

Referral programs reward the referrer and the person being referred. A good example of such a program is Uber, where the referrer and the referred get discounts, and sometimes even a free ride as an incentive for being a part of the referral program. 

This is why more than 78% of B2B marketers today believe that this channel is a cost-effective marketing strategy. 

What is Affiliate Marketing?

Affiliate marketing, on the other hand, is a marketing strategy where a person markets your products and services. The key difference is that the affiliate marketer doesn’t have to be a customer and can be online marketers, influencers, bloggers, etc, who promote your product to earn a commission. These promoters are called affiliates.

Also, all affiliates have a unique link or banner that makes it easy to trace back a sale to the right person. 

A good example is the Groovefunnels affiliate program. They are a comprehensive digital marketing platform and when people sign up through their unique links, the affiliate gets a large affiliate commission.

What is the Difference Between Affiliate and Referral Marketing?

So, both referral and affiliate marketing seem familiar, right? Yes and no.

At the heart of both, you refer someone to a product/service and get paid for your efforts. But that’s where the similarity ends. 

Below are some areas by which the two kinds of marketing differ. 

Reward Structure (How They Are Paid)

A key difference between the two marketing strategies is the way it’s rewarded.

In a referral program, you typically don’t earn cash. Rather, you get more incentives to use a product.

For example, when you refer a friend on Uber and the friend signs up, you get a free ride and not cash. So, the more friends you refer, the more free rides you enjoy, and that’s your incentive.

In affiliate marketing, you always earn commission in the form of cash and this money is the incentive to promote a product to more people. 

Relationship With Customer

In referral marketing, you know the customer well and are often a friend or relative. So, there’s a trust factor involved here. When you tell a friend that you like a product, he/she trusts your judgment and buys the product.

In affiliate marketing, the affiliate and the customer can be perfect strangers. Typically, the customer searches for a product, finds the affiliate’s links, clicks on it, buys the product, and the affiliate earns a commission. 

Affiliate Is Usually Not A Customer

In a referral program, you’re a customer who uses the company’s product or service and refers it to others just because you love the product and also possibly because you get a discount or other incentives when you use that product again. 

Affiliate marketers don’t have to be customers at all. Rather, they can be someone who has a large following, understands the nuances of digital marketing, and wants to use them well to earn some money. 

Conversion Rate Expectations

Conversion rates tend to be high in referral marketing because of the personal relationship between the marketer and customers. Say, someone, you know well recommends a product, the chances for you to try that product are high. 

Affiliates have to put in more effort to promote because they reach out to strangers across geographies. So, conversion rate expectations tend to be higher in affiliate marketing. 

How They Promote

Referral marketers use word-of-mouth and social media to promote products, but this also restricts them to just the people on their contacts list.

Affiliate marketers, on the other hand, have a wider audience pool and can reach out to people worldwide through good content, search engine ads, social media, and other marketing channels.

Now that you have a good idea of the differences between the two marketing strategies, which should you pick?

What Method Is Best For Your Business?

Though both marketing strategies are lucrative in their own ways, let’s see which of the two work in specific situations. 

Affiliate Program

Affiliate programs are a good choice when,

  • Your company doesn’t have an established customer base
  • You feel comfortable with a hands-off third-party marketing approach
  • You’re looking to leverage many marketing channels
  • You’re selling B2B products that are higher-priced and have no dedicated salespersons. 

Referral Program

Referral programs work well when you,

  • Have a happy audience and a well-received product
  • Want to minimize chances of spammy promotion
  • Can manage another marketing channel
  • Offer services that are local to a place.

Overall, both programs are lucrative, so the nature of the product, the length of your contacts list, your usage of the product, reward expectations, digital marketing experience, and your personal preferences should guide you to choose the right marketing channel. 

Do you have any questions? Please reach out through the comments section.